Wholesale offers to lift BGE bills

Power increase to consumers this June still falls short of 72% forecast last year

February 16, 2007|By Paul Adams | Paul Adams,Sun reporter

A recent uptick in wholesale electricity costs means Maryland consumers will be paying slightly more for electricity this summer than state regulators forecast a month ago.

Electric bills for customers of Baltimore Gas and Electric Co. will go up an average 49 percent - or about $581 annually - starting in June, based on the latest round of bids the utility received from wholesale electric suppliers this week. That compares with a forecast increase of 47 percent predicted less than a month ago, when Maryland utilities conducted the first of three rounds of bidding to procure their electricity supplies for the coming year. Results of the bidding were disclosed at a regulatory hearing yesterday.

Experts say the less favorable bids may be linked to recent cold weather, swings in oil and gas markets or uncertainty over new market rules being implemented by the regional grid operator.

With the slight bump in prices, the rates taking effect in June will be only slightly lower than last year's 72 percent rate increase, which was supposed to take effect in July. Responding to consumer anger, lawmakers temporarily deferred the increase by capping it at 15 percent. But the rate holiday ends in June, when BGE customers must start paying full market rates or take part in another rate deferral plan that has yet to be devised by the state Public Service Commission.

The estimated 49 percent increase forecast yesterday will come on top of the 15 percent rate increase BGE customers received last summer. If the next round of bids comes in at about the same price, BGE customers will pay roughly 69 percent more for electricity than they were before the expiration in 2006 of rate caps that had been in place for six years. A month ago, regulators predicted the new summer prices would be 65 percent higher.

"The last procurement was at sort of a dip in the market, and it came back up from there over the course of a month," said Bill Fields, an attorney with the Maryland Office of the People's Counsel, which advocates for utility consumers before the PSC.

As part of the move to deregulation, BGE and other investor-owned utilities gave up ownership of their power plants. Instead, they purchase power from wholesale suppliers through a bidding process overseen by regulators. BGE's corporate parent, Constellation Energy Group, owns the utility's former power plants and won about 70 percent of its power load in last year's bidding. The winners in the latest round won't be made public for months.

Mark Case, BGE's vice president of regulatory affairs, attributed the bids in the latest round to higher fuel prices, which raises the cost to generate power. Even so, he said, BGE's rates would come in slightly below those for Pepco and Delmarva Power & Light.

"We're still down overall from where we were a year ago," he said.

The latest bid results point to the volatile nature of the wholesale energy market. Some of the bids for BGE's residential power load had to be rejected in the latest round because they exceeded the maximum price threshold set by state regulators. The utility will have to hold a third round of bidding to procure the remaining 12.5 percent of its projected power needs this summer.

Phillip Vanderheyden, a PSC policy analyst, said it is unusual for bids to come in so high that they have to be rejected. He said those bids might have been due to uncertainty in the power market caused by recent movements in the price of natural gas and oil, as well as cold weather, which typically roils energy markets.

But Skip Trimble, a senior energy consultant with South River Consulting, said the bids that exceeded the PSC's price threshold might have resulted from uncertainty over changes in the way grid operators set prices in the wholesale market. The PJM Interchange, which operates the grid for Maryland, 12 other states and the District of Columbia, recently developed new rules that will raise prices in areas that have limited generation or constraints in transmission capacity. The higher electricity prices are designed to spur energy companies to build more power plants or transmission lines in areas that are in short supply.

The problem, Trimble said, is that uncertainty over how those rules will play out is causing some wholesale suppliers to increase their bids to reflect the higher risks. "Therefore everybody is erring on the side of being more prudent and covering all these risks by adding premiums [to their bids]," he said. "It's not like anybody is gaming the system. ... The bottom line is there are a lot of unknowns."

It's unlikely the next round of bidding will significantly change the rates customers will pay this summer, Fields, the people's counsel attorney, said. Customers who believe they can't afford the increase might be able to take part in another deferral plan that will be considered by the PSC in coming weeks.

BGE has submitted a plan that would allow its customers to take a 20 percent increase in June and begin paying full market rates in January. Customers would have to make up the deferred amount over time.

"Basically, if you sign up for it, you're still paying for all of the cost," Fields said. "It's not really going to impact what the customer is going to pay in the long run."

paul.adams@baltsun.com

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