PSC approves basic rates to protect small power users

Regulated prices continue after caps expire in 2004

April 30, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

The Maryland Public Service Commission approved a settlement yesterday designed to protect the state's smallest consumers of electricity from price spikes and erratic supply when rate caps begin disappearing next year.

Under the settlement, local utilities such as Baltimore Gas and Electric Co., Allegheny Power and Potomac Electric Power Co. will continue to provide electricity at regulated prices to smaller customers who do not choose an alternative energy supplier for up to four years after the rate caps expire.

While the accord provides a necessary safety net for residential customers and small businesses, regulators also hope that it will help spur competition in the electric market as deregulation progresses in the state.

Only 3.9 percent of the state's residential, commercial and industrial customers have switched to an alternative supplier as of March 28, according to the PSC. Without clear evidence that competitors will enter the market, regulators said, protections were needed to prevent residential customers from becoming squeezed after utilities' obligation to provide so-called "standard offer service" (SOS) ends July 1.

"The commission approved the settlement because it is consistent with the Electric Act and will provide stable, reliable electric supply," said PSC Chairman Catherine I. Riley, referring to the Electric Choice and Competition Act of 1999.

"The law charged the commission with fostering the development of competitive markets. Since this has not yet occurred for a variety of reasons, extending SOS services is necessary to provide assurances to Maryland businesses and residential customers."

With the start of deregulation in the summer of 2000, Maryland customers could switch to an alternate power supplier. In addition, rates charged by the state's utilities were lowered and frozen for a specified period. Those caps begin expiring next year.

To prepare for that day, regulators began negotiating the SOS agreement, which took nearly a year of talks. The agreement was signed in November by 20 parties representing utilities, power suppliers, regulators and consumer groups.

In Phase I of a two-part process outlined in the agreement, utilities will be permitted to charge their customers a market rate based on wholesale prices, fluctuating seasonal costs and administrative expenses. Utilities also would be allowed to lock into one- to three-year power contracts for their energy supply.

The agreement essentially extends a certain degree of state regulation over the electric industry, since rates would have to be approved by the PSC.

Under the settlement, residential SOS regulated rates will continue in effect until 2010 in BGE's service territory; until 2012 in Allegheny's territory, and until 2008 in the territories of Delmarva Power and Light Co. and Pepco. Utilities have also agreed to extend SOS to small commercial customers for four years, medium-sized commercial customers for two years and large commercial customers for one year.

Phase II negotiations, which began late last year, will focus on technical details in the procurement process and developing a model for power contracts.

"The order strikes a balance between retail choice and regulatory protections for residential customers," said People's Counsel Michael J. Travieso, the consumers' advocate in utility issues who also signed the settlement.

"Retail choice for residential customers has not developed in the way the legislature contemplated in 1999," he added. "This order protects the public interest during an extended period in a way which will permit further exploration of the potential for retail competition in the residential market, while also assuring that reliable service at reasonable market prices."

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