Energy Costs Will Rise Like July Heat

By Melissa Anderson



Most business owners have not marked July 1, 2004, on their calendars. But that is the day that their electricity supply service will become completely deregulated.

That date is just a few months away and, with our busy schedules, it is natural to want to deal with the issue in late May or June. However, the longer business people wait to get prepared for electricity deregulation, the more complicated and costly it will become.

It would be wise to begin the process this month to ensure a smooth transition during the June meter readings. The process seems complicated and overwhelming, but the real issue is the lack of education and awareness of the impact that electricity deregulation will have on your business and how to prepare for the transition to open market electricity rates.

First and foremost, can business people afford an up to 15% increase in the electricity bill? Maryland's General Assembly enacted deregulation for electricity in 1999 with the Electric Customer Choice and Competition Act, a law designed to provide for deregulation for the electric supply generation portion - and only that portion - of the electric service.

Businesses have received fixed prices since July 2000 as part of the transition process created by the Electricity Deregulation Law passed in 1999, which is the reason why the market has not witnessed an increase in electricity bills yet. However, starting in July, rates will be based on the market prices, which are currently estimated to rise up to 15% higher than the fixed prices offered during the transition period.

Your options as a commercial business will be:

- Stay with your existing utility company (BGE, PEPCO, Allegheny or Conectiv) as a default service customer on a new rate called "Provider of Last Resort."

Those who opt to do nothing and remain with their existing provider will see their electricity prices for service based on an annual wholesale bid at market rates, plus an administrative service charge. The utility companies will provide service based on the "Provider of Last Resort" rate to customers who do not choose a supplier before June. Customers will not have any input on the supplier selection process and will pay for services based on a rates established by the bid process in the May.

- Purchase electricity from a licensed supplier on a contract basis.

For those business people who chose to purchase electricity from a licensed supplier on a contract basis, prices will be based on a negotiation or competitive selection process controlled by the customer. Selection of a supplier should provide members price and budget stability for a contract period that will typically extend two to three years.

New service will begin with the meter read date in June. In addition, buyers will need to complete the supplier selection process 27 days before their June meter read date. Since the selection process takes about six weeks, waiting until July to select a new licensed supplier will not be sufficient. As a result, customers will be automatically placed with their existing supplier for one year and subject to market-based pricing.

Additional options to ensure a smooth electricity supply transition on July 2004 are as follows:

- Collecting and organizing energy cost and consumption data for at least the past three years to make managing electricity consumption easier.

- Developing basic program goals focusing on reducing consumption.

- Determining how energy is used as a resource to assist your organization in serving your community and customers.

- Educating yourself, your staff and management.

- Anticipating a 10-15% increase in wholesale prices by 2004 and adjusting your budget to anticipate the recent and anticipated cost increases.

- Developing an Energy Resource Management Program Plan.

- Developing an Energy Procurement Plan for all energy resources including electricity, natural gas and fuel oil.

Remember to implement easy, low-cost options first. For instance, implement a "Turn It Off" Program, establish user involvement campaigns, optimize the use of control systems, establish a program to keep systems clean, implement a preventive maintenance program and stagger equipment startups and operation.

Working with other organizations to share the cost of preparing plans and implementing programs is an excellent idea. For instance, the Baltimore/Washington Corridor Chamber of Commerce has established an Electricity Purchasing Cooperative to assist members. Go to www.baltwashchamber.org for more information.

But, most importantly, get started today by focusing on energy as a resource to be managed efficiently to get a job done. The reward will be a reduction in consumption that could soften the anticipated impact of the expected cost increases of all fuels during the next year.



Melissa Anderson is a principal at CQI Associates, an energy and management consulting firm in Columbia. She can be contacted at 410-740-0667 and meander19@ aol.com.