BGE warns of sharp rise in rates

Increases may come after caps are lifted beginning in June

October 08, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Price caps imposed as part of deregulation have kept electric rates artificially low in Maryland, and consumers will likely face increases once the caps expire, state lawmakers who oversee the state's public utilities were told yesterday.

The caps, imposed to buffer the transition to a deregulated market, will begin expiring next year.

"There will be upward pressure on current rate levels," L. Wayne Harbaugh, manager of pricing and regulatory services for Baltimore Gas and Electric Co., told members of the Senate Finance Committee and the House Economic Matters Committee at a day-long informational session on deregulation with state and utility officials.

The session for lawmakers - many of whom are new to deregulation issues - was originally planned as on-site field visits to BGE offices downtown, with stops at the Maryland Public Service Commission and the Office of People's Counsel, which represents residential consumers.

But it was moved to BGE's operations center in Baltimore County because the utility's offices in the Candler Building were flooded by Tropical Storm Isabel.

Consumers should expect rate increases because both fuel prices and wholesale electricity prices have risen sharply since rates were cut and frozen when deregulation began in 2000, Harbaugh said.

But "over the long-run, competition is going to give us the lowest price possible in the marketplace," Harbaugh said.

Rate caps will end for residential customers in Pepco's service area at the end of June 2004. They will be followed by BGE's residential customers in 2006 and Allegheny Power's customers in Western Maryland in 2008.

Last week the Maryland Public Service Commission signed off on an agreement that will preserve rate regulation for "standard-offer service" that utilities will be required to provide customers who do not choose an alternate supplier for up to four years after rate caps expire.

The state's four utilities will go through a competitive bid process next year to procure power for those customers, and rates charged consumers will reflect market conditions, PSC Chairman Kenneth D. Schisler told the lawmakers.

"SOS is intended to be a market-based price," he said. But last week's agreement should protect consumers from sharp price spikes and guarantee a reliable supply until competitors enter the market, he said.

Consumers, however, are not likely to understand - or care about - the complexities of the deregulation process, said Thomas M. Middleton, Senate Finance Committee chairman. "If caps come off, we could have angry constituents. What are you doing to educate the public?" he asked.

Mayo A. Shattuck III, chief executive of Constellation Energy Group Inc., BGE's parent, said the utility was working to pare costs as much as possible through improvements in technology and the electric grid. As a result, he said, rate increases are not likely to be as "dramatic as you might expect."

The early stages of deregulation are showing competitive force, he said, but extending that to the residential arena is a challenge.

"If there's not enough head room for a competitor to come in, they won't be able to do that," he said.

Del. Dereck E. Davis, chairman of the House Economic Matters Committee, questioned whether requiring the state's utilities to provide "standard-offer service" could actually hinder the development of a competitive market.

"It's in the best interest to stay in the providers of last resort, because it's so financially favorable," he said. `"If we keep setting up market conditions under SOS, no one will every change."

Continuing standard-offer service should not be an impediment to competition "if we do our job right," said Schisler, the PSC chairman.

It is intended to be no-frills service, a somewhat stable service, but not to compete with the electricity suppliers that are expected to enter Maryland's market. Developing a competitive market will take time, he said.

Just how long it would take to develop a competitive market in Maryland was unclear when lawmakers passed the restructuring act, said Del. Mary Roe Walkup, who voted for the legislation.

She, like other members of the Economic Matters Committee, has only recently started overseeing deregulation, which was previously handled by the House Environmental Matters committee.

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