January 11, 2006

. . . Despite a slight wobble downward in October.
         Customers moving back to their utilities likely are returning because winter rates are out of whack with high market prices, Calvin Timmerman, PSC director of economics, told RT.
         Customers may be coming to the end of supply deals with marketers and can't renew at prices lower than the standard offer, he observed.
         New prices start in June when supply bids now coming in set the price to beat.
         Returning C&I customers don't pay a penalty unless their number gets so high that a volumetric risk provision kicks in.
         That provision lets suppliers raise prices if their 50-mw tranches of demand rise by more than 5 mw.  
         If that happens, incremental load is served at the LMP, Timmerman explained.
         He's not aware that's happened yet.
         Pepco Energy Services' Mark Kumm agrees with Timmerman's diagnosis.
         He's president of the Asset Management Group at PES.
         Stale prices to beat are the culprit, he concurs, especially with energy prices that began their upward climb even before the hurricanes sent the market reeling.
         He's paying attention to the four-week-old descent of natural gas futures ($15+/mmbtu down to $9+) and how that's likely to boost retail markets.
         Overall, C&I shopping was up through Nov 1, most dramatically at Allegheny Power where non-shopping customers moved to market-based rates about six months after other utilities, Timmerman explained.
         Realistic rates at Allegheny boosted large C&I shopping to 44% from 17% last January and load served by marketers to 55% from 22%.
         Large C&I shopping jumped over 10 months at Baltimore Gas & Electric to 87% of accounts from 70% and 92% of load from 70%.
         At Pepco, shopping accounts rose to 78% from 53% and load to 88% from 53%.
         Large C&I shopping stalled only at Conectiv where an "oddity" in rates may have distorted shopping decisions.
         Winter and summer rates were transposed for one class, Timmerman noted, a snafu likely made by the supplier.
         Unlike New Jersey, where suppliers bid one rate that is divvied up among classes, Maryland suppliers bid specific rates for specific seasons.
         The unintentionally low rate this summer would have been hard to beat in the market, Timmerman explained, but the higher rate now may be in sync with today's market.  
         Small changes can radically change customer shopping, particularly in smallish markets like Allegheny and Conectiv, Timmerman noticed.
         Maybe a supplier got some bad press or changed its marketing strategy, he noted, or an aggregator is aggressively signing up customers.  
         By aggregator, he means Chambers of Commerce and other trade groups that go shopping for members.
         Aggregation has been getting pretty active, he noted.
         Overall, Timmerman is pleased to see so many suppliers moving in.
         Ten marketers, up from four last January, are looking for medium C&I customers in Allegheny territory, for example.  Sixteen are active at BG&E with 15 at Conectiv and Pepco.
         Marketers tend to start with big, hourly/interruptible customers then begin signing up firm-service accounts at medium-sized customers, Timmerman observed -- a kind of trickle-down effect.
         Do today's somewhat stale standard offer prices argue for shorter-term standard offer rates?
         Maryland is moving larger medium C&Is to shorter-term rates in June, Timmerman noted.
         That's one of the changes the PSC made before RFPs went out for supply beginning next June.  
         Winter supply for so-called Type II customers (larger medium-sized C&Is) will be bought separately keeping those rates closer to the market.
         "Fresher" prices to beat are good news for competition, Kumm agrees.
         Timmerman played a major role in designing Maryland's standard offer pricing, though he modestly denies being the principal architect.
         He did win an award from the Center for the Advancement of Energy Markets for that role.

Maryland Power Shopping -- November 2005
	Residential	Small C&I	Medium C&I	Large C&I	All C&I
	Shoppers	Shoppers	Shoppers	Shoppers	Shoppers	Total
Allegheny Power	0.00%	0.20%	20.80%	43.90%	1.30%	0.20%
Baltimore G&E	0.00%	1.00%	21.00%	86.70%	3.10%	0.30%
Conectiv	0.10%	3.40%	24.30%	91.20%	4.20%	0.70%
Pepco	6.00%	11.30%	19.10%	77.70%	14.30%	6.80%
Total	1.50%	3.00%	20.00%	79.90%	5.50%	1.90%
Peak Load Served by Marketers
Allegheny Power	0.00%	1.10%	22.30%	54.80%	31.00%	13.60%
Baltimore G&E	0.00%	1.80%	26.50%	92.40%	49.70%	26.50%
Conectiv	0.10%	6.20%	31.60%	96.00%	42.10%	19.70%
Pepco	7.40%	14.90%	23.20%	87.90%	50.60%	31.10%
Total	1.90%	3.70%	25.30%	88.00%	47.90%	25.90%
Source: Maryland PSC