A Winter of Discontent Over Utility Bills
Customers Are Upset That Rates Are Still High Despite Lower Fuel Costs

By Lisa Rein
Washington Post Staff Writer
Friday, February 13, 2009

Oil is trading at just $34 a barrel, natural gas prices have plummeted by half and coal is down to $66 a ton.

So why are Washingtonians' gas and electric bills still sky-high?

Angry customers are flooding Maryland regulators with complaints -- 2,200 in January, double the number for the same month last year -- prompting the Public Service Commission to order the state's five utilities to a hearing Feb. 26 to explain. Neighborhood e-mail lists in the region are brimming with talk of climbing bills. Constituents are e-mailing and calling their state lawmakers. And complaints in Virginia spiked by two-thirds over those of January 2008.

Utility officials blame the sticker shock on a longer holiday billing cycle and cold weather in December and last month, which usually pushes people to turn up the thermostat. "People are home more, and they're consuming more of their stuff," said Elizabeth A. Noel, the District's advocate for ratepayers.

But there's another reason: the region's deregulation of electricity markets. The switch to competition drove up prices in the District and Maryland to record levels four years ago. And it dramatically changed the way utility companies buy power to supply to their customers. Those costs keep rising even as lower demand worldwide in the weak economy is forcing commodity prices down.

"It's beyond our control," said Robert Dobkin, a spokesman for Pepco, which serves 750,000 customers in the District and Maryland.

Many customers say they're baffled. Emily Hale and her husband bought a townhouse with an energy-efficient furnace and air conditioner in Gaithersburg in July, and they've insulated the doors and electrical outlets. But their January gas bill hit $325 and their electric bill $286. "We're first-time homeowners," said Hale, who works in national security. "I had no idea it was going to be this expensive."

Susan Post was shocked to pay $408 to heat her "starter house with a little add-on" in Chevy Chase. "I just think the rates are outrageous."

Sean Gunning of Beltsville paid $650 to Baltimore Gas and Electric last month, up from $350 in January 2008, even though he keeps the thermostat at 69 degrees and has installed energy-saving compact fluorescent light bulbs throughout his home.

"I don't know who can afford $650 electric bills," Gunning wrote to his state senator, James C. Rosapepe (D-Prince George's). "It is unclear to me what benefit of competition deregulation offers."

Electricity prices have dropped from almost $120 a kilowatt hour at the market's peak in July to about $55, said Mark Case, senior vice president of regulatory services for BGE. But in the deregulated system, Pepco and BGE shop for power in a wholesale market in which generation companies are free to charge what the market will bear. Prices are set in twice-yearly auctions. As a hedge against fluctuations in price, the utilities buy power in staggered batches. Customers are paying now for energy purchased in 2007 and 2008, when the market for oil, coal and natural gas was peaking.

The market adds other costs. Because of the credit collapse, it costs suppliers more to borrow money, and they are passing that expense on to utilities, and ultimately to customers. Energy companies also are allowed to charge more to deliver power to congested regions such as Washington. In addition, the federal government allows utilities to charge extra as an incentive to build power plants. And even plants that produce power more cheaply than others, like nuclear reactors, can set their prices as high as the most expensive ones.

"Last year's bubble [in prices] is working its way through our bills," said Sen. E.J. Pipkin (R-Queen Anne's), one of the legislature's leading energy experts and a foe of deregulation.

Under regulation, prices were set by the cost to produce power and a limited return for the utilities.

Virginians have enjoyed the region's lowest rates for years because of rate freezing, but those caps expired in December. Under a new law that guarantees rate increases for a range of investments, regulators are expected to grant Dominion Virginia Power a substantial boost this year. That comes after bills climbed 18 percent on average last summer to cover higher fuel costs.

Virginia State Corporation Commission spokesman Ken Schrad said the gist of the comments to regulators is consistent: "Mostly, 'My bill has never been this much before. What's going on?' That's the bottom line."

On Jan. 1, $1.70 was added to Dominion customers' average monthly bill to pay for the construction of a power plant.

Complaints to Pepco have spiked 15 percent over the number last winter.

Staff writer Michael Laris contributed to this report.

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