Electric market competition is big step closer

Newly crafted settlement signed off on by PSC

Supply and price protections, too

Bidding scheduled for February, March

October 04, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The Maryland Public Service Commission has signed off on a settlement that is expected to clear the way for competition in the state's electric market and protect consumers from price spikes and erratic supply when rate caps begin to be lifted next year.

The settlement, completed this week, was negotiated in an effort to foster the competition that was expected but never developed after electric deregulation took effect in 2000. At the same time, the PSC wanted to guarantee that consumers' power supply would not be interrupted after utilities' obligation to supply service - so-called standard offer service - expired last July.

"We hope that by having a fair ... process for procuring standard offer service that we're going to have a number of suppliers who are going to enter Maryland's market to participate," said Kenneth D. Schisler, chairman of the PSC.

"Ultimately, the objective will be to achieve a competitive retail marketplace," Schisler said.

Under the settlement's first phase, negotiated in April, Baltimore Gas and Electric Co., Allegheny Power, Pepco and Conectiv Power Delivery 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 rate caps expire.

Rate caps, imposed as part of deregulation, will expire starting next July for Pepco and Conectiv customers. The caps expire in 2006 for BGE customers and in 2008 for Allegheny customers.

Because a competitive electric market has yet to take hold in Maryland, utilities have been required by the PSC to continue providing standard offer service to consumers who do not choose an alternative for at least four years from the time the rate caps expire.

Under the just-completed second phase of the settlement, utilities will be required to seek bids from wholesale electricity suppliers to secure enough electricity to meet their obligations to consumers.

Bidding is scheduled to start in February and go through March, with supply services in the form of one-, two- or three-year contracts to take effect as early as June 1.

The agreement was signed by the Maryland Office of People's Counsel, representing residential customers, representatives of commercial customers, all four of the state's investor-owned utilities, the Maryland Energy Administration and wholesale energy suppliers.

"It will be a true market-based price passed on to rate payers," Schisler said.

Sandra M. Guthorn, the acting People's Counsel, said residential customers will be notified about two months before their utility's rate caps expire.

"That's when people will need to start shopping more, and they will have two months to decide ... whether to switch to an alternative supplier," Guthorn said.

"We're hoping for more retail competition from this for residential customers, so they'll be able to shop and get the best price they can for electric supply."

In theory, once the rate caps expire, rates will likely go up, because of rising wholesale prices. But higher prices will make it more enticing to competitors to enter the market. Increased competition will theoretically lead to lower prices for consumers, experts say.

BGE's residential customers won't see the effects of the settlement until 2006, when rate caps are set to disappear.

After that, "every year BGE will go out for bids on the wholesale market, then resell that power at fixed prices," said Robert L. Gould, a spokesman for BGE's parent company, Constellation Energy Group.

"We're pleased with the settlement that the commission approved. We see it in the public interest."

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