Thursday, June 18, 2009

Markets could actually begin reducing electric rates, if only consumers would give them a try

There is actually some relief for consumers from the huge electric bills that have caused a political furor in Maryland for three years now. The relief – some of it available today -- comes not from the kind re-regulation or economic coercion that have been offered up by the governor and legislators, but from the very markets that were supposed to offer lower prices years ago.

That's the surprising conclusion from a hearing of the House Economic Matters Committee in Annapolis Tuesday. There a panel of industry experts, both distributors and competitive suppliers of electricity, testified that consumers can do better.

Customer choice can save 10% on bills, Mark Case, senior vice president BGE told the committee. There are currently 11 different suppliers to residential customers in Maryland. One of the largest of those suppliers, Washington Gas Energy Services, said consumers could conceivably pay 13-14% less on their bills, according to its president, Harry Warren.

The problem, as Delegate Sonny Minnick put it, is that "most people are unaware that they have a choice in electricity." The Dundalk Democrat said he's launched a personal campaign to inform his constituents about their options.

Committee Chairman Dereck Davis, a Prince George's County Democrat, said even many of the presumably well-informed legislators and lobbyists he's talked to "haven't switched either" even though they'd "definitely be paying less than they're paying now." Davis favors some method of either encouraging or forcing consumers to make a choice of suppliers.

The savings from choosing a competitive supplier have not always been there. To rehearse the decade-long history, in 1999, Maryland restructured its electric industry, allegedly deregulating it, as it really did for power plants and commercial users of electricity, but leaving rate caps for residential consumers in place. Electric rates rose elsewhere, but they were artificially frozen in Maryland till 2006, when there was a massive increase to match the going rates. With the rate freeze in effect, competitive suppliers of energy couldn't compete with residential rates, only on the unregulated commercial rates.

Now businesses large and small pay lower rates, but most consumers are still buying "the standard offer service." Based on power auctions, everyone concedes that these are not the best prices in town. But to get consumers to switch "would require some pretty serious consumer education," said Public Service Commission Chairman David Nazarian.

Rather than focus so much on a return to regulation, that's exactly what state officials should do. While suppliers want the new business, attracting individual residential customers is much more expensive to do than marketing to larger commercial and industrial users.

These reduced rates for consumers would result in overall bills that are only moderately reduced since the distribution charges by BGE, Pepco or the other local utilities would remain.

But it's still worth the effort, given the failure of regulatory efforts to achieve much improvement. Interestingly, Nazarian complained that Maryland rates, though likely to slightly decline next winter, were higher than they should be in central Maryland because of decisions of the Federal Energy Regulatory Commission.

But the faith in regulation remains high. In other deregulated states such as Ohio and Connecticut, Maryland People's Counsel Paula Carmody said, "We don't see any trend for residential participation in the supply market." Only 3% of Marylanders have chosen an independent supplier, and the state should focus on protecting them and reducing rates, Carmody said, even though her office does supply some comparison rates.

There are still serious problems with capacity-challenged transmission lines and generating plants that threaten the long-term reliability of Maryland's energy supply. But those issues haven't and won't be solved by paying higher rates, even the PSC admits. While dealing with those issues, suppliers such as Washington Gas emphasized the importance of "regulatory and legislative stability" -- keeping the current regime of imperfect deregulation in place, rather than adding uncertainty to the mix.

One thing is clear. Consumers who want to lower there electricity bills can do so this minute by taking the time to switch. They might not save a huge amount of money relying on the market, but they'll save more than regulators have been able to provide.

For information about competitive suppliers, the PSC has a list of suppliers with contact information.