Get prepared for bad news in '06 on BGE's electricity rates

October 30, 2005|By JAY HANCOCK

Driving your car is already more expensive. Heating the house with natural gas will cost at least a fifth more this winter than last, the utilities tell us. Will the price of running your toaster and TV go up next?

The answer is yes.

Six-year-old caps on Baltimore Gas and Electric's residential electricity rates expire next July. BGE has started shopping for the juice that it will need to power metropolitan Baltimore after July 1.

The price it pays will determine what households pay. And the news isn't good.

"It's fair to say electrical prices will be up," says Wayne Harbaugh, BGE's manager of pricing and regulatory services, although he adds that "it's too early for us to really give a prediction of what residential customers will see."

The Public Service Commission expects an electricity rate increase for BGE households of 20 percent to 30 percent, says spokeswoman Christine Nizer.

(The authorities also remind us that BGE electricity customers got a 6.5 percent reduction when the rates were frozen. Does that make you feel better?)

A 30 percent pop would add $295 a year to an average BGE household's electric bill and divert some $300 million - the economic equivalent of, say, dozens of blockbuster, downtown Baltimore conventions - into energy-company tills.

No, it's not a conspiracy. It's reality. The price of fuel for generating electricity has risen - and so will the cost of electricity once the stopper comes off the rate bottle.

True, this isn't what proponents promised for deregulation.

In the 1990s, when government began letting customers and utilities shop around for juice, the competition was supposed to wring out inefficiencies and lower prices.

Now prices are going up. A lot. But it's too early to declare deregulation a failure. Even a heavily regulated, 1980s-style system couldn't prevent the rate trauma that's going on now.

"All this is driven by market prices," says Deputy People's Counsel Theresa Czarski, whose job is to promote the interests of ratepayers. "If by some miracle market prices were to decline" between now and when BGE buys power, "you'd see less of an increase. But any reasonable person you spoke to at the moment would expect a price increase for pretty much any class of customer."

I don't see miracles on the agenda. Most East Coast electricity is made with coal, natural gas or oil, and all three have doubled or tripled in price since 1999, when BGE's core-electricity rates were frozen.

In the Mid-Atlantic generating unit of Baltimore's Constellation Energy, which mainly supplies power to subsidiary BGE, costs for fuel and electricity purchased for resale rose 35 percent in the first half of 2005 compared with the corresponding period a year earlier, regulatory filings show.

And that was before hurricanes damaged Southern energy facilities and sent fossil fuels even higher. (No wonder Constellation wants to expand nuclear generation.)

Futures contracts for delivering wholesale electricity next year on the PJM Interconnection network - where BGE is shopping - have doubled in price in some cases.

The results of BGE's power-shopping will be crucial and interesting. It plans to take bids in December, January and February, and Harbaugh expects Constellation and more than a dozen other vendors to compete. Your electric bills after June 30 will be directly tied to what kind of deals BGE gets.

The Office of People's Counsel says it will be all over the process to ensure its integrity - to prevent, for example, BGE from striking a sweetheart deal with corporate parent Constellation at the expense of ratepayers and competitors.

"We really fought hard to have that ability to be in that room to monitor those bids," says Czarski.

But you ask: What if I don't want the standard BGE product? Wasn't the idea behind deregulation that I could shop for my own power and not be stuck with BGE to do it for me?

Yeah, that was the idea. But so far few outside companies are offering juice directly to BGE residential customers.

One proposal to change that would let Maryland localities unilaterally rope all their households into a big buying pool to fetch more vendor attention and better deals. It was shot down in this year's General Assembly after utilities lobbied heavily against it, but last week the PSC and the Maryland Municipal League revived it, discussing it as a possible one-city pilot program that wouldn't require legislation.

"As soon as the utilities get wind of this they are going to file everything they can to keep this from happening," says league director Scott Hancock.

Harbaugh says BGE will have no position on the idea until officials see an official proposal.

Ratepayers seeing 30 percent pops on their bills next year might not be so shy about forming opinions.

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