PSC urged to weigh savings plan

Governor says bulk purchasing of electricity might aid poorer clients

August 02, 2007|By Andrew A. Green | Andrew A. Green,Sun reporter

Hoping to inject more competition into a part of Maryland's energy market, Gov. Martin O'Malley asked the Public Service Commission yesterday to determine whether the state's program to provide electricity for the poor could use its market power to secure lower rates.

O'Malley said in a letter to PSC Chairman Steven B. Larsen that he believes that aggregating the purchasing power of the 93,000 low-income clients of Maryland's Electric Universal Service Program could save them about 8 percent on their rates.

"We should explore whether Maryland can use its market power to purchase lower-cost electricity for its most vulnerable citizens while injecting some competition in an otherwise noncompetitive market," O'Malley wrote.

PSC spokeswoman LaWanda Edwards said the commission would take up the issue before the end of September.

"The PSC is currently examining whether changes to the procurement process can save money for residential customers," Edwards said. "We will include in our study the idea of aggregating [low-income] customers to obtain lower prices."

In the weeks since O'Malley was forced to concede failure on his campaign promise to stop BGE's rate increase -- a total rise of more than 70 percent in a year -- the governor has peppered the PSC with letters suggesting ways state regulators could secure rate relief for the utility's 1.1 million customers.

Last month, he asked Larsen to examine potential conflicts of interest between the utility and its parent company, Constellation Energy Group. Last week, he sent another letter suggesting the PSC investigate whether BGE's rates violate a federal standard of reasonableness.

The governor's proposal is a new wrinkle in an idea that has failed repeatedly in Annapolis: allowing counties or municipalities to act as aggregate purchasers of power for their residents. However, because the universal-service program falls under the PSC's control, O'Malley administration officials believe it can aggregate its clients' energy purchases without legislation.

O'Malley's proposal is that the program would solicit bids from energy companies to supply the power its customers use in hopes that it could secure rates lower than the standard service offered by BGE or the state's other utilities. Customers who wanted to could opt out of the program, O'Malley wrote in the letter.

The Maryland Energy Administration calculated that an aggregate purchaser that bought electricity July 2 of this year could have provided power for 8 percent less than BGE customers are now paying, O'Malley wrote. He said that would translate into annual savings of between $48 and $72.

"I had never thought of it, but it makes sense," said Sen. Thomas M. "Mac" Middleton, a Southern Maryland Democrat who chairs a committee that handles utility issues. "That's a pretty big chunk of folks, and if you can bid it out and get a reduced rate, that's all a part of stretching the dollar."

Lawmakers approved electric deregulation believing that energy companies would compete to offer power to residential and industrial customers at the lowest possible price. Industrial customers who purchase a great deal of power have had some success under deregulation, but competitive markets have not emerged for residential customers.

Backers of municipal aggregation believe that residential customers could spur competition by banding together. The idea is that power companies might not have much interest in competing for one house, but they would compete to supply power to every house in Baltimore County.

Del. James W. Hubbard, a Prince George's County Democrat who sponsored an aggregation bill this year, said utility companies have objected to aggregation in the past for fear that they would be stuck with customers more likely to default on their bills.

"What the governor may be doing here might eliminate that," Hubbard said. "If all the people who are under the universal service are free to aggregate for lower rates, then the rest of the people in the state should have that ability, too."

But People's Counsel Paula M. Carmody, whose job is to advocate on behalf of utility customers, said she has some qualms about aggregation. While it might lower electric bills for the customers who band together, she fears it might force everyone else's rates up.

Carmody said she has not seen the details of O'Malley's proposal for the EUSP and will participate in the PSC's investigation of it, but she said she is not aware of any successful aggregation programs for low-income consumers in other parts of the country.

Del. Dereck E. Davis, the Prince George's Democrat who chairs a committee that handles utility issues, said he needs time to study the idea but isn't sure it would generate the kind of competition the governor is hoping for.

Participants in the universal service program are, by definition, in tougher financial situations than the typical utility customer, making them on average a higher risk for defaulting on their bills, Davis said. When they are part of a pool with higher-income customers, that risk is balanced out, but separating them might make utilities less inclined to compete for their business, Davis said.

Carmody said that getting more people into the program would probably do the most good for low-income customers. O'Malley added $5 million to the program this year, and Carmody said it is under-subscribed in many parts of the state.

Eligibility for the universal service program is limited by income. Those who make up to 175 percent of the poverty level -- about $36,000 a year for a family of four -- are eligible for assistance paying their bills. Benefits are provided on a sliding scale based on income.

andy.green@baltsun.com

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