Constellation says thanks for the charitable gift
Except it's not tax-deductible, it's not voluntary and Constellation Energy, owner of Baltimore Gas & Electric, doesn't need the money. Sunday's column is about an obscure cost that got built into your BGE bill (and Pepco, Allegheny or whoever your utility is) starting in 2007. It pays for generator "capacity" -- the right to buy megawatts from a particular generator at a particular time. Grid managers PJM Interconnection, heavily influenced by Constellation, Mirant, Exelon and other generation company, changed the rules for buying capacity in 2007 in a way that hugely inflated costs for residences, businesses and factories -- especially in the BGE and Pepco areas. The new way of selling capacity is called the "Reliability Pricing Model," or RPM.
Read the column, which reports that the 2007 change is costing Maryland $5 billion extra for the period from 2007 to 2014. People have been angry about the RPM charge for a while, and they just got angrier, because the price for the latest auction headed into the stratosphere. I wanted to calculate what the gimmick is costing Maryland and BGE customers. The extra dough was supposed to incentivize generation companies to build Maryland plants, but they haven't. So the $5 billion, while some of it has probably financed environmental upgrades and other fixes to keep old plants open, is mostly profit for Constellation and other generation companies.
I promised in the column to publish the math behind the numbers. Total Maryland costs for capacity charges for the seven years (we know this because the auctions through 2013/2014 have been completed) are $5.92 billion, according to the Maryland Public Service Commission. (Don't forget -- this is in addition to paying for the electricity, the tree-trimming, the meter readers and everything else that goes into your BGE bill.) That's based on RPM prices, minus CTR credits (don't ask) ranging from of a low of $28 per megawatt day in the Allegheny zone for 2013/2014 to prices well over $200 for the BGE and Pepco zones in some years.
The question is: What would those costs have been without the new RPM rules for reserving capacity? To get an answer we look at what capacity cost in the BGE zone and elsewhere in Maryland in 2006 and earlier. I got a couple numbers. One energy economist said capacity cost about $18 per megawatt-day in the four years preceding the new rules. Another said it was more like $25. In any case capacity was about a tenth as expensive before the rule change as it is now. For purposes of comparison I went with the higher, more conservative "before" figure: $25. And if capacity cost $25 per megawatt-day today, as it did before they rigged the rules, Maryland's capacity costs for the same total demand would be a mere $900 million from 2007 to 2014, not $5.9 billion. Difference: $5 billion. (If anybody's interested I'll send the spreadsheets broken down by utility zones.)
The BGE and Pepco zones receive special pain because of how the auction is designed. BGE households, offices and factories will pay $3.17 billion in capacity charges from 2007 to 2014, according to the PSC -- average capacity price minus CTR credits of
$168 per megawatt-day. If capacity acquisition hadn't changed and BGE customers were still paying $25, they'd have to pay only $470 million -- a difference of $2.7 billion just for metro Baltimore.
What does all this mean on your bill? About an extra $175 on average per year, every year, from 2007 to 2014. The average daily capacity obligation for BGE households is 3.35 kilowatts, according to the Office of People's Counsel, which represents household consumers before the Public Service Commission. From the average RPM/capacity price of $168 for the BGE zone for the 7 years, we subtract the $25 that customers would have been paying without the rule change to get a difference of $143 per megawatt-day. Broken down into the daily household obligation of 3.35 kw and rendered into yearly cost, that becomes $174.85 -- a real burden on many BGE households and one that has given them zero benefits in return. That extra $5 billion Maryland is spending might have been used to build new, reliable, green electricity plants instead of padding energy companies' profits.
Comments
Thank you so much for this informative article, Jay. Maryland consumers are lucky to have such an educated and thorough journalist to advocate for their best interests,
Posted by: Michelle Brown | October 24, 2010 8:22 AM
Good piece on Constellation. As a follow-up, can you find out why some Baltimore COUNTY residents (myself and at least two of my neighbors) are being charged $4.00 each month by Verizon for a "Baltimore City Telecommunications Tax Surcharge". Is this "taxation without representation" or just another involuntary corporate gift?
PS - Verizon Customer Service, located in Virginia, told me that Baltimore County is a subdivision of Baltimore City, and that they are bound by law to collect this tax by Baltimore City!
(Heaven help us).
Posted by: Charles S. (in Baltimore COUNTY) | October 24, 2010 11:02 AM
Glad that you're finally getting more acquainted with the energy markets. I've read your columns on the topic and I can definitely see that you are beginning to develop a better understanding of the energy market.
A couple of notes:
1. Read the RSA agreement, section 8, for more details on the RPM model. You owe that to yourself!
2. A better understanding of future auction rate schedules would have prevented you from publically recommending long-term contracts with WGES when capacity was heading downward or unknown.
3. Most importantly, you're forgetting how ILR or Demand Response makes this a wash. Don't stir the public ire without a better understanding the benefits. The money is paid out by PJM to utilities, so your assertions are off base and irrelevant to any household that participates in peak rewards.
Posted by: flipside | October 24, 2010 4:07 PM
What is a "reliable" green energy plant?
I've never heard of one before.
Posted by: bill | October 25, 2010 2:37 PM
It is interesting that PJM touts the huge amounts of DR as proof that RPM is working... and now is considering a proposal to limit the amounts of DR that can be called upon.
Posted by: mdenergygal | October 26, 2010 9:56 AM
Your columns on this issue seem to contain their own answer. Maryland consumes huge amounts of electricity while essentially forbiding the construction of any power plants in Maryland. And you are surprised that you have to pay the out of state producers through the nose?
Posted by: Russell | October 26, 2010 11:17 AM