What Does “Electric Deregulation” mean?
In 1999, the Maryland General Assembly passed the Electric
Customer Choice and Competition Act, which deregulated the
generation portion of electricity. As a result, cost you pay for
electric generation reflects the market price of electricity.
How Does Deregulation Change my Bill?
The three main parts of electric service—generation,
transmission and distribution—have been separated and your
electric bill to allow you to view the cost of each component:
generation (the process of producing electrical energy),
distribution (the process of delivering electricity through
low-voltage power lines to a homes and businesses), and
transmission (the process of transporting electricity from a
generation company to an electric distribution over high-voltage
power lines).
Are
Distribution and Transmission Rates Still Regulated?
The distribution and transmission rates are still established
through rate cases regulated by the PSC. However, the generation
costs are NOT regulated and now reflect the market price of
electricity.
How were Rates Set Before Deregulation?
In the past, your entire electric service was provided by your
local electric utility. The “bundled” price you previously paid
on your electric bill contained all costs. The price you paid
for electricity in a regulated environment was determined
through rate cases filed with the PSC. Many factors are
considered during a rate case including the market price of
energy and the cost of fuel. Whenever fuel prices increased,
rates were adjusted upwards.
Can you Explain the “Rate Freeze?”
Part of the 1999 Maryland General Assembly Electric Choice and
Competition Act required that all customers receive a rate
reduction of between 3-7%, followed by a rate freeze for at
least four years. During that time, the price customers paid for
electricity remained at the frozen level despite the fact that
the price of electricity was increasing.
What Influences the Price of Electricity?
The price can be influenced by (1) supply and demand, (2)
weather, (3) the underlying costs of the fuel used to generate
electricity, (4) available generation capacity within the
Mid-Atlantic states, and (5) the cost to electric companies to
build additional generation capacity. All these factors create
market forces that will cause generation prices to rise or fall.
How Much have Fuel Prices Increased Since 1999?
Since 1999, the cost of natural gas has increased 127%, gasoline
154%, and heating oil 193%.
Who are Suppliers?
An “electric supplier” is a company that has been licensed to
sell electricity to utilities and customers in Maryland.
Generation companies that want to become suppliers in Maryland
are required to go through a rigorous application process with
the PSC.
How do I find out what Electric Suppliers are available?
A list of electric suppliers can be viewed on the PSC web site:
www.psc.state.md.us/psc/ Under Quick Links there is a link for
Licensed Suppliers.
Why Aren’t Suppliers Making Offers to Residential Customers?
The cost of electricity has increased significantly since 1999.
Generation rates are impacted by the cost of the fuels used by
the plants that produce electricity. Rate freezes mandated by
the legislature have kept rates artificially, low making it
difficult for suppliers to offer a competitive generation rate.
If I DO NOT Choose a Supplier will I still get electricity?
Yes! An energy supply service called Standard Offer Service
(SOS) is set in place to supply customers who either do not
choose an electric supplier, or for customers who are unable to
buy service from a supplier. The Electric Choice and Competition
Act of 1999 established the utility as the SOS provider. Put
differently, you do not have to DO anything to access SOS. If
you do not choose an electric supplier, your electricity will
continue through your utility.
Since the large Maryland utilities don’t own power plants
anymore, how do they get their electricity?
Every year, they conduct a competitive bid process, where
companies that own power plants bid to supply wholesale
electricity to Maryland utilities. The winning bidders are the
ones that agree to provide power at the lowest prices. The
Maryland Public Service Commission oversees this process to make
sure that it is conducted in a fair and impartial way.
Did the Utilities have a Competitive Bid this year?
Yes. It happened in three different weeks between early December
2005 and late February 2006. This year, thirteen different
companies submitted bids to supply some portion of Maryland’s
electric load.
I’ve heard that my BGE electric bill may go up by 72% at the
beginning of July. Why is that happening if electricity is
supplied in Maryland by the lowest bidder in these competitive
auctions?
There are several reasons. The wholesale electric suppliers need
to pay higher fuel costs to make the electricity they sell. The
same way you are paying more for gasoline for your car, they are
paying more for the natural gas, fuel oil and coal that they
burn to make electricity. When a wholesale electric supplier
bids to supply power in Maryland, their price is based mostly on
what the markets say fuel prices will cost over the next year.
Another problem is something called “transmission congestion.”
Right now, we do not have enough high-voltage transmission lines
bringing power into Maryland. This means that during peak hours
when people use a lot of electricity, electricity suppliers
cannot bring cheap electricity into Maryland. Instead, they have
to use more expensive natural gas power plants located here, and
these expensive plants set the price for electricity they buy or
make here.
Is all this enough to make a 72% price increase?
There would not be such a big increase if these things it were
not happening all at once. The Pepco and Delmarva Power rate cap
ended two years ago, and their rate increases this year are also
high, but much lower than what BGE customers will see. For six
years, BGE had steady power costs under long-term contracts.
This stability was passed through to customers through the rate
cap. Now, BGE has to buy its power supply in the wholesale power
market, and prices are much higher than they were six years ago.
When will this year’s SOS prices go into Effect?
This year’s SOS prices will go into effect June 1, 2006 for
Pepco and Delmarva customers and July 1, 2006 for BGE customers.
How will the new prices affect my Bill?
For residential BGE customers, a typical bill will increase
roughly 72% or $743 annually. For Pepco residential customers, a
typical bill will increase by approximately 39% or $468
annually. For residential customers of Delmarva, a typical
electric bill will increase approximately 35% or $464 annually.
Background Information on the Public Service Commission
In 1910, the Maryland General Assembly established the Public
Service Commission (PSC or Commission) to regulate public
utilities and certain passenger transportation companies doing
business in Maryland. The jurisdiction and powers of the
Commission are found in the Public Utility Companies Article,
Annotated Code of Maryland.
The Commission regulates gas, electric, telephone, water, and
sewage disposal companies. Also subject to the jurisdiction of
the Commission are electricity suppliers, fees for pilotage
services to vessels, construction of a generating station and
certain common carriers engaged in the transportation for hire
of persons. The PSC's jurisdiction extends to taxicabs operating
in the City of Baltimore, Baltimore County, Cumberland, and
Hagerstown.
The categories of regulated public service companies are listed
below:
Electric utilities; gas utilities; combination gas and electric
utilities; telecommunications companies; water, and water and
sewerage companies; passenger motor vehicle carriers (sedans,
limousines, and buses); railroad companies; taxicab companies;
and other public service companies.
The Commission is empowered to hear and decide matters relating
to: (1) rate adjustments; (2) applications to exercise or
abandon franchises; (3) applications to modify the type or scope
of service; (4) approval of issuance of securities; (5)
promulgation of new rules and regulations; and (6) quality of
utility and common carrier service. The Commission has the
authority to issue a Certificate of Public Convenience and
Necessity in connection with an electric utility's application
to construct or modify a new generating station or high-voltage
transmission lines.
Best known to the public is the Commission's role in setting
utility rates. However, the Commission has much broader
authority for supervision and regulation of activities of public
service companies. In addition to setting rates, the Commission
collects and maintains records and reports of public service
companies, reviews plans for service, inspects equipment, audits
financial records, handles consumer complaints, promulgates and
enforces rules and regulations, defends its decisions on appeal
to State courts, and intervenes in relevant cases before federal
regulatory commissions and federal courts.
