Choice of electricity may be costly at first

Deregulation

Outloot 2004 : Turning Points

January 11, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Consumer choice for electricity will finally arrive in Maryland in 2004, for some at least.

Don't expect electric savings right away, though.

About one-third of the state's electric customers - the roughly 650,000 served by Potomac Electric Power Co. and Conectiv Power Delivery - will get the chance to shop for their electric supplier this year as deregulation takes shape in Maryland.

But those customers will also likely see a potentially sharp increase in rates, anywhere from 9 percent to 15 percent, as the market, rather than regulators, begins determining prices and the first of state-imposed rate caps begin to expire, experts said.

Rates are likely to increase on the generation portion of the utility bill, which accounts for more than half of the cost to consumers.

Theoretically, competition should eventually pressure rates to drop, but that won't happen initially. The state approved deregulation in 2000, moving away from a system under which the Maryland Public Service Commission approved rates for electric companies. But the state temporarily capped utilities' electric rates to smooth the transition to a deregulated system. With rates kept artificially low, electric suppliers found it difficult to compete with the utilities.

The first of the temporary rate caps expire July 1, for Pepco, which serves Montgomery and Prince George's counties, and for Conectiv, whose service area includes Maryland's Eastern Shore, Cecil and northeastern Harford counties.

Caps will be lifted in July 2006 for Baltimore Gas and Electric Co., which supplies much of the Baltimore region, and in 2008 for Allegheny Power Co.

Since deregulation took effect, no competitors have come into Conectiv's service area, and only a few have entered Pepco's territory. About 70,000 Pepco customers have chosen an alternate supplier. Many of them are large, commercial customers, who represent only about one-tenth of Pepco's customers, but more than a quarter of the utility's sales.

As of July 1, Maryland's utilities will be required to offer what is called "standard offer service," a default service of sorts, to anyone who does not choose an alternate supplier. A settlement between the state, the utilities and other parties, which worked out that system, also put in place a framework in which utilities will seek bids at auction from wholesale electricity suppliers to secure enough electricity to meet their obligations to consumers.

The bidding, overseen by the Maryland Public Service Commission, will start the week of Feb. 9 and go through March. At the end of the auction, new rates for consumers will be set by May 1 but won't take effect until July 1.

That will give customers two months to consider offers from other suppliers, if they are unhappy with the new rates, said Gregory Carmean, the commission's executive director. Though deregulation hasn't worked to the benefit of residential consumers yet, it is hoped that more energy suppliers will enter the market once the price caps are lifted, ushering in more competition and eventually lower prices for consumers, Carmean said.

"We're hoping this will be the big year, and we're hoping that suppliers will come in with different kinds of pricing plans," Carmean said. "This is their opportunity to show what they can do."

Though rate caps expire July 1, consumers face no deadlines. They can choose at any time to either stay with their utility or switch, said People's Counsel Patricia A. Smith, whose office represents residential utility customers.

"I'm hoping it will attract competition and will lower the cost for consumers," Smith said of deregulation. "But as an advocate for consumers, I have to worry that it won't."

TIMELINE

1999

Maryland passes electric deregulation law.

2000

Rate caps imposed to protect against price spikes during the transition from a regulated system.

2004

Deregulation becomes reality for residents as first of the rate caps expire for customers of Potomac Electric Power Co. and Conectiv Power Delivery.

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