Coming Deregulation Brings Complicated Utility Bills

by Alice Cherbonnier

     WHAT HAPPENS when public utilities are deregulated? The simple answer is that consumers get to choose among suppliers of natural gas or electricity. To have that choice of supplier, however, both they and the companies involved have to deal with a complex process to sort out who will be paid for what.
     That’s because no matter who sells the fuel itself, the therms of gas and kilowatts of electricity must still use the infrastructure that’s already in place. In this region, the franchises for distribution are controlled by Baltimore Gas & Electric Co. (BGE).
     In preparation for deregulation, BGE and Maryland’s Public Service Commission (PSC) have developed a study program to “work out the kinks” in preparation for gas deregulation, according to PSC spokesperson Bob Harris, who adds the caveat, “should that occur.”
     The study, called the Gas Pilot Program, has resulted in a new billing format that consumers may find challenging--so much so that with their latest BGE statements, they found a brochure explaining all the terms itemized in the gas portion of the bill.
     There’s a standard $25 monthly “customer charge” that all consumers must pay, big or small. This covers BGE’s administrative costs for such things as billing and meter reading.
     Then there’s a pro-rated “distribution charge,” multiplying the amount of gas used by a cost factor set by BGE in consultation with the PSC. This covers the cost of delivering the gas through BGE’s underground infrastructure of pipes.
     These costs don’t cover the cost of the gas itself, which is now listed on the bill as “Gas Commodity.” Then there’s a 5% state tax added on, plus a local tax that depends on where you live. In Baltimore City, it’s 8%; in Baltimore County, 7.5%. Residents of Carroll and Harford Counties pay no local tax, while the few Anne Arundel Countians served with natural gas pay a 10.79% local tax. (Local taxes are set by the state legislature at the request of the delegation from a given county or Baltimore City.)
     An examination of a bill might show that the actual cost of the gas itself is less than the cost of BGE’s charges to deliver it to a customer. If deregulation occurs and a customer selects a different fuel supplier for promised savings, the savings would only be reflected in the cost of the fuel itself. BGE would still do the billing, and receive the customer and distribution charges.
     Calvin Timmerman, director of rate research at the PSC, says the change in how the gas bill is set up does not mean gas customers are now paying more money than before. “It’s basically reshuffling names,” he explained.
     The $25 flat customer charge for gas, regardless of amount of use or ability to pay, “reflects the basic rate-setting principle of one price for every customer,” said Timmerman.
     Gas deregulation won’t likely be a big profit-maker for BGE competitors, Timmerman believes. “Gas companies don’t make their money on the gas part,” he said. “They make their money off their investment in the pipes, and to some extent from the money they can save off their operations.” For example, if BGE can buy natural gas at a cheaper rate than the PSC dictates, BGE can keep half the difference, and the customers get the other half in the form of lower prices.
     If deregulation occurs, and a customer contracts with Supplier X instead of BGE to deliver gas over BGE’s infrastructure, how will anyone know which gas is which? The simple answer is, they can’t. The gas is the same. BGE will notify Supplier X of the anticipated number of therms of gas it should deliver into the pipeline on a daily basis, based on Supplier X’s customers’ previous seasonal utilization experience, a reported by BGE. BGE would read meters as usual, and on a seasonal basis notify Supplier X if more therms were supplied than expected, or if a credit is due because customers used less than anticipated. PSC and BGE are currently negotiating balancing and stand-by fees and determining how cash credits would be handled.
     Deregulation of electricity will work similarly. Customer bills already itemize a $11.50 customer charge; the “energy charge” is for the infrastructure to get the fuel to the customer. Once again, the actual “fuel cost” will likely be the lowest of the three expenses.
     “BGE might become an electric distribution company by about 2002,” said Timmerman. That would mean BGE would continue to generate power at its plants, but it could sell it anywhere, and buy it from other sources, depending on how it can make the best financial arrangements.
     Fuel, like pork bellies and cotton, has thus become a commodity. But the ability to distribute the fuel has not. BGE holds the franchises for distribution in the areas it serves, and continues to be subject to oversight from the PSC, whether the gas or electric fuel is supplied by itself or others. If BGE wishes to extend infrastructure to serve new areas, it has to apply to the PSC for investment approval. All BGE customers will bear a share of that additional infrastructure investment in the form of the distribution charge.
     Another matter PSC and BGE will soon be grappling with is what return on investment stockholders will be able to expect as BGE’s role evolves in a changing marketplace. Deregulation, it seems, spawns regulation as well.

Updated by Allegro Web Communications on June 3, 1998.