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TOUGH TO UNPLUGG

The Baltimore Sun

Homeowners fumed and politicians fretted when electricity prices increased by a record amount this past summer. But did people unplug?

Not by much.

Utility records show the average Maryland household used nearly as much electricity as in past years, even when adjusting for differences in weather from one year to the next.

In the case of Baltimore Gas and Electric, significant conservation gains in the summer of 2006 were nearly erased this year as customers increased consumption again.

Energy experts and economists say the data reflect how hard it is for consumers to give up their plasma televisions, computers and air conditioning at a time when electricity amounts to less than 2 percent of the average household budget.

On a daily basis, the electricity portion of a typical Marylander's utility bill in the summertime - the most expensive part of the year - still costs about as much as a large mocha frappuccino at Starbucks. Economists say that helps explain why consumers aren't rushing to conserve.

"If something costs less than 2 percent of your income, you probably don't spend a lot of time worrying about it," said Lester B. Lave, an energy expert and economist with Carnegie Mellon University.

As much as the rate increases hurt, he said, economic studies suggest it takes more to get people to change behavior.

That could pose difficult policy questions for utility regulators and lawmakers in coming months as they consider new programs aimed at getting people to conserve.

Two big utilities, Baltimore Gas and Electric Co. and Pepco Holdings Inc., want the state's permission to invest millions of dollars in new technology and rebate programs designed to get consumers to curb demand.

At the same time, Gov. Martin O'Malley has called for a 15 percent reduction in electricity consumption statewide.

The outcome of the initiatives could prove critical to keeping prices down and preventing a potential energy shortfall in coming years.

Utilities have testified at regulatory hearings that they can lessen the need for expensive new power plants and still meet demand if consumers learn to cut back.

BGE and other utilities make most of their money by delivering electricity, not by producing it.

The latest numbers from utilities suggest consumers are making some effort to conserve, but they may need more of a financial incentive to move beyond the marginal decreases seen so far.

Customers of Baltimore Gas and Electric - the state's largest utility - curbed electricity use by 3.7 percent in summer 2006, when news of a 72 percent rate increase dominated news and political debate. Consumer outrage prompted lawmakers to temporarily cap the rate increase at 15 percent.

The push to conserve had diminished considerably by the time the remaining 50 percent of the rate increase took effect in June.

Rise in use

Preliminary data show BGE customers increased consumption this past summer by almost 3 percent compared with the summer of 2006.

The Sun looked at summer consumption because that is when both utility prices and consumption are highest. The numbers were adjusted to account for differences in weather from one summer to the next.

Projecting out five years, BGE estimates the rise in rates - more than 70 percent in two years - would cause customers to curb use by an average of 1 percent to 2 percent from current levels.

Pepco and Delmarva Power report similar numbers - with most customers curbing usage by 0.5 percent to 2 percent since rate increases took effect along with the move to deregulation.

"In the short run, people may adjust their behavior a little bit," said Mark Case, senior vice president of regulatory affairs for BGE. But industry experience shows that consumers often revert back to their old behaviors over time.

Pepco experience

Mark Browning, Pepco's director of rates and technical services, said the utility's electricity sales have "softened" slightly since a roughly 40 percent rate increase took effect for its Maryland customers last summer.

The reductions are likely the result of consumers investing in efficient light bulbs and turning up their thermostats to reduce cooling costs. But he said larger decreases may be evident in future years as consumers invest in more efficient appliances and air conditioners, he said.

Case argues the rate increases may be having less impact on household budgets than many realize. When adjusted for inflation, BGE's rates today are still lower than they were in 1995, he said.

And the utility's own analysis shows the average BGE household spends 1.2 percent of its income on electricity today, compared with 1.6 percent during the early 1990s.

In the summer - when customers use the most electricity and BGE charges its highest rate - the average household is spending just over $5 a day on electricity and distribution charges, based on 2007 numbers the utility provided. For most, the cost drops significantly in the winter, when rates are lower and air conditioners are idle.

That's little consolation to BGE customers such as Mike Blanchard, a Columbia resident who has tracked the increase in his electricity bill over the past two years.

