Costliest power in deregulated areas


The expiration of electricity rate caps and the looming 72 percent rise in electric bills have been a tough proposition for many in the Baltimore region to swallow, particularly when such states as Idaho and West Virginia charge less than half Maryland's planned rate for July.

Is it out of line?

The short answer, energy experts say, is no. But after BGE's electricity rate caps come off next month, Baltimore will become one of the 10 most expensive consumer electric markets in the nation - the bulk of them states that have already deregulated.

An analysis of electricity prices nationwide, using the most recent data from the Energy Information Administration, shows that 34 states charged more for residential electricity in February than did Maryland, which billed at an average rate of 7.93 cents per kilowatt-hour that month.

Next month, BGE residential customers will pay an average of 14 cents per kilowatt-hour, depending on the outcome of a special General Assembly session on the issue this week. With the increase, the Baltimore region would join the realm of Northeastern states such as New York and Maine, where colder winters, a lack of alternative fuel sources and strict clean-air laws have pushed prices among the highest in the country.

"It's in that range of those other states where the caps have expired," Kenneth Rose, an Ohio-based energy consultant, said of Maryland's planned 14-cent average per-kilowatt-hour price. "There's a correlation between high-cost states and those that restructured."

Others, however, said that whether Maryland ratepayers are getting a fair shake is a complex question.

"We need to have the whole picture here," said Tyson Slocum of the consumer group Public Citizen. That picture, he said, includes what BGE parent Constellation Energy Group is earning on power it exports outside Maryland.

A lot goes into determining the price of electricity, including the number of customers served, regional market rates, labor, climate, local clean-air requirements, taxes and the type of fuel used in the area.

Electricity costs in West Virginia, for example, are among the cheapest because of its large supply of coal for energy, while low-cost states in the Pacific Northwest have access to "hydro" power. Hawaii, at about 23 cents per kilowatt-hour, is the nation's most expensive electric state largely because of its geography, the lack of backup power from neighboring utilities and few large commercial customers.

Another large price factor is whether a state has deregulated its electricity market. For years, electricity was fully controlled by states. But in the 1990s, a school of thought began to arise that deregulating - or "restructuring" - the system would encourage competitors and lower prices.

The roughly 20 or so jurisdictions that have begun some form of deregulation, including Maryland and the District of Columbia, essentially negotiated with their energy companies to sell off their generators and become distributors for the energy that would supposedly flow in from various providers. The structure was similar to the legislation that required the "Baby Bell" phone companies to share their lines with competitive phone companies.

Thus far, few competitors have stepped forward in the residential electricity market.

In Maine, which restructured in 2000, less than 1 percent of residential customers are served by companies other than the main providers. But about 37 percent of the bigger power users, such as paper companies and large commercial operations, use competitive providers.

"The idea was that since the big users were already availing themselves of competitive providers - they don't even go through the distribution system - they were able to get better pricing. We thought we ought to make that more available to more customers in the state," said Phil Lindley, a spokesman for the state's Public Utilities Commission.

Though competitors have yet to emerge for Maine's residential customers, the price stayed relatively stable until recently because delivery charges decreased, offsetting the increase in energy prices. Maine had deregulated the energy portion, while keeping transmission and delivery under control.

But after hurricanes last year in the Gulf Coast, Maine's generation prices are rising faster than delivery costs are going down, Lindley said. Prices spiked by about 12.4 percent in February compared with a year earlier.

Some fear that a competitive market for residential power will be similarly slow in developing in Maryland, although customers served by Potomac Electric Power in suburban Washington and Delmarva Power & Light on the Eastern Shore already have electricity choice. A few alternative suppliers in BGE's coverage area have registered with the state, including Pepco Energy Services and Washington Gas Energy Services, both of Northern Virginia, and Ohms Energy Co., a Rosedale startup.

On three days over three months this winter, BGE took in sealed bids for blocks of energy from multiple wholesale providers and accepted the lowest ones. Its parent company, Constellation, it turned out, won contracts to supply 70 percent of BGE's customer load for the coming year, according to documents the company filed this month with state and federal officials.

The base price BGE agreed to pay was about 11 cents per kilowatt-hour. An additional 3 cents in distribution and taxes are added, along with 0.4 cents to cover administration costs and a 0.15-cent profit margin, said Wayne Harbaugh, who manages pricing and regulatory services for BGE.

BGE also said its prices will be less than those charged in Massachusetts, Rhode Island and Connecticut. According to the Energy Information Administration, the average price of electricity in the New England and Mid-Atlantic regions this summer will be around 14 cents per kilowatt-hour -what BGE is proposing.

"It's relative. You have to define fair," said Casimir Bielski, a senior regulatory analyst with the Edison Electric Institute in Washington. "For example, I live in Maryland, and I happen to find it very expensive to live in Maryland. But when I work here, I get a salary" commensurate with costs.

But despite a huge advertising campaign, in which BGE has sought to get out the message that it won't profit excessively from the rate increase and that it's not responsible for rising energy prices, customers such as Anthony Benvenga aren't placated.

Benvenga, 48, of Essex, holds a part-time job as a flooring specialist at a Home Depot and works full time in transportation inspection for the city. He said he expects his electricity bill to increase about $40 a month.

"It's propaganda, out and out," he said. "What's going to happen is the energy companies are going to be charging exorbitant rates, the retirees and the working class aren't going to be able to pay for it, and everybody is going to be in debt."

A map published Sunday with an article about electricity rates carried an incorrect credit line. Some of the information was provided by the Edison Electric Institute.The Sun regrets the errors.
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