Howard County Blog

A Blog on what is going on in Howard County

Friday, April 21, 2006

Maryland to BG&E: 8% or Reregulation.

The BG&E rate hike and the Ehrlich plan to phase in that rate hike is nothing but a rip-off of consumers. The whole presupposition of the deregulation legislation in 1999 that permitted unregulated rate increases was that there would be competition in the utility industry and market forces would not allow a company to raise rates unreasonably if they wanted to stay in business. That has not happened. Therefore, the rate increase that BG&E/Constellation Energy is trying to impose on the citizens of Maryland is merely monopolistic behavior and should be stopped. Utilities are natural monopolies and they need to be regulated by government. If you don’t believe me, read what a conservative think tank in Maryland has to say.

By: Maryland Tax Education Foundation

Utilities Always Want High Rates. As profit making entities responsible to their stock holders, electric utilities constantly search for reasons to jack up rates unfairly and to make excess profits. In 2005, a dozen utilities across the US used the pretext of higher oil and gas prices to seek huge rate increases. None were fully granted.

BG&E Follows the Pack. With the increase in oil and natural gas prices, Baltimore Gas & Electric (BG&E) thinks it has found a “poster boy” for higher electricity rates. However, a cursory investigation of the company’s claims shows them to be misleading.

BG&E Consistently Made Money During Rising Fuel Prices. Consider the following. In a period of rising oil and gas prices, BG&E’s earnings actually improved, rising from $150 million in 2003 to $176 million in 2005, according to the federal filings of Constellation Energy, BG&E’s parent company. Return on investment was a healthy 11%, and BG&E paid $319 million in cash dividends to its parent over the three year period. Does this sound like a firm that needs a 72% rate increase to survive?

Electricity Generating Costs (and Prices) Don’t Track Oil and Gas Prices Directly. Over the last 12 months, wholesale “off peak” electricity prices in the Pennsylvania, Jersey and Maryland grid showed, on average, no change, despite higher fuel prices. “On peak” prices rose 50% during the unusually hot summer months but then reverted to prior levels, according to Platts, the authoritative energy information firm. The fact that wholesale prices don’t follow oil and gas costs demonstrates that electricity values reflect many other items, such as coal and nuclear fuel prices, capital costs, and operating and maintenance expenses, as well as supply and demand dynamics.

Reasonable Rate Increase Expectations. With all the changes in energy prices over the last 25 years, the average electric utility rate increase has been about 8% annually, according to the utility research department of Harris Nesbitt Securities. This number must be the goal of our elected officials. Anything more has to be seen as a capitulation to the moneyed interests at BG&E, Constellation and FPL, who seek to put a stranglehold on the everyday electricity consumer.

Contact: Jeff Hooke
Chairman, Maryland Tax Education Foundation
Adjunct professor, finance, Univ. of MD MBA program
Investment banker with substantial experience in utility corporate finance.
(office) 703-761-4591

So what our elected officials in Annapolis need to do is call a special session and offer BG&E an annual rate increase of 8% or reregulation. Take it or leave it.


Anonymous Anonymous said...

Super color scheme, I like it! Keep up the good work. Thanks for sharing this wonderful site with us.

12:58 AM  
Anonymous Anonymous said...

Thanks for the voice.
my current BG&E bill went up 250% compare to last year same time.

Hello Annapolis,
You will have my vote if you against BG%E1

3:54 PM  
Anonymous Anonymous said...

Great timing on this article to add to Jeff’s comments I ran across data which shows the Settled PJM Electric Futures for Feb 23, 2009; between Feb 09 and Jan 10 the average settled price per MWh was $42.00 the rip off comes when BG&E charges me $110.70 per MWh on my bill and yours too!!

10:10 AM  
Anonymous Anonymous said...

Do all of the representatives in Annapolis think the voters in this state are that dumb to go along with this piece of legislation after all it was the folks in Annapolis that got us into the mess to begin with? We need to answer some serious questions before we go off and make a much bigger and costly mistake. Just think about what would be involved with re-acquiring aging, largely coal-based power plants that will need costly maintenance, ongoing environmental upgrades if state or Federal environmental regulations tighten and could become technologically obsolete. You only have to look north to Ontario, Canada to see what re-acquiring power plants has done for the rate payers. As rate payers do we really want to go there!!
The additional cost associated with these aging dinosaurs is unlikely to be worth the potentially insurmountable expense, probable litigation and likely disruption to Maryland's electricity markets.
If the Maryland Legislature re-regulates the electric industry, even only partially, either by requiring long-term contracts like California or requiring utilities to build new generation, ratepayers WILL get stuck with all the risks and none of the rewards that competition was suppose to bring to Marylanders. The folks in Annapolis should be looking a ways to bring competition into the State and let the free market provide downward pressure on prices, new technology, new green energy options, and customer choice. Regulated markets are by their very nature are inefficient and not cost conscious.

10:51 AM  

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