Maryland electricity customers may be turning off their lights and lowering their air conditioning this summer following an announcement by the Public Service Commission of Maryland (PSC) last week that some electric bills could jump by as much as 72% due in part to increased fuel prices, which has hiked the costs to utilities of buying electricity for retail distribution.

The PSC announced the results of the third year of the bidding process for the market-priced electric Standard Offer Service (SOS). Through a competitive bidding process, electric suppliers compete to provide SOS for Maryland customers of investor-owned companies whose rate caps have expired.

The significant rate increases have sent shock waves through the state, alarming politicians, who have rallied to protect their constituents. Multiple legislative initiatives have been launched to reduce or phase in the new rates.

The PSC pointed out that Pepco and Delmarva Power (DP) have been off rate caps for all customers since July 2004, while rate caps in the Baltimore Gas and Electric (BGE) service territory will be removed July 2006. Maryland residential customers of Potomac Edison Co., doing business as Allegheny Power (AP), will continue to have frozen electric supply prices until January 2009.

The SOS prices resulting from this year’s procurement process will go into effect on June 1 for Pepco and Delmarva residential customers and July 1 for BGE residential customers. Based on the competitive bidding process, for Pepco residential customers, the PSC said a typical bill will increase by approximately 39% or $468 annually as of July 2006. For residential customers of Delmarva, a typical electric bill on an annual basis will increase approximately 35% or $464 annually. For residential customers in the BGE service territory, a typical bill will increase by a whopping 72%, or $743 annually.

Like the rest of Maryland’s utilities, Delmarva, a unit of Pepco Holdings, said the rate increase, while significant, was unavoidable. “We held a competitive bidding process and awarded the bids based on the lowest price for our customers,” said Gary Stockbridge, regional president for Delmarva Power. “We fully understand that these increases are substantial and that all of our Maryland customers will feel their impact. Although we can’t do anything to change the costs of energy commodities, what we can do is help our customers significantly reduce their consumption of electricity, thereby lessening the impact of these higher rates. We know this is easier said than done, of course. That is why we have launched ‘Energy Know-How,’ a major education and information campaign to help educate and inform our customers on how to use energy wisely.”

PSC Chairman Kenneth D. Schisler said, “The SOS prices announced today reflect a significant increase, especially for residential customers. Unfortunately, high fuel prices resulting from the recent hurricanes in the Gulf region, terrorist threats and pressure from the global energy market have impacted the price of electricity.”

To help ease the rate hikes, Schisler said rate stabilization plans could be part of the solution. “In anticipation of significant price increases the commission has adopted an optional rate stabilization plan to help residential customers in the BGE service territory to more gradually adjust to market rates,” he said. “The commission is currently reviewing a stabilization plan for Pepco and [DP] customers.”

On March 6, the commission adopted a two-year rate stabilization plan for BGE residential customers, which will begin in July. For low-income customers participating in the Electric Universal Service Program (EUSP), the Commission adopted a three-year rate mitigation to provide an additional transition period. The plan allows customers the option of paying the increase in a more gradual manner along with the associated carrying costs or choosing to pay the market price beginning July 1. The commission determined that the appropriate interest rate for recovering this short-term deferred balance is 5% per year.

To combat the impact of the increased rates, multiple legislative bills in the state are currently under consideration (see related story).

Commercial and industrial customers in Maryland will also feel the pinch this summer. The PSC said the SOS prices resulting from this year’s procurement process will go into effect on June 1 for business customers. Small commercial customers (called Type 1 SOS) who do not buy their generation from a retail supplier will see the following typical annual bill increases: 35% for AP, 39% for BGE, 40% for Delmarva and 52% for Pepco. Mid-sized commercial and industrial customers (called Type 2 SOS) who do not buy their generation from a retail supplier will see the following typical annual bill increases: 41% for AP, 27% for BGE, 14% for Delmarva and 53% for Pepco.

Despite the significant rate increases, the PSC pointed out that its research shows that fuel prices since 1999 have gone up even more. In a report conducted by the commission’s Technical Staff, since 1999 the consumer price index for heating oil has increased 192% and for natural gas has increased 127%, proving that “SOS rate increases, although significant, are lower than price increases for other fuels.”

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