One recession bright spot: lower electricity costs

March 03, 2010|By Jay Hancock

Everybody knew the recession would cut demand for energy. But some power executives have been surprised at how much. Electricity use in the region plunged 5 percent last year after falling 3 percent in 2008, according to PJM Interconnection, the company that manages the Mid-Atlantic electric grid and is based outside Philadelphia. Grid congestion and other factors that raise costs for consumers have fallen even more.

The result is that power prices are declining more than experts were expecting even a few months ago. That means decent rate relief is arriving for customers of Baltimore Gas and Electric - in a year or so, for those who stick with BGE's standard product, or right now if you're willing to buy electricity from an alternative supplier. "If you look out longer term, I think we're heading down toward 9-cent power," Mark Case, BGE's senior vice president of strategy and regulation, told me recently. Independent energy pros agree that Maryland households could pay as little as 9 cents per kilowatt-hour of electricity generation and transmission by 2011 or 2012.

For those who've lost track, 9 cents would be the least any BGE household has paid since June 2006. That was just before rate caps expired and households felt the full fury of deregulation - the famous "72 percent increase" for BGE residential customers.

Nine-cent electricity would still be far above the pre-2006, regulated BGE price. But it would be substantially less than the 12.69 cents BGE households were paying last summer. It would save typical households about $350 a year, compared with what they've been paying for BGE's default product the past 12 months.

Cheaper energy is the recession's consolation prize. If Maryland residential electricity really does fall to 9 cents, it'll be eloquent commentary on the economy's poor state. I had assumed that a flawed wholesale market and the domination of central-Maryland generation by BGE parent Constellation Energy would keep prices north of 10 cents forever.

But we haven't hit 9 cents yet. The current market for residential kilowatts is still over 10 cents.

And because of regulations designed to minimize price swings, BGE bought much of this year's household electricity a couple of years ago when wholesale prices blew a fuse, and it paid the equivalent of $4 a gallon for gasoline. That means BGE's standard household price this summer of 11.78 cents, as recently disclosed by the Public Service Commission, is out of whack with the market.

Not to worry: Households can get immediate savings by switching to an alternative supplier.

Dominion Retail and other third-party vendors are offering better deals right now. They've seized on declines in the wholesale market and passed part of the savings on to households.

I recommend taking Dominion Retail's offer of 10.37 cents per kilowatt hour to avoid BGE's high summertime prices. (Details below.) Then revisit the market this fall, when prices from Dominion, Washington Gas Energy Services and other alternative suppliers might be even lower - especially if the General Assembly passes pending legislation making it easier for them to do business in Maryland.

(All these quoted prices are for generation and transmission only. Add about 2.5 cents per kilowatt-hour for BGE delivery, plus a $7.50 a month "customer charge" and other nuisance fees and taxes.)

Dominion's offer of 10.37 cents for the rest of 2010 isn't the cheapest. (Check out the Web site of the Maryland Office of the People's Counsel - www.opc.state.md.us - for a list of deals, including for "green" electricity.) But unlike others, Dominion doesn't charge $150 or more for terminating the contract early.

The Dominion deal (call 888-216-3718 or Google "Dominion Retail.") will save $10 or $20 a month off BGE's standard price this summer, depending on how much you run your air conditioner. Then take another look at offers from Dominion and others in the fall, when perhaps prices will have edged closer to 9 cents.

"Given where the market is now, I would agree that that's a viable number," says Russell Lacey, president of Bethesda-based Electric Advisors, which has started marketing WGES' household electricity packages to selected customers.

A few important details: Check the fine print on early-termination fees for any contract with an energy supplier. Remember when the deal expires, because companies usually roll you over to a new contract, which might not be any good, if you don't opt out. (They must notify you in advance, but it's easy to miss the letter.)

And switching to Dominion or any other alternative supplier doesn't mean you lose "Peak Rewards" credits for letting BGE cycle your air conditioner in the summer. BGE remains your electricity delivery company no matter whom you buy juice from, and all the charges usually come on one BGE bill.

A recession is not a jolly reason for lower energy prices. But take a break where you can get it.

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