5 Things you should know about the energy bill increase

March 12, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

1) Question// How can electricity bills go up 72 percent overnight?

When Maryland deregulated its electricity industry in 1999, BGE's rates were frozen for the next six years. In recent years, however, the cost of natural gas, coal and other fuels used to make electricity have soared as a result of rising global demand, unrest in oil-producing regions and last fall's hurricanes in the Gulf of Mexico. With those rate caps due to expire in July, BGE must pay more to buy the electricity it delivers to customers. Since 2000, the average spot price for electricity has more than doubled in the PJM power pool where BGE and other utilities in Maryland, Pennsylvania and New Jersey get their energy.

2) Question// If BGE made money with rate caps, why can't it now?

After rates were frozen, BGE locked in long-term power supply contracts at prices far lower than available now. Those low-cost contracts expire in June, and the new supply contracts are more expensive.

3) Question// Were BGE customers getting a bargain for the past six years? Compared to what?

Yes, compared to averages for the nation and the region. For 2005, the federal Energy Information Administration estimates that Maryland residential customers paid an average of 8.23 cents per kilowatt hour, including those in parts of the state served by utilities other than BGE. That was less than the average of 12.30 cents for Mid-Atlantic customers in New York, New Jersey and Pennsylvania, and 8.60 cents in the South Atlantic region, which includes Maryland, Delaware, D.C. and six other states. The national average is expected to come in at 9.25 cents.

4) Question// Can lawmakers or state utility regulators do anything to stop or roll back the rate increases?

The state Public Service Commission, which regulates utilities, has ordered BGE to spread the rate increase out over two years for customers, unless customers request otherwise. Customers will have to pay 5 percent interest on the deferred amount of their bills, however. State lawmakers and company officials are negotiating a plan that might allow customers to spread out the rate increase without interest. Other than easing the pain, however, there is little the state can do about the global forces driving energy costs higher.

5) Question// Is BGE going to get a windfall profit from the higher rates?

Not exactly. After July 1, regulators allow BGE a roughly 0.9 percent profit on the cost of the electricity it delivers to its 1.2 million residential and commercial customers. After taxes, that amounts to about $12 million a year _ a small part of the roughly $170 million in total profit the utility makes annually. Most of the profit BGE earns from electricity comes from its fee to deliver power over its transmission lines. That fee _ separate from the cost of the power itself _ is not increasing in July and has not increased since 1993.

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