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The cost of power a big ?

November 06, 2005|By DANIEL J. SERNOVITZ

daniels@herald-mail.com

Many of the region's large commercial and industrial businesses will find their electricity bills higher and more difficult to predict in January as part of a shift to market-based rates.

"The way the market is right now, I don't think that anybody is seeing lower power costs," said Gary Batey, general manager of St. Lawrence Cement in Hagerstown. "Certainly you need to shop it, everybody needs to shop around and see what prices are available, but it's not going to get a lot better."

A subsidiary of St. Lawrence Cement Group based in Canada with plants across the United States, the Hagerstown plant pays about $3 million in electricity costs annually. Batey said he expects the plant's electricity costs to increase by about 60 percent in January with Allegheny Power. He says that while there are other suppliers, switching to an alternate supplier provides only marginal savings at best.

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As part of the state's deregulation process, Greensburg, Pa.-based Allegheny Energy in January transferred its commercial and industrial customers to Allegheny Power, its energy supply business, and at the same time switched them from regulated rates to default, Standard Offer Service rates that increased by about 46 percent, according to published information from Allegheny.

Allegheny's residential customers will not begin to see changes as part of the process until the end of 2008.

As part of the change to default rates, all of Allegheny's 28,043 business customers were permitted to seek alternate suppliers for electricity. Only 377 businesses selected other suppliers as of September, according to the Maryland Public Service Commission overseeing the deregulation process.

This January, Allegheny will again switch its largest electricity users to fully unregulated market-based rates as part of the second phase of Maryland's Electric Customer Choice and Competition Act of 1999.

Medium-sized businesses will be shifted to market rates in January 2007, followed by small businesses such as retail stores in January 2008.

Only 53 of Allegheny's 123 Type III customers - defined as those who use more than 600 kilowatts during any 30-minute window - selected alternate suppliers as of September. Those that remain by Jan. 1 with the switch to market rates will see their bills determined not by fixed rates but rather by market prices that fluctuate with every sale of wholesale electricity through regional power-grid operator PJM Interconnection.

Allegheny spokesman Allen Staggers said he expects the change could result in higher winter electricity bills, but because of fluctuations in the energy market it is impossible to say precisely how much electricity costs will increase.

"On the coldest days of winter PJM's price will be high," Staggers said. "Every hour of every day it will change. It will be a much more complicated bill. Going forward, there will still be a demand charge and an energy charge, but those rates will change every hour. As far as predictability goes, it will be hard for a customer to predict them, but it doesn't mean they can't predict what it's likely to be."

PJM spokesman Ray Dotter said customers should not be surprised by increases in their energy bills because their rates will be tied to the actual demand for electricity instead of being regulated by the Public Service Commission at lower-than-market prices. In addition, he said, rising fuel prices have added to the overall cost for electricity.

"We have seen that, over the past several years, the trend is for prices to be high because fuel prices are higher," Dotter said. "In several of the states in which there are rate caps ending, it was not reflective of what was going on, and that's because it was fixed," Dotter said

Christine Nizer, spokeswoman for the Maryland Public Service Commission overseeing deregulation, said that while she expects it will take some time for the electricity market to fully develop, the burden rests on individual business owners to determine whether there is an advantage in switching to another supplier based upon the amount of electricity they use and how much they are paying annually in electricity costs.

"Obviously, it's a business decision that each company has to make looking at all the variables," she said. "I think deregulation is still developing, It takes some time, obviously. The important thing to remember is that the price of electricity is now reflective of a marketplace."

Batey said the energy market under deregulation is not unique to Maryland and that many of the other St. Lawrence Cement plants across the country have made similar assessments about the increasing price of electricity in an open market.

For more information about deregulation in Maryland, visit the Public Service Commission's Electric Choice Web site at www.md-electric-info.com/index.html or Allegheny's Web site at www.md-electric-info.com.

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