An investment in efficient light bulbs and a programmable thermostat have done little to stop his annual electric bill from rising by hundreds of dollars.

He spent $852 heating and cooling his three-bedroom townhouse with electricity in 2005, before the rate increases took effect. That number increased to $1,064 last year and is on pace to reach $1,300 this year, by his calculations. At that rate, he will average about $3.56 per day in electricity charges this year - up from $2.33 a day in 2005 before the increases.

"When you do your budget, it's noticeable," he said of the rate increase.

Still, Blanchard has done little to curb his consumption, short of turning off excess lighting and being reasonable with the thermostat.

With an 18-month-old daughter in the house, Blanchard feels there is a limit to how much he can cut back on air conditioning in the summer. Instead, he cuts back on things like eating out and buying new DVDs.

'It's a necessity'

"To be honest, it's a necessity," he said of his electricity use. "You just have to pay your bill."

There are parallels with consumer complaints about gasoline prices in recent years. When surveyed, many motorists said they would cut back on their driving after gas reached $3 per gallon and stayed there. But the nationwide consumption numbers suggest otherwise.

Part of the reason is that consumers simply can't afford to immediately replace their SUV with a smaller car. And few are willing to sell a home in the suburbs for something closer to work.

However, precedent suggests that consumers will cut back when urged to make changes. When California was faced with the prospect of soaring electricity prices and rolling blackouts in summer 2001, utility customers responded by reducing consumption by 6 percent on average, according to a study by professors at the University of California at Berkeley.

But it took aggressive public policy moves to make it happen. California state officials implemented the so-called 20/20 program, which gave utility customers a 20 percent break on their rates if they reduced electricity consumption by 20 percent. They also provided various incentives for consumers to buy more efficient appliances.

"During the crisis, consumers took a very proactive stance on conserving and utilizing more energy-efficient appliances and devices," said Paul Moreno, a spokesman for Pacific Gas & Electric in San Francisco.

Natural gas pattern

A similar pattern was seen in natural gas sales after tightening supplies caused prices to soar beginning in 2000, the American Gas Association reported.

A George Washington University study commissioned by the trade group found that households reduced gas consumption an average of 1 percent a year from 1980 to 2000, mostly a result of better insulation in homes and a switch to more efficient furnaces.

The rate of conservation more than doubled to 2.2 percent annually after natural gas prices started a sharp upward climb in 2000. It accelerated to about 5 percent annually between 2004 and 2006, a period of soaring prices marked by Hurricanes Katrina and Rita. The storms wiped out gas production in the Gulf of Mexico, resulting in a doubling of natural gas prices in many regions.

"When consumers are hit in the pocketbook by higher prices, it definitely does have an impact," said David Chin, chief economist for the American Gas Association.

Chin concedes that cutting back on electricity poses greater challenges than with natural gas. For one, electricity is used for more purposes, which makes it all the harder to cut back.

Both BGE and Pepco have proposed a series of initiatives to make it easier.

Rebate programs

Each company has programs providing rebates to those who purchase more efficient light bulbs and appliances. Both also have longer-term plans to provide customers with high-tech meters and intelligent thermostats that will allow them to program appliances to throttle back during times of peak electricity demand.

BGE hopes to expand on a program that pays customers for allowing the utility to remotely cycle air conditioners on and off during hot days.

If the programs are successful, BGE's Case argues, household consumption could be cut by as much as 10 percent from current projections. That's short of O'Malley's call to reduce statewide consumption by 15 percent, but Case said there is room for improvement in the BGE proposals.

"We're looking to see if we can add additional programs and increase the impact of our programs to get to the governor's target," Case said.

paul.adams@baltsun.com

Conservation programs

BGE, Pepco and Delmarva all provide:

Rebates on the purchase of energy efficient appliances and light bulbs

Rebates for allowing utility to remotely cycle air conditioners and water heaters on and off on hot days

Coming soon:

So-called "smart meters" and programmable thermostats that will help customers better manage electricity usage and save money

For more information:

BGE: www.bgesmartenergy.com; or 410-685-0123.Pepco: www.pepco.com; or 202-872-2000

Delmarva: www.delmarva.com; or 800-375-7117

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