Maryland wins some relief in electric bill at Web auction

Six suppliers compete in first-of-kind event

April 02, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Maryland will trim its electric bill by more than an estimated $3 million over the next two years through contracts awarded to competing energy suppliers in a first-of-its-kind Internet auction, state officials said yesterday.

Four bidders won an estimated $53 million in state business - more than half of what the state spent on electricity last year - and will supply state agencies and facilities such as universities, highways, sports stadiums, office buildings and prisons in areas that are served by Baltimore Gas and Electric Co. and Potomac Electric Power Co.

The "reverse" auction, held Tuesday, drew six competing suppliers and was designed to allow the state - one of the biggest power users in Maryland - to pool its buying power and lock in rates before price caps, imposed four years ago to usher in deregulation, expire this summer.

While overall electric costs are expected to rise in a deregulated market, the state said it projected that the auction process had reduced the increase by more than $3 million. The contracts also will protect the state against volatile market prices.

Winning bidders were Pepco Energy Services, Washington Gas Energy Services, Reliant Energy Solutions of Houston and ConEdison Solutions.

The contracts run for two years, with two renewal options of one year each. ConEdison Solutions, a White Plains, N.Y.-based subsidiary of New York-based Consolidated Edison Inc., won the largest share of the business, said Boyd K. Rutherford, secretary of the state's Department of General Services.

"The auction served as a hedge against the increasing cost of energy," Rutherford said. "We saw that energy prices are going up, and wanted to take an innovative approach to minimize that impact to taxpayers."

Some contracts were awarded by Department of General Services, which buys power for the state's prisons, police barracks and district courts as well as the State House and all legislative office buildings and the departments of Juvenile Services, Natural Resources and Agriculture.

Contracts were also awarded by the Maryland Stadium Authority, which runs Oriole Park at Camden Yards and M&T Bank Stadium, and by the University of Maryland Baltimore, Bowie State, Baltimore City Community College, Coppin State University, University of Baltimore and Morgan State University.

Rutherford said he couldn't disclose contract specifics until the deals were final.

Baltimore-based Constellation NewEnergy, a subsidiary of BGE parent Constellation Energy Group, participated in the auction. Amerada Hess Corp. was the other bidder that did not win any contracts.

"These were not contracts we had previously; we did not lose any business," said Robert L. Gould, a Constellation spokesman. "We haven't been provided any additional feedback on the auction, but clearly the auction illustrates the value of the competitive energy marketplace."

ConEdison Solutions said it pursued the Maryland business as part of a recent strategy to expand outside the New York metropolitan area into deregulated markets, said Jorge Lopez, a vice president for sales for ConEdison Solutions.

"Maryland, because of the recent changes in the retail choice, became extremely attractive, and we immediately made a decision to pursue market entry into Maryland," Lopez said.

ConEdison said it was able to compete both on price and on the ability to provide renewable energy, including electricity generated by wind and hydro-power, for an affordable price. The company won some of the business that had been awarded in 2002 to Pepco Energy Services, a subsidiary of Pepco Holdings Inc., in a $65 million, two-year contract to supply electricity to Maryland state agencies and departments and the Orioles and Ravens stadiums.

"Those accounts came up for renewal this time, and we're a little disappointed; we believe we were not selected as the winning bidder for those," said Mark Kumm, president of the asset management group at Pepco Energy Services, based in Arlington, Va. "If another supplier can meet the needs of the state at a lower price, that's the way competition was meant to work."

Pepco was selected to serve one group of accounts serving a university, Kumm said, though he declined to identify it.

The Internet auction was divided into 30 separate, 15-minute auctions, each of which included groups of the state's 2,400 accounts. The "reverse" auctions - geared toward reaching the lowest prices - started at about 10 a.m. and ran until about 5:30 p.m.

"When you got inside two minutes, that's when the numbers really changed," Rutherford said.

The prices bid ranged from 5.4 cents per kilowatt hour to 6.3 cents per kilowatt hour.

About 13 percent of the electricity will be "green power," or electricity produced with renewable resources such as wind and solar power. The state was able to purchase green power at no extra cost, avoiding the premium customers typically pay because of higher production costs.

Deregulation has produced extremely volatile energy markets in some states, but a competitive electric market has a better chance at succeeding in Maryland because the region has uniform rules in place for its power grid, the Pennsylvania-New Jersey-Maryland Interconnection, experts have said.

The state approved deregulation of the electricity market in 2000. To smooth the transition from a system of tightly regulated rates, state utilities agreed to cap rates for specified periods.

While the caps insulated customers from a volatile energy market, they also kept rates artificially low, making it difficult for other electric suppliers to compete with local utilities.

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