Maryland residents will begin paying more for electricity next year and will have very limited choices among power suppliers, Michael J. Travieso, the state advocate for residential utility customers, warned yesterday.
Travieso, whose formal title is People's Counsel, has been issuing annual reports since the enactment of legislation to deregulate Maryland's power utilities in 1999. Temporary rate caps intended to protect consumers through a transition to deregulation begin to expire next year, he noted.
"Energy prices have been real volatile and rates have gone up in other places around the country," said Travieso. "Our residential customers have been insulated from that. People don't really appreciate the fact that their rates have been frozen for several years.
"The premise was that during that time period, a competitive market would develop for residential customers and they would have a lot of choices," he said. "That hasn't developed. When those rate caps come off, people will notice."
Maryland is one of 17 states that restructured the electric industry in the past few years and allowed residential customers to choose an alternative energy supplier. But many of them have found little competition in the residential market, limited interest from energy suppliers and low levels of enrollment with alternative suppliers.
"I am very concerned," said Del. Dereck E. Davis, chairman of the House economic matters committee, which oversees Maryland public utility issues. "We're still in the throes of a difficult economic climate in the state. The last thing I want to happen is for our constituents to look up and see their bills go up 10 to 20 percent from one month to the next.
"Once citizens become irate and they see that deregulation is the cause of it, there's going to be a panic reaction and you'll see all sorts of wild proposals from the legislature about turning back deregulation," the Prince George's Democrat said. "We need to do everything we can to head off impending problems."
Of Maryland's 1.87 million residential customers, only 3.8 percent (70,956) have switched to an alternative electricity supplier. Only two companies are offering electricity supply service to residents only in the Potomac Electric Power Co. territory, Travieso said. One supplier is offering "green" electricity at premium prices in Baltimore Gas and Electric Co.'s territory.
Given the lack of competitive options, Travieso recommended that Maryland continue with its plan to create electric choice, while preserving a level of regulation to protect the state's most vulnerable and smallest consumers from price spikes and industry instability.
When deregulation began in the summer of 2000 in Maryland, a settlement agreement among utilities, regulators and other parties set up protections for customers in the form of rate caps, price freezes and assistance to low-income consumers to allow competition to begin.
But artificially low residential price caps in each service territory have slowed the development of competition, critics say.
Those rate caps will end for residential customers in Pepco's service territory at the end of June 2004. They will be followed by BGE's residential customers in 2006 and Allegheny Power's customers in 2008.
Travieso said the General Assembly should enact legislation allowing each county, or its incorporated subdivisions, to sign deals with licensed power suppliers to buy electricity in bulk for residents and small businesses in their areas.
The practice, known as aggregation, allows municipalities to seek lower prices on behalf of smaller customers. Various municipal aggregation bills have failed to pass the General Assembly over the past three years.
Spokesmen for utilities said they support versions of aggregation. They also believe choice is coming soon, especially when the rate caps expire.
"We're still a couple of years away, but I think we will see more competition as we get closer to the date," said Robert L. Gould, a BGE spokesman.
But the best move the state has taken so far to stimulate competition, utilities said, was made in April when the Maryland Public Service Commission approved a settlement agreement to extend standard offer service (SOS) for four more years to residential customers who do not choose a different supplier.
The settlement requires utilities to continue providing electricity at regulated prices to residential customers. But it also allows utilities to charge market rates based on wholesale prices, fluctuating seasonal costs and administrative expenses.
The People's Counsel report recommended that the state require utilities by law to offer standard offer service permanently to residential customers. This would allow utilities to negotiate longer-term wholesale electricity contracts to ensure reliability and mitigate price volatility, the report said.
The move toward market-based prices could be a shock for some customers who aren't aware that prices have been frozen at 1999 rates, but it could be just what the state needs to spur competition, utilities and energy suppliers said.
"The existing retail regimen continues to suffer from the miscues in the way the markets were set up with those price caps," said Thomas W. Kinnane, an attorney representing suppliers interested in doing business in the state.
"I think now that they've got an SOS settlement in place, there will be an opportunity for the retail market going forward now.