Limits sought on electricity rate boosts

Shore legislator proposes 10% yearly cap during shift to competitive industry

March 03, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

State lawmakers representing the Eastern Shore fear that residents' electricity rates could skyrocket this summer - as much as 35 percent - and want to impose rate limits to protect consumers as Maryland shifts to a competitive electric industry.

Opponents - including the state's utilities and the chairman of the state Public Service Commission - say the proposal would hurt consumers in the long run by hindering the state's efforts to deregulate its electric industry.

Del. D. Page Elmore, the Republican who chairs the Eastern Shore delegation, is proposing legislation that would prohibit utilities from raising rates by more than 10 percent a year over a four-year period after rate limits imposed in 2000 expire.

The proposal would apply to utilities that are required to offer service to residents who fail to choose an alternative electric supplier.

They are Baltimore Gas and Electric Co. in the Baltimore region, Potomac Electric Power Co. in Montgomery and Prince George's counties, Allegheny Power Co. in Western Maryland and Conectiv Power Delivery on the Eastern Shore.

The first of those rate limits - which took effect as the state began deregulating the electricity market - will expire July 1 for residents in the Conectiv and Pepco service areas.

Rate ceilings will expire for residential customers in the BGE area July 1, 2006, and for residents in Allegheny's territory in January 2009.

The idea was to insulate ratepayers from volatile pricing while opening the electric market to competing suppliers. But a competitive retail market has yet to emerge in Maryland.

That has some lawmakers concerned, Elmore told members of the House Economic Matters Committee yesterday during a hearing on the bill. Elmore is one of 12 co-sponsors of the House legislation.

Elmore and Sen. E.J. Pipken, a Republican who represents Caroline, Cecil, Kent and Queen Anne's counties and is a co-sponsor of the Senate version of the bill, say rate increases will hurt senior citizens on fixed incomes and low-income residents the most.

A limit on increases, they say, would allow movement toward a market system without the price shocks.

"If we stand still and do nothing, the citizens of Maryland will face large, double-digit rate increases," said Elmore. The Eastern Shore delegation became concerned, he said, after meetings with Conectiv and Pepco representatives who predicted rate increases of 15 percent to 35 percent.

Kenneth D. Schisler, chairman of the PSC, said the proposal would hurt consumers because it would hinder utilities' ability to cover their costs and the costs that would be passed on to consumers later.

Also, he said, "it could distort price signals consumers need to see to know when it's time to turn down their thermostats."

In part, he said, retail competition has not developed because the price ceilings of the past four years have kept prices artificially low and kept competitors out of the market.

"This bill would artificially hold down prices, and it could prevent development of a competitive retail market," Schisler said

Schisler also said that a settlement worked out among the state's utilities and other parties included consumer safeguards.

Under that agreement, reached last year, utilities will need PSC approval for rates for so-called standard offer service, a default service of sorts to users who do not choose an alternate supplier as price limits expire.

That settlement also put into place a framework in which utilities have begun seeking bids at auction from wholesale electricity suppliers to secure enough electricity to meet their obligations to consumers. The bidding, overseen by the PSC, began last month and will run through March.

Rates for consumers will be set by May 1 but won't take effect until July 1.

Under that system, customers' electric rates would go up an average of $10 to $15 a month, estimated William T. Torgerson, vice chair and general counsel for Pepco Holdings Inc.

"If the legislature requires us to buy [power] at whatever price we can get and sell it for less, that will be imposing a serious and unjustified burden," Torgeson said.

Frank O. Heintz, president of BGE, said customers have been paying below-market rates because they were given a 6 percent rate reduction when the rates were limited four years ago.

As the rate ceilings are lifted and the utilities buy power on the wholesale market, Heinz said, he would be surprised if rate increases exceed 10 percent a year.

Setting additional rate ceilings would "interfere with customers' understanding of the true cost of electricity and would stand in the way of green power competition because they'd have to compete with an artificially low rate," he said.

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