Rising electric bills elicit fury, desperation

Washington utility emerges as only alternative to BGE for households

Competition

March 11, 2006|By M. WILLIAM SALGANIK | M. WILLIAM SALGANIK,SUN REPORTER

A whiff of electric competition emerged yesterday as Washington Gas Energy Services Inc. said it would offer electricity for about $6 a month less than Baltimore Gas and Electric Co. will charge when its rates are unfrozen in July.

Analysts said, however, that it was unclear whether there will be a rush - or even a trickle - of companies offering lower prices for power. And, even if other suppliers do enter the market, BGE's 1.2 million residential customers still face electricity bills that will be hundreds of dollars a year higher than they pay under current rates, which have been frozen for six years as part of Maryland's electricity deregulation process.

Given the lack of strong competition in other deregulated markets and the predicted average $743 annual increase in BGE electricity bills, a $70 or $80 price break is not exactly a reason to celebrate, said Patricia A. Smith, Maryland People's Counsel, who represents residential users.

"The Office of People's Counsel is keeping our noisemakers and funny hats in the closet," she said.

Consumers and public officials have reacted angrily to the prospect of an average 72 percent increase in BGE residential electricity bills announced earlier this week by state regulators. The increase was determined after a reverse auction to supply power to Maryland utilities as part of the 1999 deregulation law, which was meant to spur competition.

To ease the transition, the Maryland Public Service Commission directed BGE to phase in the increase over two years. Unless consumers sign up to swallow the increase in one bite, they will see a 21 percent rate boost in July, but pay 5 percent interest to BGE on the amount that's deferred.

Under the plan announced yesterday, Washington Gas Energy will charge 10 percent less than BGE's summer rates and 3 percent less than its winter rates. Overall, that would save the average BGE residential customer about 4 percent on an annual bill of $1,776, said Harry Warren, president of Washington Gas Energy.

Warren predicted that other companies will come into the market as they realize the magnitude of the BGE rate increase, one of the biggest one-year boosts in the nation.

Yesterday Christine Nizer, a PSC spokeswoman, said the regulatory agency had received no indication that any other competitors were gearing up for the residential market.

"We haven't heard from any other companies, but there may be other suppliers developing plans," she said. The PSC has licensed 20 companies to provide power in the market, but most of those serve commercial customers, she said.

Few energy companies are attracted by the residential market because of the high cost of marketing and billing one home at a time, said John Trimble, an energy consultant with South River Consulting of Baltimore. Instead, Trimble said, power suppliers prefer to sell to large companies that yield much higher margins, such as a steel mill, he said.

"There's not a lot of emphasis on that market by suppliers, and not a lot of opportunities for the residential customer," he said.

Even if other competitors come in, what they charge will be determined largely by current energy costs, Trimble said. In contrast, electricity priced at BGE's frozen rates is like buying a house in today's market at a six-year-old price.

"On a worldwide basis, oil prices and gas prices and coal prices are going through the roof, so there's no opportunity to buy it cheaper," he said. "Nobody has the magic discount."

The possibility of lower-priced competition doesn't worry BGE because it makes most of its money from operating the distribution system, said Mark Case, its vice president for regulatory services.

"We're not concerned," Case said yesterday. "We favor competitive markets, and we want customers to have viable choices in who they purchase their power from."

BGE's profit margin on the power itself is less than 1 percent, Case said: "Our profitability is a function of providing distribution."

Already, half of the power generated for the commercial market - and 88 percent of the power for the largest commercial and industrial users - comes from alternative suppliers, Case said.

Two other potential competitors were cool yesterday toward the Maryland residential market, although they said they might re-evaluate their plans later.

Greg Cordell, mid-Atlantic business leader for Direct Energy, a Toronto-based company, said his company is interested in residential business in general, but "at this time in the Maryland market, we're not interested in serving residential customers."

He said the phase-in of BGE rates made it difficult for other competitors to match prices.

Washington-based Pepco Energy Services Inc. already competes with BGE, offering "green energy" - generated by wind and from methane gas. Like WGES, it is the energy trading unit of the holding company for a traditional area utility.

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