Below is a collection of blog entries from Baltimore Sun columnist Jay Hancock regarding electric rates.

May 8, 2008

Sempra pulls plug on badly needed electric plant

Here is another reason electricity re-regulation is coming to Maryland. Sempra Energy was one of the few electricity-generation companies to have planned a plant in Maryland, which badly needs the juice. Sempra's Catoctin Power project would have supplied new megawatts to central Maryland, where BGE and other utilities now import lots of power at expensive rates from out of state.

Not any more. In news first reported by Power Market Today, Sempra is pulling the plug on the plant for now because federal regulators rejected a pricing scheme Sempra says was necessary to make the generator profitable. Here is Sempra CEO Donald Felsinger on a conference call with Wall Street analysts last week.

JOHN KIANI: Can we assume that at least at this point you're not going to build [Catoctin] and PJM since FERC did not pass the cone increase?

DON FELSINGER: I think it's safe to say from our perspective that the economics that currently exist don't warrant us making an entry at this point in time.

And:

PAUL PATTERSON: I apologize if you've already gone over this. The Catoctin Power Plant, with the new cone and heat rate situation at PJM, any additional thoughts on that.

DON FELSINGER: I did answer this earlier. That is, as the new cone was published and as the process at PJM and submitting their new cone to the FERC didn't get approved for procedural reasons, we've decided not to enter the market based upon capacity prices. Now, that does not mean that we're not out shopping with utilities for a contract. But currently the economics in that region don't support us going forward with a new build without a contract or a higher cone.

"CONE" stands for cost of new entry, a pricing protocol on PJM Interconnection, the wholesale grid for the Mid-Atlantic region. Sempra and other generators wanted to crank up the Cone, which would have increased their profits. Everybody else fought the higher Cone. A few weeks ago FERC rejected it, and now Sempra is (at least temporarily) taking away its marbles. Look for Sempra to sign a contract with BGE or somebody else in which utility ratepayers will underwrite at least part of the cost of construction.

May 21, 2008

Wholesale electricity dysfunctions and outrages

Since Mike Miller and the Maryland General Assembly deregulated electricity in 1999, BGE and other utilities must buy electricity on the wholesale grid. Once utilities made their own power, marked it up for a modest profit and sold it to consumers. Now electricity depends on a so-called "market" that actually is replete with market failures.

Why is this so? Electricity isn't like products that trade in other markets. You can't bottle it, so there are no inventories. This makes price manipulation easier. At the same time there are huge barriers to entry, so incumbent producers have quasi-monopoly power. This makes price manipulation even easier.

I didn't have room for this in today's column, but let's review some of the problems we know about just from the last year and a half. The cockroach theory certainly applies here -- there are a lot more that you don't know about than the ones you can see.

-- May 2008. The Federal Energy Regulatory Commission reveals that Edision Mission spent three years evading questions and delivering misleading information about suspicious selling practices that look similar to price manipulation schemes employed by Enron and others. The practices took place in PJM, the grid that serves Maryland and a dozen other states. FERC fines Edison $7 million for lack of candor but doesn't say whether the behavior under investigation was proper or improper.

-- April 2008. Maryland's Public Service Commission decides that the wholesale auction that led to a 70 percent price increase for BGE households was proper. But the investigation is largely confidential, and the final report is riddled with blackouts.

-- December 2007. Hedge fund affiliate Power Edge LLC loses an estimated $80 million on aggressive electricity bets on the PJM system that didn't pan out. Under PJM rules, the losses are not absorbed by Power Edge's parent. Tower Research Capital. They must be paid by BGE and other PJM members.

-- September 2007. Texas regulators recommend fining TXU Corp. $171 million for alleged price manipulation of wholesale electricity. The matter is still pending, and TXU has refused to turn over some documents to the Texas Public Utility Commission.

-- April 2007. Joseph Bowring, market watchdog for PJM, publicly accusses his PJM bosses of silencing him when he tried to speak out about market irregularities and outsize profits by generation companies, including those in Maryland. The accusation leads to a turnover in top PJM leadership, a measure of independence for Bowring and a FERC investigation that found some profits made by Maryland generators were neither "just" nor "reasonable." FERC, however, declined to reclaim the excess profits for consumers.

-- March 2007. An investigation commissioned by Illinois Attorney General Lisa Madigan finds "disturbing evidence of price manipulation" in that state's wholesale electricity markets. The finding leads to a billion-dollar settlement with Illinois electricity producers.

-- Early 2007: Consultant Edward Bodmer tells Congress in a sworn statement that deregulation has allowed BGE parent Constellation Energy and four other PJM generators to make "supra-competitive" profits - more than they would in a truly competitive market or a regulated market.

