Power deregulation caused Md. firms to cut electricity, seek cheaper rates

March 19, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

No matter what happens in the Maryland legislature, household electricity rates are bound to soar this summer. It's only a question of how high.

Businesses, however, have been dealing with this deregulated electricity market for more than a year. Few if any companies have been nailed with the 72 percent increase that residential customers face.

But the way that corporations have responded, by a combination of deal-shopping and lower consumption, gives a preview of what many households will be doing from now on. It shows that they're not completely powerless in the brave new electricity world.

"What the public's going to go through with this increase is something that we went through a little while ago," says Ken Lewis, owner of Kenlee Precision, a Baltimore maker of machine parts.

"I'm preaching all the time about turning machines off," says Mark Habicht, president of the Kirk-Habicht Co., a Baltimore County maker of vehicle springs. "We run hydraulic machines here. I'm talking about turning them off at lunchtime rather then letting them run."

No wonder. The electric bill for Kirk-Habicht's shop went from $12,000 in 2004 to $16,000 in 2005, when commercial electric rates were fully deregulated in Central Maryland, Habicht says. Even in the company's offices, without the power-hungry ovens and machines in the shop, the bill went up a third, from $3,000 to $4,000.

At Security Square Mall, they're turning down the thermostat, putting motion sensors on nonessential lights and keeping decorative alcove lights off until shortly before opening time, says general manager Deirdre Moore Johnson.

"We always think that a good offense is better than a good defense," she said. "Before the rate increases took effect we started putting measures in place to reduce consumption and also to reduce cost."

At the same time, the mall shopped around, at one point switching from the standard Baltimore Gas and Electric product to a cheaper contract offered by an affiliate of BGE's parent, Constellation Energy.

Even with the switch, the price of juice per kilowatt went up 10 percent for Security Square after deregulation, Moore Johnson said. But by trimming usage the mall was able to keep its monthly bill more or less flat, she said.

The Johns Hopkins University's Homewood campus had the luck or foresight to lock in electric rates when they were relatively cheap, signing a two-year deal with Constellation in 2003, according to spokesman Dennis O'Shea.

"As it happened, rising oil prices drove market electricity prices up even further than we had projected, so we ended up saving about $1.5 million against market prices over the two-year life of that contract," he says.

Too bad it wasn't a four-year contract.

By not locking in longer, Hopkins has been more exposed to the spike in electricity prices that promise to crank up bills for households. "You have to make an educated guess based on what is knowable, but there's a whole lot that just isn't knowable in a market that is largely driven by the price of oil," O'Shea says.

Not all businesses are obsessed by electricity prices. Many small companies burn less electricity than families do because they can turn down the lights and heat at night.

"I don't think our usage is big enough for me to get concerned," says Sandy Frank, president of Baltimore fabric wholesaler A. Frank & Sons. "My financial guy would be on top of me screaming if he thought it was serious."

Besides shutting off unneeded lights, businesses are dealing with expensive juice by shopping for deals from competing suppliers.

Since commercial accounts were deregulated in 2004 in BGE's service area, about a fifth of medium-sized businesses have switched from BGE's standard product, says Constellation spokesman Lawrence McDonnell.

Even some medium-sized commercial operations such as apartment buildings have gotten good at playing suppliers off one another and building bells and whistles into their electricity purchases, says Bert Wilson, a principal with South River Consulting, a Baltimore consultancy that helps companies trim power bills.

For example, commercial users can assume a limited risk that prices will rise but get a lower initial rate, as in an adjustable mortgage. Users can even sign different deals for different portions of their electric consumption.

Maryland households wouldn't get such complex features even if they wanted them. Power vendors customize deals only for big customers. Even so, families are likely to have more choice than they have now.

If the price of BGE's standard household service spikes 72 percent this summer, as promised, more competitors will probably be interested in selling to its customers and undercutting the 72 percent, as was envisioned when deregulation was proposed.

Already Washington Gas Energy Services is offering 10 percent off the expensive new BGE rates due to take effect July 1. You can get the details of competitive supply on BGE's or the Maryland Public Service Commission's Web pages.

The electricity markets may be smacking us, but we also have some power to use markets in our favor. Listen to Moore Johnson when she says to go on the offensive.

Or to consultant Wilson. "Go shopping," he advises.

But he wouldn't lock in just yet. Power prices have been falling, "and you might be better off to take a couple months of expensive power," he says, "and then get a better deal later."

Others disagree.

"We're signing a contract to lock in our rates for 24 months," said Kevin O'Brien, chief financial officer at Kenlee. "We don't see rates going down."

jay.hancock@baltsun.com

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