Allegheny residential rate caps to be lifted in 2008

June 18, 2006

While a number of questions remain about how Maryland's new energy bill will affect Allegheny Energy, here are some answers available now.

Question: Why are the electric rates changing?

Answer: In 1999, the Maryland General Assembly approved legislation to deregulate the electric industry, hoping more competition would result in lower prices to consumers. In the meantime, the state set caps on electric rates for a period of time to allow the competitive market to develop.

Question: How did the restructuring affect Allegheny Energy?

Answer: With the restructuring, Allegheny no longer owns and operates electric generating stations to serve Maryland customers.

The company does provide "standard offer service," or SOS.

SOS provides the transmission and generation portion of electric service. The company now must purchase power at market rates. The SOS rate is the rate that was capped for the market development period.

Question: When will Allegheny's rate caps be lifted?


Answer: The rate caps for commercial customers were lifted Dec. 31, 2004. The rate caps for residential customers will be lifted Dec. 31, 2008.

Question: How much will my electric bill go up after the cap is lifted?

Answer: The company doesn't yet know what the price will be. It will depend on what the market cost for power is when the company purchases it. But under the new legislation, Allegheny can work with the Public Service Commission to develop a rate transition plan well before the cap comes off.

Question: How are the rates set?

Answer: Allegheny, along with other Maryland electric distribution companies, conducts competitive bidding to get market-based SOS rates. The company secured wholesale electric supply contracts to provide SOS for commercial customers since Jan. 1, 2005. The bids are evaluated, and the lowest qualified bids are submitted to the PSC for approval.

Question: Why were Baltimore Gas & Electric rates going up so much?

Answer: The competition the General Assembly envisioned in 1999 did not materialize. Since then, the cost of generating electricity has soared because the costs of the oil, natural gas and other materials used to generate electricity have risen. The caps in place since the legislation was approved therefore were artificially low, and the rate increases BGE was considering reflected the cost of moving to actual market rates.

Compiled by Herald-Mail staff writer Tamela Baker from information provided by Allegheny Energy spokesman Allen Staggers and from legislative sources.

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