Energy Deregulation was designed to eliminate monopolies and open competition to drive down consumer’s costs. In 1999, the Maryland General Assembly passed legislation, which set up an outline to deregulate the price of energy by permitting the market to determine the cost based on supplier competition. This “broke up the monopoly” and forced utilities to deliver energy, and suppliers to provide energy.

So that is the way deregulation is supposed to work. Generators and Suppliers provide the energy customers use, while utility companies deliver the energy and maintain the customer’s account.

Today Maryland customers must receive their supplier from the utility standard offer, unless they choose a retail electric provider. Surprisingly, sill almost half of eligible customers have not heard or taken advantage of the program. That is a main factor to explain why the Department of Energy estimates that the average Maryland resident spends almost $3,000 per year on energy. (View statistics here)

16 years after the monopoly was broken up, there is an organization that is quietly amassing an army on both the distribution and supply side.

Exelon Dominance

Exelon (a Chicago Based Company) has become America’s largest producer of nuclear power. However its nuclear plants are now decades old, and have become very expensive to maintain. So what does the controller/ owner of an aging fleet of nuclear reactors do to avoid disappearing into obscurity? Why they gobble up America’s energy distribution network, piece by piece, and then sell power to itself.

In the last few years, with little to no opposition, Exelon expanded in size and geographic scope by acquiring several major regulated utility companies, including Baltimore Gas & Electric, Illinois’ Commonwealth Edison, and the Philadelphia Electric Company

When Exelon announced its intention to acquire Pepco Holdings, Inc., an energy distributor with customers in Delaware, Maryland, New Jersey, and Washington, D.C. — the merger’s completion seemed ordinary, even inevitable, and earned positive reviews from state and federal regulatory agencies. Public Service Commissions in Delaware and New Jersey gave the Exelon Pepco merger their blessing, as did FERC (The Federal Energy Regulatory Commission).

Maryland and D.C. decided to formally oppose the Exelon Pepco merger which would mean the deal couldn’t go through, for any states where Pepco has service. The Public Service Commission in August initially rejected the Pepco and Exelon merger, which temporarily halted the creation of the largest electric utility in the United States.

HOWEVER THAT HAS NOW CHANGED

On March 23^rd, the Public Utility Commission approved the merger. Pepco is a transmission & distribution utility that provides power to about 2 million consumers in D.C., Maryland, Virginia, Delaware and New Jersey. Exelon is a utility based in Chicago, which is the third largest in the country by number of customers. With this merger, Exelon has become the largest electric utility in America by the number of customers served.

Critics of the merger have raised concerns about the effects of energy market consolidation. With the merger, Exelon is now the largest utility in the country, with all of its holdings in the PJM Interconnection. The concern is that Exelon’s size will let it have an enormous impact on shaping rules in PJM and the states it operates in. With the merger complete, Exelon effectively control 85% of the entire electricity system in Maryland, which positions them to have substantial political and economic influence.

The same story is also true in D.C., where Exelon now has a complete monopoly. While Pepco is the sole utility for the District today, Exelon’s business model will make a difference, as there will be an entity that will not only control the distributional delivery of electricity but also controls by far the largest amount of wholesale electricity sales in the region. That will provide them both regional consolidation as well as political consolidation.

Failing Infrastructure and Increased Regulatory Costs Lead to More Rate Increase

The Baltimore D.C. area has recently seen an increase in their capacity costs due to an approved tariff. These increases come as a byproduct of an auction, which is held every year. The capacity auction is designed to help set electricity prices three years in advance. This plan was approved and implemented as a result of the bitterly cold winter of 2013-2014. The PJM ISO, the grid operator that maintains the lines that Maryland electricity runs over, claims to have had trouble maintaining power during this period.

BG&E, Pepco and Delmarva customers will see these cost increases as part of their supply portion of their electricity bills. Although these capacity charges are set in stone, the amount that customers ultimately pay for their supply will depend on where the cost of electricity is at that time. Maryland utilities will set their standard offer for customers without a supplier. Customers only choice will be choosing a retail energy provider.

In addition to those increase, Baltimore Gas and Electric Co. is seeking to raise rates to recover the cost of installing more than 1 million smart meters. The Maryland Public Service Commission must approve the rate changes, and the regulatory body typically approves far less than the utility seeks.

Still, the potential rate increases come as some customers are growing weary. This is BGE’s fifth request to raise rates in six years. The PSC’s decision is expected in June. By law, BGE is allowed to recoup what it spends on capital upgrades, but the utility must prove that the expenditures were necessary. BGE spent about $500 million on the smart grid system, which was offset by a $200 million grant from the federal government

What The Government is Doing?

The Maryland Governor Hogan has sent shock waves through the Maryland Energy Administration. He has taken up a stand against raising utility customers’ electricity bills in efforts to further energy-efficiency programs. These efficiency programs are part of Maryland EmPower law. This law which was passed in 2008, called for a 15 percent reduction in electricity usage by 2015. Maryland’s five regulated utilities are required to offer programs and services aimed at helping promote customers’ to curtail demand for electricity and natural gas. These programs range from rebates to insulation, to purchasing more energy-efficient lights. In efforts to assist with costs, the utilities apply incremental charges on customers’ utility bills.

Other utilities are getting in on the act with Pepco and Delmarva Power & Light proposing to spend $64 million over the next two years to expand their own energy-efficiency incentives and to provide assistance to commercial and industrial customers.

The problem with these type of programs is that John Q Public ends up footing the bill.

So What Can Consumers Do?

Customers cannot do anything about increases on the delivery side of their energy bills. However, Maryland consumers do have a choice on their supply. Through the Maryland “Electric Choice Program” program, consumers can shop for the supply portion of their energy bills. The fact that supply makes up more than half of the costs of the total bill, allows customers to implement a strategy that can reduce their overall budget. With energy costs at the lowest point in 16 years, there is great opportunity to lock in long term rates near the market bottom, which will result in freezing their costs, and preventing further supply rate increases.

For more information on how we can help you create your own energy strategy, call us at:

1-888-407-3152

Matt Helland
SVP-N.A.E.A.

Sources

http://www.utilitydive.com/
http://www.baltimoresun.com/
http://www.washingtontimes.com/
http://www.huffingtonpost.com/