Proposal would ease electricity rate hike

Jan. 20, 2007
By JOSEPH M. DELEON News-Post Staff
jdeleon@fredericknewspost.com

      FREDERICK — Residential electricity rates are poised to more than double when a rate cap expires in 2009, but Allegheny Power has a plan it hopes will manage the rate hike.
     The Maryland Public Service Commission held a public hearing Thursday to consider comments on Allegheny Power's proposal to transition residential customers from capped electric generation rates to market-based pricing.
     The Maryland General Assembly enacted a law in 1999 that deregulated the generation of electricity to help put an end to a monopoly on electricity.
     Deregulating the power industry is supposed to encourage competition among providers that should lead to greater efficiency and lower prices in the long run.
     The legislation required all customers to get a rate reduction, followed by a cap on those rates.
     The cap is part of a settlement the Maryland Public Ser vice Commission issued to Allegheny Power. Under the settlement, Allegheny's residential rates were reduced about 7 percent and fixed from Jan. 1, 2002 through Dec. 31, 2008.
     Under the price cap, residential customers pay about 4 cents per kilowatt-hour, not includ- ing distribution charges.
     A kilowatt-hour is equal to 1,000 watts being used continuously for one hour — the same as running a 19-inch television for four hours or a clothes dryer for about 15 minutes, according to EnergyVortex, an energy industry news group.
     One disadvantage of the price cap is that no providers are set up to compete against Allegheny Power's artificially lower prices. When the cap ends, prices will not fall until other retailers enter the market.
     Philip J. Bray, an Allegheny Power representative, said the proposed Rate Stabilization Ramp-up Transition Plan would cushion the impact of dramatically higher rates expected in 2009.
     Rates are expected to increase because the market price for electricity rises with the cost of fossil fuels. Since 2002, coal prices have increased about 43 percent while natural gas prices have increased more than 70 percent, according to Allegheny Power.
     Electricity distributed to Allegheny Power customers is 74 percent coal-fired and 14 percent natural gas-fired, according to Allegheny Power. The rest comes from hydroelectric, oil and other methods.
     If the plan is approved, customers would begin paying a surcharge starting March 31 that would increase residential bills 15 percent.
     Residential customers would pay an additional 15 percent starting Jan. 1, 2008.
     The money would be collected in a special account that would earn 5 percent interest, the same as Allegheny Power's external cash investments.
     When the price cap expires Jan. 1, 2009, Allegheny Power will start buying power at marketbased rates.
     The money and interest collected from the surcharge would then appear on residential customer's bills as a credit, which will continue through Dec. 31, 2010. The credit will help offset the higher prices.
     The plan helps residential customers absorb the cost of the price increase over time, rather than from one month to another.
     When Baltimore Gas and Electricity's rate caps expired last year, its residential customers saw a 72 percent increase on their electricity bills.
     Dave Rak of Mount Airy suggested residents should have the ability to opt out of the surcharge.
     People who plan to move out of the area before 2010 would have no way to benefit from the credit, he said. Others might have a way to invest the money for a better return or spend the money on energy-efficient home improvements.
     Stan Baker agreed residents should be able to decline the surcharge.
     “Another community that might leave are retirees,” he said “Maryland is not well-known as a haven for retirees.”
     While many shared their concerns about the plan, others praised the proposal.
     Gil House of Frederick presented a brief history of electricity rate increases in Frederick.
     In 1912, the City of Frederick offered residents electricity at 12 cents per kilowatt-hour — equivalent to about $2.49 today, he said.
     “We're getting one heck of a bargain even if they take the rate cap off,” House said. “They have to make money to stay in business because I really like having electricity in my house.”