Neighbors Split Along Power Grid

Kate Schulz, left, lives on the Maryland side of Western Avenue, and Kate Monahan lives on the street's District side, where Pepco's rates will rise 12 percent to $1,280 for a typical annual bill. In Maryland, rates will increase 39 percent to $1,577 for a typical annual bill.
Kate Schulz, left, lives on the Maryland side of Western Avenue, and Kate Monahan lives on the street's District side, where Pepco's rates will rise 12 percent to $1,280 for a typical annual bill. In Maryland, rates will increase 39 percent to $1,577 for a typical annual bill. (By Robert A. Reeder -- The Washington Post)
By Ann E. Marimow and Ray Rivera
Washington Post Staff Writers
Sunday, May 28, 2006

The front doors to their brick colonials face each other on Western Avenue in Chevy Chase. Both women are named Kate and are raising young children in homes where their grandmothers once lived.

But the great divide of Western Avenue -- Kate Schulz lives in Maryland, Kate Monahan in the District -- means the prices they pay for electricity will vary by hundreds of dollars a year when Pepco rates increase this week.

On the District side, Pepco's rates will rise 12 percent to $1,280 for a typical annual bill. In Maryland, where the utility's customers are in most of Montgomery and Prince George's counties, rates will increase 39 percent to $1,577.

Allegheny Power customers in northern Montgomery, meanwhile, won't have any increase this year and will pay $908 for the same amount of electricity.

The disparity in rates paid by households that are minutes, and in some cases steps, apart provides a glimpse into how policies shaped by local lawmakers and regulators touch consumers. "Why is my power going up 39 percent when my neighbor's isn't?" asked Cathy Metcalf, who lives on the next-to-last street served by Pepco in Poolesville and joked that her teenage daughter "drinks electricity."

As Maryland's General Assembly weighs whether to convene a special session to address the spiraling rates, the state's Public Service Commission is reexamining the auction process that produced them. Critics say that process is flawed because it requires utilities to purchase the vast majority of their electricity needs for the year in one-time auctions.

This year, the sale took place from December to February, a period of soaring wholesale energy prices brought on by high fuel prices and the Gulf Coast hurricanes. By March, prices had fallen $11 a megawatt hour from early December, according to data from the PJM network, which manages the wholesale electricity market for the mid-Atlantic.

"If you're buying stock, you'd be told by most good financial advisers to purchase stock gradually over time, rather than wait for one particular moment, so as to avoid putting all your eggs in one basket," said Peter Cramton, a University of Maryland economics professor who designs energy auctions worldwide. The problem with Maryland's program, he said, is it puts "all their eggs in one basket."

In the late 1990s, Maryland, the District and Virginia, along with many states, seized on the promise of electricity deregulation. The premise was simple: lower prices through competition. But competition hasn't developed for residential customers, in part because policymakers capped rates at artificially low prices that kept energy marketers away.

Households throughout the region are making a staggered transition to the free market that varies greatly depending on location. At one extreme, Baltimore Gas and Electric Co.'s 1.1 million customers are bracing for a 72 percent increase when caps come off in July.

That means paying $1,680 annually for an average 1,000 kilowatt hours a month for BGE's customers in Anne Arundel, Howard and parts of Prince George's counties. Their neighbors in Southern Maryland, who buy power from a cooperative known as SMECO, will pay $1,068 for the same amount of electricity.

In Virginia, rate caps won't expire until 2010. Officials with Maryland's Allegheny Power say they are preparing for the "inevitable" increases when caps are lifted in 2008.


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