-- From the Tacoma News Tribune: Since 2005, FERC has "conducted 64 investigations that have resulted in 13 settlements involving the payment of $40 million in civil fines" for price manipulation in electricity and natural gas. FERC "also pursued two enforcement actions that resulted in the payment of nearly $460 million in fines." Given the high profits of price manipulation, though, the fines are merely a cost of doing business.

February 5, 2009

BGE natural gas price lowest since 2007

BGE has posted the February "commodity" price for natural gas: 89.71 cents per therm. That's the cheapest for the default BGE product since October 2007. The plunge in market energy costs is starting to show up in BGE's retail prices. Ninety cents per therm is 14 percent lower than BGE's December price and 43 percent lower than the high of $1.58 reached in July. (This is your raw fuel price. Delivery charges are added.)

But the only BGE customers who will benefit from this plunge are those who didn't sign up for a fixed price deal with a third-party supplier such as BGE Home (different but related to BGE), Washington Gas Energy Services, etc. For many customers, BGE Home is still charging last summer's prices.

For anybody stuck with these fixed-price deals (typically you have to lock in for a year), it still might make sense to cancel and go back to BGE's default price -- even if there is an early-termination fee. It's a recession. Don't pay more for energy than you have to. BGE's standard natural-gas price should move even lower in coming months. But you need to switch as soon as you can because it takes a while for the paperwork to happen, and most of your savings will be reaped in colder-weather months.

BGE's electricity price should also eventually move lower, but not as much. And it will take longer. See Saturday's column for more details.

February 2, 2009

You think YOUR BGE bill is huge...

Some good responses to Saturday's column on big BGE bills, the gist of which is:

Metro Baltimore is freezing, worried about the recession and wondering why BGE bills are higher than ever even as the cost of gasoline, electricity and other energy has plunged.

Blame a cold winter and BGE's purchase of electricity last year when energy prices were hitting record heights. The popped energy bubble should eventually mean moderately lower BGE bills.

In my email inbox this morning is a mix of reactions, from the superfrugal who keep the thermostat at 61 and don't understand why everybody else doesn't, too, to those who DO keep the thermostat down but still struggle paying bills, to the couple with $1,200 monthly BGE bills.

Jay, our last bill was $528 and I’m expecting the next one to be over $600. To say that we are about broke is an understatement. And it’s the utility bills that are sending us over the edge. Our thermostat is never over 66, usually at 62, I’ve never been so cold in my home in my life. We’ve taken measures to cut costs, but to no avail. Our home is old (1925), central gas heat on first floor and electric baseboard on second floor – whole house is about 1800 sq. ft. Our highest bill here before deregulation was $165. Outraged doesn’t begin to describe it. And I will tell you that I talk about this issue all the time to people I meet, work with and to all the activists groups I work in – everyone is outraged and no one has forgotten.

AND:

Jay: $300 and they're complaining!?! We live in a 3,500 sq ft spec house, built in '86, we bought it in '91; replaced the the heat pumps 3.5 yrs ago w/ Carriers super duper new improved ya-dee-ya-da system and our last 2 bills have been $1,150.00 and $1,275.00 respectively! No kids, just the wife & I; 67 degrees upstairs, 68 downstairs; we're not chronic launderers unlike some friends who seem to go nuts if they don't hear the whir of the Maytags ... we do a load a week, and about 1.5 loads per week w/ the dishwasher. The AC/Htg folks blame it on the "heatpacks" coming on at a certain temperature ... w/ a straight face!

AND:

Mr. Hancock....I have been reading your column for some time and was particularly taken with the Saturday, January 31 edition. We live in a 2-BR rancher in Catonsville and have watched our BGE bills soar - some explanations are acceptable, some are not: Over the past 18 months we have initiated measures to help control our usage. Our total cash outlay is $20,030 to add replacement windows; hot water heater; insulaltion upper and lower levels; replaced standard light bulbs with fluorescent; storm doors front and rear; 2 ceiling fans in BR's - PLUS we enrolled in the 3-tier BGE hourly rate program; unplugged all equipment not in use; launder and use dishwasher only on off-peak hours and lowered the thermostat 2 degrees day and evening. And we only heat the upper level which contains 1180 square feet. All of this is documented and this month's BGE bill was for $492.50.

Repeated calls to BGE have been received courteously but with no substantive response as to how our increased billings can be exlained. Do you see any way that the million+ customers of BGE can look forward to relief anytime in the near future?

