Md. ought to let cities buy power for citizens

September 20, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

Look what happened to wholesale electricity costs when you weren't looking. They plunged, and now municipal leaders are interested in possibly ditching Baltimore Gas and Electric's standard service to buy cheaper juice for their residents on the open market.

"It might be able to provide a cost savings to citizens and to cities," says Annapolis City Administrator Robert Agee.

Yesterday I went shopping for kilowatts on Annapolis' behalf. I found that the city's 15,000 homes could lock in 2007 prices for almost 15 percent less (off their total electric bill) than what they're going to owe BGE, according to quotes from consultants. A typical Annapolis family would save $240 over the year.

But ... oops! That's illegal. Thanks to pressure from BGE and other power companies, Maryland bans the most efficient way of assembling groups of households into electricity-purchase blocs.

The law needs to change. If the decline in wholesale prices persists, bulk municipal buying could give Annapolis and every other locality the chance to substantially reduce the pain of the 72 percent BGE electric-rate increase that took effect July 1.

BGE rates soared because the utility locked in most of its 2007 electric supply and much of its 2008 supply at what increasingly looks like the peak of the market. Hurricane Katrina and vigorous economic growth drove up all energy prices in late 2005 and early this year, when BGE was shopping.

But now, with a slowing economy and no sign of a Katrina repeat, electricity prices are falling. Since late last week they've been hovering about $48 per megawatt-hour on the PJM grid that serves Maryland. That's a third less than in late July and a little more than half December's level.

"There had been a sort of price premium built in, in anticipation of a big hurricane season, as had been predicted, and it just hasn't materialized," says Max Hoover, president of Good Energy, an energy consulting outfit in New York.

But because BGE already bought all its juice through May 2007 and half of what it needs for June through May 2008, households hoping to benefit from the plunge have only two mediocre choices. They can wait until BGE eventually buys new electricity and passes the lower cost to ratepayers. Or they can ditch BGE's standard product on their own by shopping among independent kilowatt suppliers.

So far, however, neither alternative seems as attractive as a municipal buying bloc. It'll take years for lower wholesale prices to trickle into BGE's standard product. And discounts offered to individual households by alternative vendors aren't as good as what a municipal pool might get.

Few independent vendors guarantee a price after May, just before the rate-deferral plan passed by the General Assembly expires. (You still get deferrals and credits under the plan if you switch suppliers.)

And the prices offered so far aren't very good, anyway. You can get about 8 percent off your total electric bill through May. (Dominion Retail. 1-866-303-9669. They advertise 10 percent off BGE's generation charge but it's only 8 percent off your total bill.) Or you can lock in for a year by paying slightly less than BGE's price through May and then paying 11 percent less on your total bill in the expensive summer months. (Washington Gas Energy Services. 1-888-884-WGES.)

It's not easy for a city or county to buy electricity for residents, energy professionals warn. Partly because big billing and bad-account costs must be built into rates, "the notion of a volume discount doesn't actually work," says Bert Wilson, a principal at South River Consulting, a Baltimore energy outfit.

But kilowatt prices are so low now that towns could still afford to set up buying blocs and save big money for residents. My hypothetical 15 percent savings for Annapolis families would come after the city collected nearly $2 million (a penny per kilowatt hour) for annual administrative costs.

There are other reasons to question municipal "aggregation," as it's known. One potential concern is redlining. Wealthier cities might get great prices through aggregation while poor towns with high bad-account costs might get stuck with even higher rates.

Aggregation at least ought to be tried, however. It's "high on the list" of desired legislative changes for the Maryland Municipal League next year, says executive director Scott Hancock (no relation). The league wants to try "opt-out" aggregation, in which towns could enroll all residents in an electricity pool unless they chose to go solo. Now banned, opt-out aggregation is the cheapest way to assemble a bloc.

Mount Airy, in Carroll County, is also interested in aggregation, says Mayor Frank Johnson. His town is just over the BGE line, in Allegheny Power territory, where rates are still capped, but residents saw what happened in Baltimore.

"Given what we witnessed with BGE rates," he says, "if there's ever a time when we might get some traction with this issue, it would seem that now would be that time."

jay.hancock@baltsun.com

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