- The Washington Times - Wednesday, March 15, 2006

Maryland’s looming spike in electricity rates and the presence of only two licensed suppliers actively seeking new customers in deregulated areas prompt the question: Where is the competition that lawmakers and energy companies predicted back in 1999?

“Those who supported this talked about maybe a half-dozen bidders out there, this is going to be a robust market. That was a promise that didn’t come through,” said Charles Acquard, executive director of the Silver Spring-based National Association of State Utility Consumer Advocates.

Just two of 18 or more licensed competitive electricity suppliers are courting residential customers served by Potomac Electric Power Co. (Pepco), Delmarva Power and Baltimore Gas and Electric Co. (BGE), according to the Maryland Public Service Commission (PSC), the state body that oversees utilities.

Under deregulation that took effect in 2000, Maryland cut the rates that utilities could charge for electricity generation by 7 percent and capped them for a period of four to six years. In 2004, caps for Pepco and Delmarva expired. Caps for BGE residential customers are scheduled to expire in July.

In addition, the companies divested themselves of their power plants. Doing so, it was argued, would spur retail suppliers who previously didn’t have access to those markets to compete for the utilities’ business, driving down the price for consumers.

Six years later, would-be suppliers are blaming the caps for the lack of competition.

“Certainly, there haven’t been any suppliers able to make offers in BGE [service territory] over the last few years of this rate freeze,” said Harry Warren, president of Washington Gas Energy Services Inc. (WGES), which made a competitive offer to BGE residential customers last week after the PSC announcement that BGE rates would rise by 72 percent when caps come off as a result of a wholesale auction regulated by PSC. The company is promising customers 10 percent off BGE’s new summer rates and 3 percent off winter rates.

Mr. Warren said WGES — a Herndon-based affiliate of Washington Gas — can afford to undercut BGE’s rates because the market price of electricity has dropped since BGE purchased its contracts last winter, when fuel prices were still reeling from Hurricane Katrina. At least three other companies have expressed interest in making similar offers to BGE customers but are waiting to see what action state lawmakers may take.

Pepco Energy Services, an affiliate of the utility, offers customers in Pepco, Delmarva and BGE territories environmentally friendly options that typically exceed standard electricity rates.

No licensed suppliers have made competitive offers to customers of Allegheny Power, whose caps expire in 2008.

Even with the BGE caps coming off this summer, Mr. Acquard says he doesn’t anticipate a competitive market anytime soon.

“You got one competitive bid, that’s surprising. I don’t know who else is out there to give another bid and that’s the problem,” he said. “You can sign up to be a supplier but do you have any supply to offer? It’s huge dollars to get into the energy business and very few companies have those dollars.”

Maryland’s experience thus far is not unique. Of the 24 other states, plus the District, that have restructured their electric utilities, few have seen robust competitive markets emerge, according to Christie Rewey, a policy specialist for the National Conference of State Legislatures.

“In terms of competition for customers, that’s not really evolved in the way it was expected to,” she said, adding that competitive suppliers have more of an incentive to pursue commercial customers that use large amounts of energy than individual residents.

The District deregulated its sole electric utility, Pepco, in 2000. Rates were gradually reduced by 7 percent and then capped through February 2005, when they expired. Residents then saw a 17 to 18 percent increase in their bills, according to the District Public Service Commission.

As of January 2006, there were three competitive offers serving the District residential sector, according to the Public Service Commission.

In Virginia, which began deregulating its electric utilities in 2002, residential customers have not seen a single competitive offer, according to Ken Schrad, spokesman for the Virginia State Corporation Commission, which oversees utility deregulation.

“Competitors are unable to go to the wholesale market and purchase electricity at a price that the incumbent utilities charge under the rate cap,” he said.

Rate caps in Virginia for Allegheny Power and Delmarva expire in July of 2007. State lawmakers extended the caps for Dominion Virginia Power, which serves Northern Virginia, through 2010.

“Everybody went to deregulation thinking prices would be lower; they’re not going to be lower. You’re just going to be able to choose the best offer out there and that’s probably going to be higher than what you’re paying today,” Mr. Schrad said.

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