A market cure for power ills looks dim

September 02, 2007|By JAY HANCOCK

Prospects for real household-electricity deregulation are fading in Maryland, and so are chances they can be revived.

The one thing that would bring true deregulation - exposing families to new, volatile price swings and making them shop for kilowatts - is the one thing Maryland won't allow. Burned once by soaring rates and angry consumers, politicians are unlikely to place another finger over the flame.

Look for Maryland to imitate Illinois and Virginia by re-regulating - renewing price controls on residential electricity and perhaps putting Baltimore Gas and Electric and other utilities back in the power-plant business.

The latest sign of deregulation's demise is the struggle of Ohms Energy Co., which was more aggressive than any other independent vendor in trying to beat BGE's prices last year. Apparently it was too aggressive.

Last month, it found itself without sufficient funds to pay generation companies. Ohms chief executive Sheirmiar White says the company is seeking new capital, but it lost its state license and all 2,100 customers were switched back to BGE's standard product.

True, Ohms is a small player. Better-financed outfits such as Washington Gas Energy Services say they are ready to seize on newly falling prices, offer great deals and do for electricity costs what MCI and Sprint did for long-distance phone prices in the 1990s.

"We are working on developing very attractive offers for our customers," says Kimberly J. August, director of regulatory and external affairs for WGES. "If everyone had taken our offer last year, we could have saved Marylanders millions of dollars."

But hardly anybody did, and there's not much reason to think they will this year.

After six-year price caps expired for BGE customers last year and kilowatt rates rose 72 percent, WGES and other alternative vendors offered savings of $10 or $15 a month. But fewer than 3 percent of BGE's residential customers switched. Since then, energy prices have risen and nobody has been able to beat BGE's standard price.

(Maryland's commercial electricity market is much more diverse and competitive. But even some businesses are talking about the virtues of re-regulation.)

Alternative marketers complain they are hampered by rules limiting their access to customer lists, which they're trying to change.

But even with full information, WGES, Reliant Energy Inc., Commerce Energy Inc. and other suppliers would be reluctant to spend millions on residential ad campaigns when they don't know if Maryland is committed to deregulation.

In a state where the Office of People's Counsel wants to re-regulate, the governor promised to roll back the BGE price increases and the Public Service Commission is probing deeply into possible flaws in the wholesale electricity business that helps set retail prices, it's not clear that Maryland households would have the option of buying third-party kilowatts in a couple years.

"There's a lot of uncertainty about how this will evolve," says James A. Ajello, senior vice president for business development for Houston-based Reliant. He nevertheless says vendors and Maryland policymakers are having "constructive conversations" on how to proceed.

Without numerous alternatives and big savings for households, policymakers are reluctant to commit to deregulation. Without unequivocal commitment from Annapolis to deregulation, electricity companies won't offer families great deals and create a real market.

One way out is the kind of shock therapy employed by Texas. There, dozens of alternative vendors offer numerous electricity plans: "pollution-free," "six-month price protection," "12-month price protection" and so forth. And two-thirds of families have chosen one of the alternatives.

But to get consumers to jump, Texas more or less pulled out the rug. The state abolished utilities' standard "price to beat" and increased households' exposure to short-term price swings, all but forcing them to shop.

Alternative vendors would like to see a similar move by Maryland and maybe even a requirement for households to pay a different price each month, depending on wholesale costs, unless they choose an alternative to BGE's standard service. Now, BGE's price changes only once a year.

That seems hard to imagine in a state where policymakers are still wincing from outrage over last year's BGE price increase. Many in Maryland may find re-regulation appealing now that Virginia has stopped electricity deregulation before it got started and Illinois has re-regulated.

Of course, re-regulation may not be in the best interests of those states. Virginia has committed to higher profits for electricity companies - and higher prices for consumers - than what was in place previously.

An unequivocal, free-market, sink-or-swim approach for Maryland households might eventually produce great energy choices, encourage conservation and spur badly needed investment in new power-generating plants. That was the vision for deregulation.

"Now that the price of electricity is higher than it was, and now that it's roughly at the market price, having bitten the bullet why wouldn't Maryland allow for further competition?" asks Ajello.

Because it might permit more electricity price pain and enormous profits for entrenched power generation outfits. Re-regulation probably won't lower prices, either. But it will lower risks for consumers and politicians.

jay.hancock@baltsun.com

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