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Changed pricing method may mean high energy bills
Question of the Day
BALTIMORE — Energy customers in Maryland could see higher bills because a regional power grid operator is phasing in a new pricing method for companies like Baltimore Gas and Electric Co. to have access to power.
PJM Interconnection will be incorporating a new method of pricing electrical capacity on the wholesale market. It’s different from previous pricing models, because it takes into account the location of power users when figuring out how much they should pay for access to electricity.
That could mean steep price increases for central Maryland and the Eastern Shore, because those areas import more power than they produce.
Capacity costs could rise from about $7.60 per megawatt per day in 2006 to $140 this year in the Baltimore-Washington area. On the Eastern Shore, as well as Delaware and New Jersey, the price for a megawatt-day will be about $177 this year, according to PJM. A megawatt-day is enough power for 1,000 homes for one day.
Ray Dotter, spokesman for PJM, said the new model is designed to create an incentive for companies to develop new generation where it is needed. It’s also geared toward discouraging existing power plants from shutting down.
Under the old pricing model, he said, realities of the electric transmission system were not reflected. Before, utilities and power-supply companies could buy capacity for the same price across the market. Mr. Dotter said the difficulty of moving power long distances across busy transmission lines was not taken into account under that system.
Mr. Dotter said that in the new system, called the Reliability Pricing Model, companies pay to reserve power that is readily available in times of high demand.
“In the past, we valued all capacity the same no matter where it was located and where it was supposed to be serving,” he said. “It didn’t reflect that you really couldn’t use that generation to serve Baltimore.”
Suppliers pay for the capacity they use through PJM. That money goes to generators. Most of the capacity on the grid is sold through private contracts. But the price for the remaining capacity is set through an auction that PJM oversees. The auction prices provide an indication of market value.
Some have criticized costs in the new pricing model as a windfall for generators. Others hope it will encourage more market capacity and relieve the pressure on the market.
In its reluctant approval in May of a 50 percent increase for most BGE residential customers, the Maryland Public Service Commission said it would look into the operation of the wholesale market, specifically mentioning the new pricing model.
However, it remains to be seen what role the Public Service Commission can play, because it is not responsible for regulating wholesale power. That responsibility falls to the Federal Energy Regulatory Commission, which oversees PJM and approved the new pricing model late last year.
Electric customers from households to factories will mostly pay the cost for capacity price increases. Some will see the cost directly. Others will see it in their overall power costs.
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