AND:

I never cease to be amused at the people who are complaining about high heating bills. Imagine lowering the thermostat from 70! These people are their own worst critics unintentionally. For years we operated our house at 65 daytime, 60 at night. Since my wife is now 75 and recovering from open-heart surgery we run the house at 67! I wonder how many electric users

Continue reading "You think YOUR BGE bill is huge..." »

February 9, 2009

My new BGE bill: $414.06

My new BGE bill: $414.06 Yee haw! A new record, I think, although it may have been over $400 before. The next bill should be better for me and everybody if February ends up being warmer than January, which is likely. A decline in natural gas prices to below 90 cents per therm starting this month should also help gas customers.

April 16, 2008

Ohio electricity mess mirrors Maryland's

Electricity rate caps expire at the end of this year for Ohio. Legislators are flailing around trying to do something, or trying to appear to do something. They were up past midnight this morning talking about incorporating "favorable" rates into law and prohibiting or taxing "excessive earnings." From the Columbus Dispatch:

Republican legislative leaders worked into the wee hours this morning attempting to forge a new regulation plan for electricity that satisfies those who want to see competitive markets develop, while easing concerns of Gov. Ted Strickland and others that major rate increases will result.

The final marathon of negotiations followed a veto threat by Strickland, who said Friday that "the bill does not protect consumers against unwarranted and unjust rate increases."...

House Speaker Jon Husted, R-Kettering, has argued that customers will pay the most favorable rate, whether it's regulated by the state or set through a transition into an open, competitive market.

But Rinebolt told a House committee yesterday that the bill's definition of "favorable" was an "ill-defined standard for pricing."...

The governor on Monday evening proposed adding a new provision to the bill covering "excessive earnings," defined as a rate that "significantly exceeds the returns achieved by businesses in the private sector with comparable risk."

"We want a clear and common-sense rate system that doesn't allow utilities to run away with excessive revenue and earnings," Strickland spokesman Keith Dailey said.

But Republicans balked at the proposal, calling it a tough-to-define standard that does nothing to promote efficiency among utilities and could lead to purposeful higher spending....

"I don't want to push something that's going to raid retirement accounts, fatten CEO salaries and promote waste," he said of the governor's proposal. "We're trying to come up with something that's a fair test that promotes efficiency."

March 10, 2008

Why aren't we raising heck about Pepco electric rates?

A reader asks:

Do you have information on Pepco and BGE electricity prices and the changes in the last 10 years (or so)? My understanding is that Pepco prices have risen about the same amount, but over a bit longer time period - so the shock was not as great. I also want to understand why everyone (including the governor) are not concerned about the Pepco price increases.

My answer:

I'm pretty sure the increases over time are about the same. Here are the reasons everybody's mad at BGE: BGE transferred its power plants to parent Constellation at book value (for free) and then got the state to force ratepayers to pay another $1 billion for taking the plants off BGE's hands. These plants, especially the Calvert Cliffs nuclear plants, produce low-cost electricity, and under regulation BGE once passed the low price on to customers. Now, with deregulation, parent Constellation can charge whatever the market bears and is making enormous profits. So BGE customers have lost the plants, paid Constellation $1 billion for taking them and now are paying even more in big markups that never would have been allowed under regulation.

Pepco, on the other hand, sold its plants on the open market in 2001 or so and rebated the proceeds to ratepayers. And it didn't own any nuclear plants, to my knowledge. That's what makes the BGE situation different. In one case ratepayers got paid for the plants; in the other, they didn't.

I should add that Constellation offered to let regulators appraise the plants over time so that BGE ratepayers could collect rebates if the plants rose in value (as they did). But the state rejected that deal. It's also true that Constellation has invested lots in capital improvements in its generation plants. But that investment doesn't come close to the profits and capital gain Constellation has made on the facilities.

January 31, 2008

Constellation gets tough

Sen. E.J. Pipkin says, in Paul Adams's story today, that "It's the same old story with Constellation. These kinds of threats are not constructive."

But it's not the same old story. BGE parent Constellation energy has set a new mark of aggressiveness in responding to public officials questioning its policies. During the 2006 special session that created the legislation Constellation is complaining about, I was repeatedly struck by Constellation's measured tone in response to what was quite an extraordinary situation -- a legislature called into special session specifically to meddle (as Constellation perhaps saw it) in its business. Constellation officials' main worry seemed to be retail rate caps that might drive BGE into bankruptcy, and they said barely a word in protest about the issue they're suing over now. They even began giving customers the credits the legislature required -- under protest, it's true. But it took them until now to sue.

