Need a good reason to switch providers? Maryland residents saved up to 34% on their electricity bills last year by switching suppliers. In Maryland, you can choose your electricity and natural gas suppliers. More than 500,000 Maryland residents have already made the switch. After switching energy suppliers, the only difference you’ll notice will be your bill.
The History of Electricity Deregulation in Maryland
In April 1999, Electric Customer Choice and Competition Act passed though the Maryland General Assembly. The bill required electricity deregulation to be phased induring the period from July 2000 to July 2002. Maryland would initially deregulate electricity on the wholesale side, and then phase in retail deregulation in gradual stages. The 1999 law stated that rates would discounted between 3 and 7.5 percent lower than 1999 regulated rates and then be frozen.
Maryland local utilities hammered out long-term contracts with wholesale power providers at low prices, enabling the Maryland Public Service Commission (PSC) to freeze rates in 2000 roughly equal to 1993 prices. By July of 2000, electricity retail choice was implemented for all Maryland residents.
The deregulation process required the local investor owned utilities (IOU) to divest themselves of the power generation and marketing components of their business and focus on transmission and distribution to all customers, no matter who they selected as the electricity supplier for their home or business. The IOU would also be responsible for providing electricity to local consumers at a set rate (known as Standard Offer Service or SOS) as well as provide service if an electricity service provider left the market.
At the same time, the IOU’s were to be reimbursed by customers for “stranded costs.”These were their heavy capital costs the incurred for operating as a power generator, including fossil fuel power plants, transmission/distribution networks, particularly expensive nuclear plants, and more. These costs were to be paid by consumers with initial estimates adding $4 or more per month to the average utility bill for years.
Timing and Frustration
The deregulation process has not been smooth sailing. In the first year of the new millennium, natural gas and other energy prices began rising, and these in turn increased wholesale electricity prices. While Maryland’s consumers were initially sheltered by frozen rates during the first years of deregulation, these rate freezes began to expire in 2004. Rates increased drastically across the state, with the most dramatic occurring in the Baltimore Gas and Electric (BGE) service area.
In February 2006, BGE, one of Maryland’s largest power utilities, announced an increase to residential electricity rate of 72 percent. The heart of the problem was how utilities were required to set pricing for their standard service offering by putting their entire annual load out for auction all at once. However, Hurricanes Katrina and Rita sent energy prices soaring just as Maryland’s utilities began the auction process to buy power for the coming year. The rising fuel price situation and volatile generation prices combined with BGE’s request to have its entire annual load met only served to inflate wholesale prices.
In 2007, Senate Bill 400 required the PSC to re-examine the regulatory structure of the state’s electricity market. The goal for some legislators was to attempt to re-regulate in the wake of the recent price increases. In-state power generation was a major concern, as in 2007, 15,193,000 mWh (or approximately 23% of electricity) was imported annually from out of state.
When PSC released its report in December, 2008, it recommended that the state not try to buy back power stations sold by the incumbent utilities, stating that “?the magnitude and uncertainty of the benefits, relative to the high cost of achieving the outcome do not clearly warrant the return to rate base regulation.” It further recommended that “?the General Assembly consider legislation that would expand the range of options for obtaining new generation” as well as regulations that would focus on better consumer protections.
The Standard Offer Service and Rates
One of the cornerstones of Maryland electricity deregulation law is the Standard Offer Service (SOS). The IOU’s provide electricity to customers who do not choose an electricity supplier or have one that leaves the market. One of the changes adopted by the PSC in 2007 directed IOU’s to have more frequent auctions and negotiate generator-supplied load contracts that lasted for varying lengths of time. This practice helped spread out the risk for consumers who might encounter volatile energy prices.
Residential rates are currently set every six months at a competitive rate auction among wholesale generators in the spring and fall. Contracts are awarded by IOU’s based on lowest price. and the auction results must be approved by the PSC. Each auction covers about 25% of the entire SOS load total with each portion of that load sold in blocks. So far, the practice has successfully kept rates insulated from energy prices spikes. New rates are posted on the PSC website upon approval.
One principal challenge to lowering electricity prices in Maryland has been that the state uses much more than it produces. This is hardly surprising as most of the population lives and works in the metropolitan Washington D.C. — Baltimore corridor. Currently more than one-third of power consumed in Maryland comes from the PJM grid. No conventional generating plants have been built since the state restructured its electricity industry in 1999. Consequently, the PSC has been actively pursuing means to encourage power generation development in the state.
Maryland’s Renewable Energy Portfolio (REP) dates from legislation in 2004 with several amendments. Currently, the renewables have been providing 8% of in-state generation and more is expected to come online. The law currently requires 2.5% of the portfolio standard to be met by offshore wind resources by 2017. Additionally, 20% of all electricity sold in the state to come from renewable sources by 2022 with 2% of that coming from solar by 2020.
As of March 2013, Maryland had installed one-tenth of its 2020 solar goal; the largest installation was a 20-megawatt solar PV project near Hagerstown.
Maryland Energy Choice is Succeeding
In spite of the rocky start, energy choice in Maryland is succeeding. Retail electricity suppliers serviced 26% of residential customers, 37% of small commercial customers, 60% of mid-sized commercial and industrial customers, and 89% of large commercial and industrial customers as of November 2013. That’s more than half of the total IOU load. Switching from IOUs to retail electricity suppliers by residents increased from 112,000 to 629,000 customers between 2008 and 2013. That’s half a million in five years — an increase rate of 400%!
While still receiving the same reliable service from their local utility, Maryland’s electricity consumers are getting more by choosing their own electricity supplier. They are no longer trapped in plans that don’t work for their lifestyle. Because Maryland consumers can shop for a variety of offers and options, competition is driving down rates.