Electricity Deregulation: High Cost, Unmet Promises

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Sun, 12 Mar 2006 12:51:25 -0800 (PST)

Electricity Deregulation: High Cost, Unmet Promises

 

 

 

Electricity Deregulation: High Cost, Unmet Promises

Competition a 'Myth' as Prices Spiral Upward

 

By Terence O'Hara and Amit R. Paley

 

 

 

Washington Post Staff Writers

Sunday, March 12, 2006; Page A01

 

Maryland and District consumers angry at the record electric bills

they will receive this summer might want to recall the promises made

by proponents of deregulation seven years ago. If they do, they'll be

even angrier.

 

At the time, in 1999, evangelists for deregulation described a

competitive, efficient and lower-priced system of energy delivery

that, for the most part, remains a fantasy in the Mid-Atlantic region

and other parts of the country today, according to industry experts.

 

 

 

Retirees Don and Helen Dunn fear that rising electricity costs and

higher property taxes could force them out of their Ellicott City

home. photo

 

The District, Maryland and Virginia, along with much of the nation,

are wrestling with the ramifications of deregulation at the same time

that the cost of producing electricity is skyrocketing. But as energy

prices have soared, electricity rates have gone up more in

deregulated states than in regulated ones.

 

Though Northern Virginia residents won't feel the full effects of

deregulation until 2010, when rate caps expire, caps were lifted for

Pepco customers in the District and Maryland several years ago,

resulting in steady increases, including a 38 percent jump for

suburban Maryland and 12 percent for the District announced last week.

 

Baltimore Gas and Electric Co. customers in Maryland have had

artificially low rates for six years because of caps set in the 1999

deal that allowed deregulation to go through, so the sudden 72 percent

increase announced last week is a rude awakening.

 

" With something of that magnitude, I thought, God, it can't be, " said

Don Dunn, a 77-year-old retired businessman in Howard County on a

fixed income. " My gut reaction was, gee, the whole thing is an error. "

 

Dunn, who spent about $700 on electricity last year, is wondering how

he can afford more even as property taxes are rising. While he is

worrying that he might have to give up the two-story brick home in

Ellicott City where he has lived for more than 40 years, deregulation

has turned out well for BGE's parent company.

 

Constellation Energy Group Inc.'s revenue has nearly doubled in two

years, to $17.1 billion in 2005. Chief executive Mayo A. Shattuck

III's cash compensation was nearly $5 million in 2004, up more than

176 percent from 2002. And shareholders are being rewarded with an $11

billion merger deal with a Florida power company.

 

Residential customers -- especially those in Maryland facing an

average $743 yearly increase in their BGE bills -- are left wondering

what deregulation was for, if not to reduce prices.

 

Under the old system, the price of electricity was strictly based on

what it cost the power company to produce it. Now, prices are based on

what several hundred highly sophisticated power suppliers and traders

believe the market will bear, prices that can have only nominal

relation to cost.

 

In Annapolis, the outcry from voters has sent lawmakers into a frenzy

to respond to the rate increase.

 

Sen. Leo E. Green (D-Prince George's), a longtime opponent of electric

deregulation, blamed its failure on false promises from energy

companies in the 1990s.