Moody's cuts BGE debt rating

Electricity likely will get cheaper this fall

July 12, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

True electricity rate relief is coming - and not from a politician or regulator.

Unless this season summons a hurricane similar to Katrina in direction and power, electricity offered by competitors of the standard products offered by Baltimore Gas and Electric and Pepco should get substantially less expensive this fall.

That spells opportunity for the patient customer willing to shop around. (And you can shop even under the General Assembly's rate-increase deferral plan.) Instead of switching now and getting 10 percent or so off the standard BGE price, the best bet is to wait until fall and lock in when lower prices show up.

Don't just take my word for it.

"More and more people are coming into the market" to sell electricity, says Bert Wilson, who, as a principal at South River Consulting, a Baltimore energy shop, knows as much as anybody about Maryland electricity. "I would probably wait until end of the summer, pick a one-year deal and see what kind product evolves from there," Wilson said.

High electricity prices for Central Maryland were caused by deregulation, economic growth and Hurricane Katrina.

It's too late to fix the first problem. But Federal Reserve boss Ben S. Bernanke is working on the second, and time has solved the third.

The brightest sign of cheaper kilowatts is a huge buildup of natural gas inventories. Natural gas fuels less than a fifth of the country's electric generation, but it disproportionately affects kilowatt costs because gas plants often are summoned to satisfy high marginal power demand. That's where prices get set.

Katrina's disruption of natural-gas supplies and the resulting spike in natural-gas prices caused much of the 72 percent pop in BGE's rates this year. (Politicians deferred much of the increase, but the net result is still something like 72 percent.)

But now natural gas pipelines are filling up, and natural gas and wholesale electricity prices are coming down. On Friday the Energy Department said natural gas inventories grew to a near-record high for this time of year - 30 percent higher than normal.

Credit goes to a relatively warm winter, lower demand caused by high prices and hoarding by dealers who hoped - so far in vain - that prices would soar again this summer. Yesterday the Energy Department cut its forecast for natural-gas prices, saying that for 2006 prices are expected to average 14 percent less than last year.

"Ultimately, if we have more-moderate natural gas prices, it should have a tendency to ease electricity prices, particularly in regions that are heavily gas-consuming regions," says Neil Gamson, an economist for the Energy Information Administration.

And natural gas trends aren't the only thing that might depress kilowatt costs. Rising interest rates and the cooling housing market show signs of slowing the economy, which should reduce the demand for energy. If China, India and other huge, emerging economies experience their own slowdowns - it has to happen sometime - energy prices should fall further.

Wilson, whose company helps businesses get the best electricity deals, has already ditched BGE's "standard offer" product at his house and switched to a floating-rate deal from Commerce Energy. That saved him more than a penny per kilowatt-hour, or more than 10 percent, on "electric supply," the biggest piece of a bill. This fall he hopes to get an even lower price - from Commerce or somebody else - and lock it in for a year.

And that's the key: To benefit from falling electricity prices, you must shop around and switch to a different supplier. BGE's standard price is high because under deregulation rules it had to buy lots of electricity last winter at what was probably the peak of the market.

(For shopping options, see BGE's and the Public Service Commission's Web sites.)

Shopping won't alter your benefits from the General Assembly's rate-relief plan, which defers increases for now but requires payment later.

The plan's delay and repayment factors are applied against the "distribution" side of your electric bill, which is BGE. (BGE distributes the power no matter what its source, so you have no choice about being in the plan.)

On the other part of your bill - electric supply - the cheaper the deal you can find, the more money you'll save.

Post-July 1 electric supply rates are 10 to 11 cents per kilowatt hour at the moment, if we average seasonal variations. If the stars align, we could see prices in the 9 cent range this fall, which would save the average household $20 a month off BGE's standard price.

Most alternatives to the standard BGE product - from Washington Gas Energy Services, Ohms Energy, Pepco Energy and so forth - require a one-year contract. Locking in now, however, would prevent you from benefiting from price declines later in the year.

Wilson has temporarily opted for Commerce Energy's floating-rate plan, which carries the risk that prices might go higher. The best bet for the average customer is probably to stick with BGE's default product until fall and then check the lay of the land.

Don't get your hopes up too high. Electricity prices in the BGE territory will probably never return to their regulated levels. But the unusual circumstances that caused a boom in almost all commodity prices this year - from copper to kilowatts - are unlikely to persist. BGE's kilowatt prices are locked in for the next year or two, but that doesn't mean yours are.

jay.hancock@baltsun.com

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