Deregulation leaves consumers in dark

A $5.6 million state advertising blitz in advance of the July 1 deregulation of electricity sales urges Marylanders, "You use it. Now, choose it." But customers ready to take the plunge will be hard put to pick a new supplier.

Thus far, none of the seven power companies licensed by the Maryland Public Service Commission to sell electricity in the state have posted electricity rates.


Although marketers have been allowed to solicit customers since April, Baltimore Gas and Electric Co. officials say they have yet to receive notification from power companies that any of BGE's 1 million residential customers have switched.

The situation has left some Maryland consumers frustrated.


"I've been under the impression [electricity deregulation] was the next greatest, neatest thing to happen to consumers," said Betty Cartwright, a BGE customer in Calvert County. "But for something so great, I don't really know what my options are."

Fred Brice, a BGE customer in Rosedale, said he wants to shop - and more important, save money.

But, he added, he just doesn't have the information he needs to make a wise choice. He's gone to the library to surf the Internet, and he's called the state for more information, but all that was available was a list of suppliers. "Until there are real dollars associated with these companies, I can't make a comparison," Brice said.

While suppliers have said volatile wholesale prices have made it difficult to post rates that would be locked in for at least a yearlong contract, others have said a wait-and-see attitude is most prudent for a newly deregulated market.

Still others have intimated that the silence among some of the retailers is part of an informal boycott of the electricity market in Central Maryland because they believe that a settlement agreement drafted by BGE and approved by the Maryland Public Service Commission in late 1999 insulates the utility from competition.

"There may be a little frustration among consumers who are looking for offers in the marketplace because there aren't many," conceded Wayne Harbaugh, BGE's executive director for pricing strategy.

BGE's retail affiliate, BGE Home, said it will wait until the fall before posting prices.

Glenn Ivey, chairman of the PSC, which launched the $5.6 million advertising campaign in April, said the slow start was not a surprise.


"We never expected this to be an automatic process, like flipping a light switch," said Ivey. "In other states, the transition to competition is expected to take place within a four- to eight-year range."

Proponents of the deregulation process believe that potential BGE competitors are likely to step up their marketing in the fall, when electricity prices settle down.

Currently, a company that wants to buy power on the "forward market," securing it now for delivery in the future, would have to pay about $130 a megawatt-hour. Electricity typically costs an average of $30 a megawatt-hour.

Critics believe that there will be extremely limited competition in Central Maryland for a large part of the six years that the settlement agreement with BGE - which sets the rules for deregulating the Baltimore area's electricity market - remains in force.

Michael J. Travieso, Maryland's People's Counsel, whose state agency represents residential customers and is a party to the settlement, said that, while residential consumers will benefit from a 6.5 percent rate cut during the six-year period, it's difficult for out-of-state suppliers to undersell BGE.

The lack of activity "is predictable because residential rates are reasonable and the prospects of a marketer actually offering a lower price are not very good," he said.


Gary Alexander, an Annapolis lawyer representing several out-of-state energy companies, said that, so far, deregulation is a charade.

"A whole lot of people are going to have egg on their face. The state is spending big bucks on a consumer education program which is clearly not justified. The numbers of people doing any selling, especially in BGE's territory, will be few and far between."

The Mid-Atlantic Power Supply Association (MAPSA), an out-of-state group of marketers that wants to sell electricity in Maryland, agrees.

In December, MAPSA filed a Circuit Court appeal, still pending, that challenges the terms of BGE's six-year settlement.

MAPSA contends that BGE's "shopping credit," the amount BGE will charge customers for the production of electricity, at 4.224 cents per kilowatt hour is artificially low and was designed to keep out competition.

During the same period, the utility would collect $528 million in "stranded costs" representing its unrecovered investment in generating plants, from all users - even those who choose not to buy their electric power from BGE. Residential customers would pay $194 million, or 37 percent, of the stranded costs.


"Unless these matters are resolved [in our favor,] we don't expect to see competition for residential consumers," said Mary Beth Tighe, vice president for regulatory affairs at Amerada Hess Corp.

AHC recently acquired Statoil Energy Services Inc., and operates as an electricity retailer in Maryland as Hess Energy Inc., which is a member of MAPSA.

While Hess is licensed in the state to sell power to commercial, industrial, and residential customers, it will most likely focus on the first two customer groups initially, Tighe said.

"It's just not worth being in the Baltimore area right now because the shopping credit is below normal wholesale prices," Tighe said. "That's why MAPSA is trying so hard in the courts to have the shopping credits sent back to the Public Service Commission to have it reflect market prices."

There are three chief factors that will motivate consumers to switch, said Gerald R. Alderson, president of Wattage Monitor, a Reno, Nev.-based company that provides research and consumer information on competitive electricity markets. The company also serves as a "Yellow Pages" for power shoppers, listing all the power companies active in a ZIP code and their rates for all of the states with deregulated markets.

Wattage Monitor has studied the eight other states that have preceded Maryland in launching competition - California, Connecticut, Massachusetts, Montana, New Jersey, New York, Pennsylvania, and Rhode Island. (Two other states - Michigan and Delaware - have set July 1 as their competition start date, and a dozen other states have adopted deregulation legislation.)


First, consumers must save at least $5 a month by switching, Alderson said. Surveys taken in every state that has launched competition say if the savings is $1 to $2 per month, about 5 percent to 10 percent of consumers switch. If the savings are $3 to $4 per month, about 10 percent to 15 percent switch. When the savings are $5 or more per month, 79 percent to 92 percent of consumers switch, he said.

"Consumers clearly understand a $5 savings each month," he said. "There will be an active market if the savings is at least that much."

The second big influence is the detailed rules the Public Service Commission adopts for switching, Alderson said.

"If consumers want to switch electric suppliers, they should be able to do so simply," Alderson said.

Finally, consumers must be educated before they can choose.

"Consumers really don't have a feel for the electric market," Alderson said. "They don't know what's fair."


The PSC advertising blitz - 7,000 commercials, print ads in 70 publications, 2,500 outdoor and transit billboards, a toll-free answer center, a Web site and a free consumer guide - was designed to help educate consumers. Officials said the answer center has received more than 10,500 calls and the Web site has received more than 711,000 hits. About 20,000 consumer guides have been requested.

"We're helping consumers ramp up for shopping, by helping them become more knowledgeable and comfortable with the choice," said Ivey, the commission chairman.