Electricity Deregulation: High Cost, Unmet Promises
Sunday, March 12, 2006
Maryland and District consumers angry at the record electric bills they will receive this summer might want to recall the promises made by proponents of deregulation seven years ago. If they do, they'll be even angrier.
At the time, in 1999, evangelists for deregulation described a competitive, efficient and lower-priced system of energy delivery that, for the most part, remains a fantasy in the Mid-Atlantic region and other parts of the country today, according to industry experts.
The District, Maryland and Virginia, along with much of the nation, are wrestling with the ramifications of deregulation at the same time that the cost of producing electricity is skyrocketing. But as energy prices have soared, electricity rates have gone up more in deregulated states than in regulated ones.
Though Northern Virginia residents won't feel the full effects of deregulation until 2010, when rate caps expire, caps were lifted for Pepco customers in the District and Maryland several years ago, resulting in steady increases, including a 38 percent jump for suburban Maryland and 12 percent for the District announced last week.
Baltimore Gas and Electric Co. customers in Maryland have had artificially low rates for six years because of caps set in the 1999 deal that allowed deregulation to go through, so the sudden 72 percent increase announced last week is a rude awakening.
"With something of that magnitude, I thought, God, it can't be," said Don Dunn, a 77-year-old retired businessman in Howard County on a fixed income. "My gut reaction was, gee, the whole thing is an error."
Dunn, who spent about $700 on electricity last year, is wondering how he can afford more even as property taxes are rising. While he is worrying that he might have to give up the two-story brick home in Ellicott City where he has lived for more than 40 years, deregulation has turned out well for BGE's parent company.
Constellation Energy Group Inc.'s revenue has nearly doubled in two years, to $17.1 billion in 2005. Chief executive Mayo A. Shattuck III's cash compensation was nearly $5 million in 2004, up more than 176 percent from 2002. And shareholders are being rewarded with an $11 billion merger deal with a Florida power company.
Residential customers -- especially those in Maryland facing an average $743 yearly increase in their BGE bills -- are left wondering what deregulation was for, if not to reduce prices.
Under the old system, the price of electricity was strictly based on what it cost the power company to produce it. Now, prices are based on what several hundred highly sophisticated power suppliers and traders believe the market will bear, prices that can have only nominal relation to cost.
In Annapolis, the outcry from voters has sent lawmakers into a frenzy to respond to the rate increase.
Sen. Leo E. Green (D-Prince George's), a longtime opponent of electric deregulation, blamed its failure on false promises from energy companies in the 1990s.