Yesterday, we revealed how Pepco customers can save up to 13.7% off their power bills by switching to a new power supplier. BGE customers can save up to 9.8% off their bills by doing the same thing. But “re-regulation” will block your ability to save yourself money. Why?
In the old days, utilities were vertically integrated companies. They generated power, transmitted it to substations and distributed it to customers. But they had to answer to government regulators, who set their prices. Those prices had to allow the utilities to recover their costs of servicing customers. Otherwise, they would be unable to remain in business. The prices also had to generate a reasonable return on investment. After all, if stockholders could not get steady dividends and occasional capital gains by buying utility stocks, no one would buy them and none of those of power plants or utility lines would have been built. Because of these characteristics, the old system did nothing to protect consumers from the gigantic price spikes that occurred in 1972-1975 and 1978-1982.
Deregulation changed all that. In Maryland, Pepco and BGE were forced to sell off their power plants so they could purchase electricity from competing suppliers. (BGE wound up selling its plants to another member of its corporate family.) Competition was supposed to keep prices low. But the plan did not work immediately for two reasons. First, the alternative suppliers were slow to show up. Second, retail prices were capped from the time the deregulation law passed in 1999 through 2006. Deregulation’s architects thought enough power suppliers would enter the market by 2006 that rates could be allowed to float and competition would keep prices down. Instead, BGE asked for a 72% rate hike to make up for seven years with no price increase. Political hysteria ensued.
Fast forward to the winter of 2008-2009. Competition has arrived. As we stated yesterday, Pepco customers can pick from five electricity suppliers and BGE customers can pick from ten. But few people took advantage of those opportunities and rising utility bills put the issue of “re-regulation” back on the table. The Senate passed a bill that would have given the state’s Public Service Commission the right to order utilities to build new power plants and regulate the rates they charge. Never mind the fact that it would take decades to build all of these new plants and no one knows exactly how many billions of dollars they would cost. And never mind the fact that business customers, who spend massive amounts on electricity, opposed the bill and were organizing employee cooperatives to take advantage of competition. Some in the General Assembly were determined to save us from the deregulation regime that the General Assembly, of course, created. But the House of Delegates’ Economic Matters Committee stopped the measure on a 21-2 vote. As Delegate Brian Feldman (D-15) said, “There's a risk, if we screw this up, of unintended consequences.”
Here is the unintended consequence. The “re-regulation bill,” as amended, contained this language:The commission shall develop and implement a plan for residential and small commercial customers to transition from a program of customer choice of electricity supply and electricity supply services established under subtitle 5 of this title.
So remember how you can switch suppliers and save double digits off your power bill? “Re-regulation” will put the brakes on that. Why?
Remember how the old regulated system works. Even though regulators set electricity rates, utilities are allowed to recover their costs from customers and realize a return on investment. So if the “re-regulation” bill passes and the Public Service Commission orders Pepco or BGE to build a new plant, they will be entitled to pass on the cost of building, operating and maintaining that plant to you. Plus, they will be allowed to earn a profit. Under today’s system, if Pepco or BGE raised the price of their Standard Offer Service, which is their default price for electricity, you could switch to another power supplier to save money. If the state forced either of them to build a new power plant and their customers deserted them to avoid paying the construction charges, the utilities would be unable to pay their costs and earn a profit on the plant. So to keep the companies whole, the state would have to limit competition and force you to pay for all of this. The problem would be compounded if the plant owner bets wrong, builds a plant that runs on a fuel that later soars in price and seeks to pass on those costs to now-captive customers like you. Is that a risk you want to bear?
Think about it this way. Today, you have the ability to shop around and save money on your power bill right now. Pepco customers can save up to 13.7% by purchasing their power from Washington Gas Energy Services. Ask any politician who supports “re-regulation” if any law they can pass will save you 13.7% right now. And then ask them exactly when any law they can pass will save you 13.7%. See how they answer you. And then think about whether “re-regulation” is truly in your interest.
Wednesday, July 08, 2009
How Re-Regulation Will Cost You Money
Tuesday, July 07, 2009
How to Save Money on Your Electric Bill Right Now
Over ninety percent of Marylanders can save money on their electric bills right now. You don’t need to write the Governor. You don’t need new legislation. You don’t need any help from politicians. You can do it NOW.
First, let’s understand how Maryland’s electricity market works. Under deregulation, utilities like Pepco and BGE do not generate their own electricity. They buy it from other suppliers. Sometimes those suppliers are subsidiaries of the same parent company (as is the case with BGE’s parent, Constellation Energy) and sometimes they are not. But you as a consumer have the right to choose your generating company and your utility will then distribute the power to your home or business. If you do not choose a generator, the utility will sell power to you from its suppliers under a Standard Order of Service (SOS) price. Ninety-seven percent of state residents do not exercise their right of choice and instead purchase SOS, but you don’t have to be one of them. The SOS price is not always the best price. Sometimes, you can find a better one.
The state’s Public Service Commission website allows you to find the power generators who sell in your area. In Pepco’s service territory, there are currently five suppliers you can choose: BTU Energy LLC, Clean Currents LLC, Horizon Power & Light LLC, Pepco Energy Services and Washington Gas Energy Services. BGE’s service territory has ten suppliers. All of the suppliers’ websites are listed and you can find out their offers.
How do you shop? First, find out your utility’s SOS price to compare, which is the average cost per kilowatt hour (kWh) of electricity generation and transmission. Utilities report this figure on their websites. Pepco’s SOS price to compare for residential customers is currently 12.51 cents per kWh. If you are receiving SOS – Pepco’s default supplier – this is the average price you are currently paying.
If you are a residential customer receiving BGE’s SOS, you are currently paying an annual average of 11.97 cents per kWh.
Now let’s check two of the alternative suppliers in Pepco’s service area. Let’s start with Clean Currents, a company based in Rockville which specializes in supplying wind power. Clean Currents is now offering both Pepco and BGE customers a rate of 11.2 cents per kWh for power that is 50% derived from wind energy and a rate of 11.7 cents per kWh for 100% wind power. That means Pepco customers can save 10.5% off their power bill and BGE customers can save 6.4% and simultaneously increase their use of wind power by switching to Clean Currents.
It gets better. You can save even more money with Washington Gas Energy Services (WGES). In Pepco’s service area, WGES offers electricity at a base rate of 10.8 cents per kWh. The rate goes up if you want higher percentages of wind power. That same base rate of 10.8 cents is available in the Baltimore area. That means Pepco customers can save 13.7% off their power bill and BGE customers can save 9.8% by switching to WGES.
These rates will not be in effect forever. But by looking for the best deal every year or two, you can save a bundle of money. Deregulation, which was intended to lower prices through competition, did not work when competitors were not present. But now they are in both the Washington and Baltimore areas. And now you know how to make this market work for you.
That’s the good news. The bad news is that some politicians in Annapolis are trying to take away your ability to save money. We’ll reveal how tomorrow.
