BGE bills to jump 8% this summer

Fuel prices boost electric rates, PSC reports

April 30, 2008|By Paul Adams | Paul Adams,SUN REPORTER

It will cost almost 8 percent more to keep the air conditioner humming this summer for most customers of Baltimore Gas and Electric Co., reflecting the rising cost of natural gas, coal and other fuels used to produce electricity, a regulatory report shows.

The increase, which will take effect in June, will add about $137 to the typical homeowner's annual utility bill, the Public Service Commission calculated last week. That is slightly higher than the increase of 5.5 percent - $100 per customer - that state utility regulators forecast in January, when commodity fuel prices were slightly lower.

When June's increase is added to previous rate increases, BGE's 1.1 million residential customers will be paying 88.5 percent more for electricity this summer than they were before deregulation legislation was passed in 1999. Consumer advocates see little chance that the trend will reverse as long as Maryland continues to suffer from a shortage of power supplies, rising fuel costs and total dependence on volatile competitive power markets.

"No matter where you go right now, whether you're using oil or natural gas ... as long as those inputs and all those other constraints are there, I think prices will go up slightly each time," said Theresa V. Czarski of the Maryland Office of People's Counsel, which advocates for utility customers.

A BGE official was unavailable for comment yesterday. The utility has previously said that rising fuel costs are largely behind the recent rate increases.

The latest increase shows how hard it remains for state regulators and lawmakers to ease utility rates while global energy markets are in turmoil. Oil recently topped $120 a barrel, coal prices are up more than 100 percent in the past six months, and natural gas is up 30 percent, according to a PSC consultant. All are used to produce electricity.

That means lawmakers spent much of last session arguing with utility executives over a deal to give BGE customers one-time rebates of $170, only to have much of that offset by market factors beyond state control.

The PSC is studying ways to re-regulate the industry in hopes of regaining a measure of control. Until those plans bear fruit, BGE and other big utilities must buy all of their power in the wholesale electricity market.

As part of the move toward deregulation, BGE and other investor-owned utilities sold or transferred ownership of their power plants. Now they purchase electricity several times a year through competitive bidding. The PSC staff calculated the June rate increase after BGE and other investor-owned utilities in Maryland solicited bids from wholesale electricity suppliers.

The latest numbers show the average BGE household will pay about $1,810 a year for electricity, 7.6 percent more than it paid a year ago.

The PSC partly blames wholesale market rules for Maryland's rising costs. PJM Interconnection, which oversees the region's power grid and operates the wholesale market, makes it more expensive to buy power in areas that lack adequate generation and transmission. The purpose of the higher payments is to provide a financial incentive for energy companies to build power plants and power lines where they are needed most. The problem is especially acute in Maryland, which imports about 30 percent of its power.

State regulators question the higher payments to generators and have recently made gains in their efforts to challenge them.

The Federal Energy Regulatory Commission recently sided with Maryland in a dispute with PJM over its method of calculating higher payments to generators for making their power plants available to the market. FERC said PJM didn't follow proper procedures when proposing to increase one component of the charges.

The ruling - which concerns "capacity" markets - will save Maryland ratepayers an estimated $225 million from June 2011 to May 2012, the PSC said yesterday. That amounts to a one-year benefit of about $50 per household. Consumers won't see the benefits until 2011 because capacity prices are set three years in advance through a competitive auction.

"I think it's consistent with the posture we laid out last fall, which is that our rates are set largely at the wholesale level with large roles played by FERC and PJM, and so that's an arena in which we've got to engage," said Steven B. Larsen, chairman of the PSC.

Ray Dotter, a spokesman for PJM, said the increased capacity charges are needed to ensure that generators build enough power plants to meet demand. Without those added charges, power generators say, they won't make enough money selling electricity to recover their construction costs, which have increased drastically in recent years.

The benefits the PSC gained in the latest FERC case are likely to be offset by higher costs down the road, experts said.

"The benefits that will be extracted from this will be eroded by the increased energy costs, by the increased scarcity cost and by increased capacity costs that we'll be seeing in the next couple of years," said Skip Trimble, a principal with Castlebridge Energy Group, a Baltimore energy consulting firm.

Larsen said the PSC is studying plans to allow BGE and other utilities to own generation again, which would make Maryland slightly less dependent on the wholesale market. Also under consideration is a plan to put the state in the business of financing new power plants, resulting in lower borrowing costs and cheaper power.

"We've really got to put it all on the table," he said.

paul.adams@baltsun.com

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