With the end of price caps on electricity for commercial customers just months away, a group of Maryland trade associations is counting on its collective buying power to save money for hundreds of the state's retailers, hotels, restaurants, printers, gas station dealers and other businesses.
Mid-Atlantic Aggregation Group Independent Consortium, or MAAGIC, said yesterday that it has signed an agreement with Pittsburgh-based Strategic Energy LLC to supply electricity at competitive rates and will kick off a campaign today to sign up members of its trade groups .
MAAGIC, which is licensed by the state to negotiate power contracts on its members' behalf, is made up of nine business associations, including the Maryland Retailers Association, the Restaurant Association of Maryland and the Maryland Hotel & Lodging Association. The group represents 6,200 commercial customers in Maryland and the District of Columbia, most of them small- and medium-size businesses.
"We're going to have greater purchasing power than they will on their own," said Tom Saquella, president of MAAGIC and of the Maryland Retailers Association. "Buying power this way is far, far different from when [Maryland] had a regulated industry. Everyone will be bombarded by offers. We've done a lot of work for them already."
The state approved deregulation of the electricity market in 2000, moving away from a system of tightly regulated rates. To smooth the transition, state utilities agreed to cap rates for specified periods. While the caps insulated customers from a volatile energy market, they also kept rates artificially low, making it difficult for other electric suppliers to compete with local utilities.
Rate caps expire July 1 for commercial customers in areas now served by Baltimore Gas and Electric Co. and by Potomac Electric Power Co., and on June 1 for customers served by Conectiv Power Delivery on the Eastern Shore. The caps are to be lifted in January 2005 for commercial customers in Allegheny Power Co.'s service territory in Western Maryland.
Utility costs are often the second- biggest operational cost for many businesses, after salaries, Saquella said.
Business operators say it makes sense to join with other businesses to buy electricity from one source.
"They ought to be able to give us a good deal," said Benton "Skip" Fonner, legal counsel for Hair Cuttery, which operates about 140 hair salons in Maryland. "We spend a lot of money on utilities. After salaries and rent, it's one of our largest expenses."
Fonner, who said his company plans to sign on with MAAGIC to buy from Strategic, said he is hoping to reduce electricity expenses by at least 5 percent.
Bruce Sher, regional director for Strategic Energy, said customers who sign up by one of the first deadlines would have a chance to lock in a target price in the market, though he would not disclose what the target price was. Those who sign up after the utilities announce new rates (once the price caps are lifted) would likely get a rate at least 5 percent below the utilities' prices, he said.
MAAGIC, which was licensed in May 2000, has been purchasing power on an aggregate basis from Washington Gas Energy Services in the Pepco service area and from Constellation NewEnergy Inc., an arm of Baltimore-based Constellation Energy Group, BGE's parent, in the Conectiv service area and was supplying power to 388 locations.
Saquella said MAAGIC interviewed and accepted bids from nine potential suppliers -- including Constellation NewEnergy -- and based its decision partly on what it viewed as Strategic Energy's ability to serve large and small members.
Constellation spokesman Robert Gould said he was not familiar with the MAAGIC agreement but said it's indicative of a competitive marketplace. Constellation NewEnergy has been actively marketing to win commercial and industrial customers.
"We see the competitive market as an advantage to be gained by customers, and will be actively engaged in marketing for that business," Gould said. "We're making a heavy push in the region to attract customers."
Strategic Energy, which buys wholesale power under long-term contracts for direct delivery to customers, has about 15 other aggregate agreements in nine states, purchasing power for schools, restaurant associations and other groups.
Under the agreement with MAAGIC, each member business would sign its own contract with Strategic Energy.