Lawmakers seeking to protect consumers from a 72 percent electric rate increase may have inadvertently increased the chance that Baltimore Gas and Electric and its corporate parent, Constellation Energy Group, have few strong competitors in the state's energy market.
The legislation that was approved last week in a special session of the General Assembly and that will be debated today at a public hearing led by Gov. Robert L. Ehrlich Jr. softened the initial impact of a rate increase for BGE customers.
The legislation also would fire the Public Service Commission that oversees utility regulation and replace it with a board that will have a broad mandate to re-evaluate the state's deregulation laws, legislative leaders say.
But the lawmakers who've cast themselves as consumer watchdogs and criticized Ehrlich as a protector of BGE have helped fortify the incumbent utility's dominance as an energy supplier in the market, some argue.
Energy suppliers who want to compete against BGE say confusion over the rate plan is making it hard to sign up customers - many of whom don't realize they can still save money by switching providers. And uncertainty about what a new utility commission might do combined with a legislative requirement that regulators undertake a wholesale re-evaluation of the state's deregulation plan has competitors nervous about pursuing customers in Maryland.
Industry officials say competitive energy marketers may be reluctant to spend millions of dollars to acquire customers in a state where regulators might suddenly change the rules of the game.
"I think Maryland, with this law, they've planted some seeds of doubt for the long term," said Harry Warren, president of Washington Gas Energy Services, which is offering to undercut BGE's price for energy supply. "I sincerely hope that won't deter companies from entering into the residential market."
Washington Gas says it still plans to pursue residential customers with an offer to beat BGE's price for electricity by about 10 percent. Several other competitors said yesterday that they, too, are not yet abandoning the market. But some also said they are waiting to see what happens before spending heavily to compete in Maryland, and that could slow the development of competition for months or years to come, some industry officials said.
"One thing you hear from all of the participants in these kinds of markets is that they can manage a lot of risks - fuel costs, hedging risks - but regulatory risk is one thing that's difficult to manage," said Charles Gray, executive director of the National Association of Regulatory Utility Commissioners.
A similar situation has slowed competition from growing in states like Ohio, Virginia and Pennsylvania, where lawmakers have tried extending rate caps or taking other measures to protect consumers from large rate boosts, Gray said. In Delaware, where some customers face a 59 percent rate increase, few new competitors have come into the market since regulators were charged with taking a second look at the state's deregulation plan.
After months of debate, lawmakers in Maryland passed legislation that limits BGE's rate increase to 15 percent for 11 months. It also fires the utilities commission, which has been criticized as being too cozy with utilities and not acting more aggressively to soften the blow of a 72 percent rate increase, first announced in March.
The new commission is charged with undertaking a series of studies that could lead to changes in how utilities do business in Maryland. One orders the PSC to study the structure of deregulation and re-evaluate the decisions made by past commissioners. The bill also leaves open the possibility that BGE and other utilities could again own generating facilities, or enter into long-term purchase agreements with energy suppliers in hopes of lowering energy costs in the future. The provisions are aimed at undoing what some contend were mistakes in the original deregulation law.
Energy marketers say all of those provisions pose potential problems for BGE competitors.
By temporarily limiting the rate increase to 15 percent, electric customers have less incentive to seek a new supplier, the marketers say. It also leaves many people confused about whether they can save money by switching to a different supplier.
"The unfortunate thing is that people understandably are not sure what to do," said Kim Price, vice president of marketing for Pepco Energy Services, which offers customers energy that comes from environmentally friendly sources. "People are not switching because they don't really know what's the right thing to do, and when you aren't sure you usually stay with what you have."
Of bigger concern to marketers is what a new PSC might do after completing its investigation into the state's deregulation plan.
Many lawmakers and consumer advocates note that competition has not substantially lowered rates in other states that have deregulated. They want the PSC to change the rules to make it easier for utilities to lock in long-term energy supply contracts and take other steps - including the possibility of owning power plants - to take the volatility out of electricity prices.
"They've been given the authority to make some changes," said Warren G. Deschenaux, the General Assembly's chief fiscal analyst.
Industry officials say the legislation asks regulators to start from scratch, putting at risk years of effort to move toward a competitive electric market.
"You have to consider that this legislation throws out tens of thousands of hours of work by dozens of experts who have been working on these plans for years," said Craig Goodman, president of the National Energy Marketers Association, a trade group that represents energy resellers. "Who in the world, with no margin competing against a subsidized price in a politically risky environment, can afford to have thousands of hours of work just thrown out the window?"
Stamford, Conn.-based Direct Energy, one of the nation's largest non-utility energy providers, said it hopes to work with the PSC on regulations that will foster competition, rather than keep it out.
"Right now, the regulatory uncertainty is unparalleled," said Frank Lacey, director of government and regulatory affairs for Direct Energy. "Direct Energy will always want to be in the Maryland market, and when the conditions are right for market entry, we'll definitely be there."
Commerce Energy, of Orange County, Calif., said it is waiting to see what happens with the new PSC before deciding how aggressively it goes after residential customers in Maryland. It plans to begin advertising in the state soon. "All of the uncertainty around the regulator environment casts some concern about how aggressive we're going to be," said Tom Ulry, senior vice president of sales and marketing.
Should I switch suppliers?
Many people are confused about whether they could save money by switching to a different supplier if legislation is approved that temporarily limits the electric rate increase in the Baltimore area to 15 percent.
The answer is they could still save money.
Here's how it works: Each customer's bill is made up of three parts - the energy supply portion, transmission fee and distribution charge. When a customer switches energy suppliers, only the energy supply portion of his bill is affected. As crafted, the legislation passed last week will limit rate increases to no more than 15 percent by giving all customers - regardless of who their supplier is - a credit on the distribution portion of their bill.
That means customers who find a discount rate on the energy supply portion could see a rate increase of less than 15 percent in July. Those who stick with Baltimore Gas and Electric will get the full 15 percent.
- Paul Adams