Adams: At this time, only slightly more than a few dozen BGE customers are known to have switched to other providers, according to the Public Service Commission. That’s partly because six years of rate caps have made it so that no other providers can enter the market and undercut BGE’s rates. That’s unlikely to change until the rate caps come off in July, giving other providers a chance to lock in power supply contracts that are competitive with BGE. Already, Washington Gas Energy Services Inc. has said it will offer to sell electricity to BGE customers at a discount of up to 10 percent.
Hollee Patterson, Severn: Why has competition not happened in the deregulated utility market? Were there any incentives given to BGE’s competitors? Finally, why was the utility industry deregulated in the first place?
Adams: Competition failed to materialize largely because regulations deregulating the industry forced BGE to freeze its rates for a period of six years. Essentially, those rates were so low that competitors couldn’t beat the price. Now that price caps are coming off, others may decide to enter BGE’s market and try to steal customers. However, energy industry experts say it’s unlikely that BGE will face serious competition for a long time to come.
As for why Maryland deregulated, at the time, deregulation was sweeping the region, with states such as New Jersey, Delaware and Virginia jumping on the bandwagon. Many Maryland lawmakers were convinced by industry officials and large electricity users that Maryland had to catch up or risk losing business to other states. Also, advocates were convinced that setting the market free would result in competition and, ultimately, lower prices for consumers.
M.T., Ellicott City: How do you opt out of this BGE program?
Adams: For now, you can’t. BGE is still printing up materials to educate customers on their choices and training their employees to handle questions that arise. But sometime around April, customers should be able to call the company and opt out, if that is their choice. Watch for BGE to send out an informational flier explaining the particulars.
Stan Jaworski, Columbia: What is the rate increase that will go into effect in July? The 21 percent rate increase is if you use the deferred plan. If you decline to take part [in] the deferred plan, what will the increase be?
Adams: If you don’t take the deferral, the average BGE customer will see a rate increase of 72 percent, or about $743 per year. If you take the deferral, you will see an average 21 percent increase followed by gradually increasing amounts until you have paid back the deferred amount, plus 5 percent interest. At the end of about two years in the deferral program, all customers will be paying the higher rate. However, lawmakers in Annapolis are debating a possible alternative to the Public Service Commission’s deferral plan. Stay tuned.
Francis Tewey, Baltimore: How will this impact BGE customers on budget plans?
Adams: People on budget pay are already starting to see the increase show up on their bills. The reason is that BGE projects out several months when it is figuring out how much to charge a customer who takes advantage of the budget pay system. That means the utility must already factor in the expected rate increase, so that customers on budget pay don’t end the year with a major deficit in their accounts.
Aubrey Pinder, Dundalk: Has anyone investigated how much profit BGE has made since 1999?
Adams: Constellation Energy Group, BGE’s parent company, reports its financial results — along with BGE’s — every quarter and year’s end, as do all publicly traded companies. Those results are reported in The Sun each quarter. Last year, BGE — which is just one piece of Constellation’s business — made a profit of about $170 million. That sounds like a lot of money, but the utility’s rate of return and profit margin are about average for utilities of its size.
Constellation, on the other hand, has been growing profits at a record pace for the past several years, largely because of growth in its unregulated power generation and trading businesses. Its 2005 revenue was about $17 billion, and in the fourth quarter of last year, its net income grew 45 percent to $195.2 million.
Nelson Ormsby, York, Pa.: Has anyone run the numbers as to whether the typical residential consumer would do better to opt out of the deferred payment plan and swallow the lump-sum increase up front, as opposed to incurring the interest charges? Are the interest rates locked in, or do they come with some sort of [Consumer Price Index] adjuster, as well?
Adams: The deferred payment plan, which was devised by the Public Service Commission, will charge customers 5 percent interest on the amount of their bill that is deferred. There is no question that those who stay in the plan will pay more in the long run for their electricity as a result of those interest charges.
However, it is up to every customer to look at their finances and figure out whether it makes more sense to carry the debt and interest charges or pay the market rate right away. Experts say those who cannot afford the increase may want to stay in the deferred payment plan while they look for ways to cut costs. Those who can afford it may want to opt out and avoid interest charges.
