Two years after deregulation of the electric industry began, most of Maryland's residential customers still cannot purchase power from any supplier other than their regulated utility.
The lack of competition has prompted the Maryland Public Service Commission to begin developing a safety net to protect consumers from volatile prices when rate caps end, starting as early as next year. The PSC wants to ensure that customers who do not choose an alternative supplier will continue to receive reliable electric service at stable and predictable prices.
To make that happen, the PSC could order local utilities such as Baltimore Gas and Electric Co. to continue providing such standard offer service (SOS) to consumers even after rate caps expire, which would equate to partial regulation of the electric industry.
But regulators and other participants in Maryland's slowly developing electric market caution that taking such a move is by no means a sign that competition has failed; it merely means that competition needs more time. "Competition is not vigorous, but it's beginning," said PSC Executive Director Gregory V. Carmean. "It's not what the framers had hoped for, but it's developing. We have to prepare for the fact that it might not work."
"We already know competition is not working for most residential and small commercial customers," Carmean said. "We know it is working for BGE's largest commercial customers. The deregulation statute requires us to be prepared in the event competition doesn't develop." Negotiations among utilities, suppliers and regulators since December have not resulted in an agreement on establishing rules and procedures to provide SOS, and time is running out.
Commercial customers on the Eastern Shore will face free-market prices next summer when rate caps in the Delmarva Power and Light Co. end June 30. Eastern Shore and Potomac Electric Power Co.'s residential customers lose their rate caps the next year. After that, BGE residents will face the market in 2006 and Allegheny Power's residents in 2008. That could amount to more than 2 million people searching for an electricity supply, said People's Counsel Michael J. Travieso.
The problem is that until now, Travieso said, only 3 percent of the state's eligible residential customers have switched to competitive electricity suppliers, and few suppliers are even making offers to residential customers.
There is also no clear evidence that marketers will ever begin making competitive offers to supply the state's most vulnerable customers with electricity, Travieso said. If anything, the opposite is true. Across the country, marketers have generally focused on competing for larger customers who use more electricity and have more spending power.
Without choice, many residential customers will be forced to stay with some form of SOS provided by an energy company, whether that means the utility or an alternative electricity supplier. The Office of People's Counsel believes that job belongs to the utility.
Utilities are obligated by state law to provide SOS only until next July 1. But the OPC has recommended that the PSC order utilities to continue providing SOS at a market price that allows them to recover the cost of procuring or producing the electricity, and a reasonable return.
"I envision a world where customers always have available to them a regulated service," Travieso said. "At the same time, the market can be open so that other suppliers can come here and offer service to residents, too. You can buy your electricity from BGE, which reflects wholesale prices and a relatively low markup for the risk the company takes providing it to you. Or if a company like Green Mountain Energy wants to sell you electricity, you can buy it from them, too."
"What consumers want is some certainty," Travieso said. "They want to know what their electric bill will be next year. They need to know that. They need to know they will not be subject to wild price swings. ... No one is saying we should preclude customers from making a choice if it is available to them."
Travieso said he expects to talk with state legislators this year in hopes of persuading them to change deregulation law to ensure that regulated electric service is always available to residential customers. But electric suppliers who want to enter Maryland's market say that won't be necessary.
The trick is to come up with an SOS rate that not only protects consumers, but also permits a market to develop. If the SOS rate is too low, marketers will have a hard time competing with the price - a problem that suppliers said they have encountered with current price freeze rates.
Suppliers support the idea that utilities should provide SOS for the time being, as long as they are required to seek out the best prices for power from competitive suppliers through wholesale bids.
Whether utilities will need to continue providing SOS indefinitely is not known.
"We think the statute works," said Thomas W. Kinnane, an attorney who represents suppliers. "It's better to leave it alone. Right now, the commission has the flexibility it needs to make sure the best entity to provide it does that."