"It will keep getting worse," said Skip Trimble, a senior energy consultant with South River Consulting in Baltimore. "Demand is outstripping supply ... but nobody is building anything new."
The PSC staff blame new wholesale market rules that reward power producers in areas where electricity supplies are dangerously tight. PJM Interconnection, which operates the region's power grid and wholesale energy market, implemented the regulations in the spring with approval by the Federal Energy Regulatory Commission.
These "capacity" charges are designed to entice power companies to build new power plants and transmission lines to meet rising demand. After the new rules took effect in June, capacity charges paid to generators soared about 2000 percent overnight, Trimble said. The problem is most acute in Central Maryland, which is home to BGE's 1.1 million customers.
The capacity charges are controversial within the industry because they put more money in the pockets of power companies regardless of whether they use the added profits to build new power plants. BGE's corporate parent, Constellation Energy Group, is the state's largest producer of electricity and, consequently, a primary beneficiary of the regulations.
If more generation, or "capacity," is built, the premium Maryland customers pay for access to power should fall. But it hasn't happened yet, and energy experts say any improvement could be years away.
"This is a federal thing," Trimble said. "It wasn't something that Constellation [Energy Group] did, and not something the state did."
Mark Case, BGE's vice president of regulatory affairs, said capacity charges were only partly responsible for the 5.5 percent increase. The rising cost of fuels used to make electricity was likely a bigger factor, he said. He pointed to PJM data showing that the cost of fuel inputs climbed about 15 percent for generators during the past year.
"I would say that energy prices are driving it," he said.
The PSC staff calculate that BGE's electricity rates have climbed more slowly than other energy costs since deregulation was passed. Since 1999, the price of heating oil has climbed 198 percent; regular gasoline 140 percent and natural gas 92 percent. Natural gas is a major driver of wholesale electricity prices, even in areas where it is not the primary fuel for power plants.
