Electric bills will increase an average 12 percent to 16 percent a year for residential users in the Washington suburbs and Eastern Shore when price caps expire June 30, giving the first inkling of what Marylanders might face as the state moves to a fully deregulated power market.
The Maryland Public Service Commission released the estimates yesterday, a week after the conclusion of a bidding process in which the state's four utilities locked in contracts with 14 power suppliers for so-called "standard offer service" - for customers who don't sign up with a competing electric supply company.
The hope is that competing suppliers will come into the market and try to beat the standard-offer-service price, eventually saving consumers money, PSC Chairman Kenneth D. Schisler said yesterday.
Commercial users statewide also face substantial increases - as much as 35 percent for some in Potomac Electric Power Co.'s service area.
Small and mid-sized businesses in Baltimore Gas and Electric Co.'s territory will see standard-offer-service price boosts of 17 percent to 20 percent, the PSC said. BGE residential rates will remain frozen until July 1, 2006.
The sharp increase in standard offer service was attributed to the steep rise in the price of fuels used to produce power since 2000, when electric rates were cut an average of 6.5 percent and frozen as part of the state's transition to a deregulated market.
"The increase over what we have today is reflective of the fact that prices tracked the increase in fuel," said Schisler. "Natural gas has skyrocketed, and our electricity has not because we've been under rate caps."
He was confident the PSC-supervised competitive bidding produced the best prices available. Fourteen of the 25 power suppliers who bid won some portion of the total electric load.
But consumer advocates said the added cost would pose a real hardship for many customers.
"This announcement today really should be lighting a fire under some of our legislators to take pro-active steps to reduce customers overall bills," said Gigi Kellett, a public interest advocate for MaryPIRG, which is pushing for legislation to promote greater energy efficiency and the use of more renewable energy sources.
"The cost of natural gas is going up, and we're not going to see it go down. The more diversity we have in the fuel mix, the more stable the prices will be."
Once the utilities publish their standard-offer-service rates - which is the price consumers will use to comparison shop for electricity - suppliers are expected to start making offers to residential consumers.
Pepco and Conectiv will post their standard-offer-service commercial and residential rates by April 30, while Allegheny Power will post its SOS commercial price by July 1. BGE will post its commercial SOS rates by April 30.
Bill Roberts, president of Economic Sciences Corp., an energy/economic consultant in Berkeley, Calif., said the increases appear to be in line with current market conditions.
"I'm not surprised it would be that hefty a price increase," Roberts said. "That's what markets are for - to determine prices. If [the PSC] has gone through a legitimate auction process, that probably is the best guess you can come up with for what the market price ought to be."
Residential customers of Pepco, which serves Montgomery and Prince George's counties, will see an average increase of 16 percent, or $164.28, in their annual bill, driven mostly by an average 26 percent increase in the cost of power. (Utilities also collect a distribution charge for delivering electricity over their lines to customers' homes.) However, most Pepco customers who use electricity to heat their homes will see their annual cost rise 19 percent, $218.93.
Conectiv Power Delivery's residential customers on the Eastern Shore, Cecil County and part of Harford County can expect an average annual increase of 12 percent, or an average annual increase of $130.80, as the supply portion of the bill rises an average 19 percent, the PSC said.
Mid-size commercial customers such as grocery stores and discount retailers in Pepco's service area face the largest increases -an average of 35 percent. That same group will see an average 20 percent rise in BGE's territory.
Small businesses such as dry cleaners and florists will see an average 17 percent increase in BGE's area, 16 percent in Pepco's, and 20 percent in Allegheny Power's in Western Maryland; bills will decrease 5 percent for Conectiv customers.
BGE, which has been running an advertising campaign urging businesses to shop for the best deal, noted it has not increased its electric rates since 1993 despite the rise in fuel costs.
"Customers have enjoyed the same prices for more than a decade." said Wayne Harbaugh, manager of pricing and regulatory services for BGE.
People's Counsel Patricia A. Smith said her office, which represents residential rate payers, closely monitored the wholesale bidding process.
"The Office of People's Counsel has not detected any anti-competitive practices," Smith said. But the office will look into "whether this method is the most efficient and effective way to procure power for customers who choose the standard offer service. The theory has been that competition will develop, and that's what I hope."
In the meantime, she said, she is focusing on helping ratepayers. Her office has set up a toll-free hot line (866 601 2233) for consumers who have questions or need help paying higher bills. Assistance includes help with conservation, budget billing or energy assistance programs for income-qualified residents.
One expert questioned whether a competitive market would be able to develop under Maryland's current system of providing the default service.
"It's not clear how much deregulation you're really getting, for good or bad, if you still have [standard offer service] around," said Tim Brennan, a professor of public policy at University of Maryland, Baltimore County and co-author of Alternating Currents: Electricity Markets and Public Policy. "If there's a standard offer, everyone's got to meet the standard offer, or they can't compete."
Also, "it's not clear, especially at the residential level, that the public wants to be bothered with this," he said.
Schisler, the PSC head, said the goal was that consumers reap the benefits of a competitive market.
"We hope that the competition at the retail level will develop like it has already in the medium and large commercial sector," where many of the competitive deals have already been struck, PSC chairman said.