The trigger, it seems clear, is the stance taken by Public Service Commission Chairman Steve Larsen and the rest of the PSC. As directed by the legislature, they subpoenaed Constellation last fall and are trying to revisit matters that Constellation regards as having been settled years ago, especially Maryland's 1999 electricity deregulation settlement. There are many moving parts: the "stranded cost" compensation that ratepayers were forced to pay Constellation; BGE customer levies for eventually decommissioning the Calvert Cliffs nuclear plants; part of the profit BGE collects; Constellation's earnings on the non-regulated wholesale electricity market; and the 2005-2006 wholesale auction (much of which was won by Constellation) that led to the 72 percent BGE rate increase.

I bet there's one more shoe. The PSC isn't done examining the 2005-2006 auction. Don't be surprised if the PSC calls the integrity of the auction into question and tries to get a rebate for BGE customers on that basis, as well. This will prompt more brimstone from Constellation. My best guess is that, in the end, Gov. O'Malley, Larsen and Constellation will put all these issues on a negotiating table and reach a global settlement that includes a modest rebate for households that use BGE. That way Gov. O'Malley can say he redeemed his pledge to stop the BGE rate increase -- or at least did something about it. And Constellation will have obtained political peace -- at a price. Here is my recent column on one of Larsen's blasts.

January 16, 2008

PSC: Lack of electric competition cost Marylanders $87.5 million

Here's the most precise, striking analysis yet of how the lack of competition in Maryland's deregulated electricity market drives up prices for BGE customers and everybody else.
Last summer I wrote: "Expect interesting headlines in October, when [Public Service Commission Chairman Steve] Larsen's latest posse of consultants delivers findings on electricity just in time for a General Assembly session. The smoking gun may not be as hot as in the CareFirst case, but it's well worth uncovering."

It took longer than October, but now the consultants' findings are starting to come out. Research by Mid-Atlantic grid monitor Joseph Bowring undergirds a complaint just filed by Larsen & the PSC with the Federal Energy Regulatory Commission. The complaint finds that there is a substantial lack of electrical-generation competition in Maryland and that federal rules have allowed generators to raise prices willy-nilly in times of high demand -- even with the lack of competition. It's over 200 pages long, and Paul Adams and I are still going over it, but here are a few highlights:

Bowring found that 17 generator plants in Maryland "exercised local market power in Maryland in 2006 to set the locational marginal price during 1,083 hours and significantly increased Maryland's wholesale energy prices by about 73 cents per megawatt hour of load-weighted hourly average LMPs." Local market power is a lack of substantial competition to prevent generators from raising prices.
According to Bowring, the plants "added $87.5 million to Maryland's 2006 real-time energy-related charges."

These plants are exempt from price caps that apply to other generators in non-competitive situations. The PSC is asking FERC to slap price caps on, pronto. The exemptions, says its complaint, "are anticompetitive and distort the PJM (Mid-Atlantic grid) energy markets to the detriment of electric customers." The lack of caps, the PSC adds, is "discrimintory, anticompetitive, unjust and unreasonable."

Bowring first complained about this situation to his grid bosses a year ago, but they silenced him. Since then the gird has new bosses and Bowring is getting an independent operation. But FERC, which approved the new setup, has never addressed the problems that underlay Bowring's complaint -- problems that cost you and I and other electric customers millions. Now the PSC again is trying to get FERC to do something.

December 17, 2007

Big business, Ralph Nader agree: Electricity probe needed

Delivering the biggest, best-coordinated protest yet against deregulated wholesale electricity markets, a wide array of stakeholders asked federal regulators to investigate whether prices are truly "just and reasonable," as they are supposed to be. From Dow Jones:

WASHINGTON -(Dow Jones)- A coalition of some of the U.S.'s biggest industrial electricity consumers and public interest groups filed a petition with federal regulators Monday to expand their investigation of wholesale power markets.

The coalition, which included the American Chemistry Council, the Steel Manufacturers Association and the Consumer Federation of America, said regional transmission organizations were producing "unjust and unreasonable wholesale power prices." RTOs run centralized wholesale electric power markets in the mid- Atlantic states, the Midwest, New England, New York and California.

The groups said some large, integrated utilities operating within the RTOs were earning "supracompetitive returns that are not commensurate with returns on investments in other enterprises."

In the deregulated markets, the most costly power generated to satisfy electricity demand - often from an older natural gas-fired power plant - sets the price for all generation. As natural gas prices have risen sharply since 2003, electricity prices have followed, in many states hitting record levels, and low-cost coal and nuclear plants can sell their power at this price and earn large profits. Many of the plants were bought by independent subsidiaries at discounted values when the markets deregulated nearly a decade ago.

"Deregulation was supposed to have brought about vigorous competition in the wholesale market, resulting in better electric rates for customers," said Donna Harman, chief executive of the American Forest & Paper Association, one of the 41 signees. "Unfortunately, that has not happened," Harman said.