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A different sticker shock

Maryland businesses face another spike in power prices.
The electric bill for Annapolis Lighting Co. in Rockville, Maryland, surged 63 percent from the first five months of 2004 to the first five months of 2005.
The electric bill for Annapolis Lighting Co. in Rockville, Maryland, surged 63 percent from the first five months of 2004 to the first five months of 2005. Sarah L. Voisin / The Washington Post
/ Source: a href="http://www.washingtonpost.com/wp-srv/front.htm" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

On a typical day, the Annapolis Lighting Co. store in Rockville flips showroom switches and sets thousands of table lamps, wall sconces, ceiling fans, lanterns, floor lamps and chandeliers aglow.

With all those lights on, customers would swelter from the heat if not for the air conditioning, which the store cranks up in summer months -- and winter ones, too.

"We're air-conditioning hogs," said Miriam Klimoski, chief operating officer for the chain, which has three stores in Maryland. "So it's frightening to think that our electric bills could go even higher."

But they will, come June, adding to a series of rate increases that kicked in for businesses since Maryland deregulated electricity for commercial power use as required by a 1999 state law.

Though central Maryland homeowners learned this week that their electricity bills will spike for the first time since the legislation passed, small and mid-size businesses in the state have been grappling with rising rates since July 2004. That's when the Maryland Public Service Commission lifted price caps created to ease their transition into a deregulated world.

Since then, rates rose again in July 2005 and now another increase is set for June 1. Though businesses can negotiate their own rates directly with energy suppliers, very few of them have done so. Those that do not make their own deals by June will face a 27 percent to 53 percent increase in electricity prices under default plans overseen by the state.

'A world issue'
Whatever problems the pricing inflicts on business owners, utilities urge consumers not to point the finger at them or the deregulation process.

Electric prices are up because prices for fuels burned to generate electricity are up, said Wayne Harbaugh, manager of pricing and regulatory services for Baltimore Gas & Electric Co. Since deregulation was enacted in 1999, oil prices increased 150 percent, spot-market coal prices 140 percent and natural gas prices 90 percent, he said.

"This is a world issue," Harbaugh said. "It's not unique to Maryland or the United States."

Harbaugh said chances are that competition and lower prices will come to the Maryland market now that the price caps for homeowners and businesses have been lifted.

For now, however, bills are up.

So far, some firms have coped with a shrug of the shoulders, resigned to the fact that they have little choice but to pay up. Some trimmed other costs and rushed to buy more energy-efficient products. And a few joined relatively new cooperatives that pool nonresidential users of electricity to bid on a rate for power, hoping they can get a better deal if they buy in bulk.

Don Danneman, owner of Danneman's Auto Service Inc. in Laurel, said for most businesses, the choices boil down to two: "You either decide to shop for electricity or you take your lumps."

Danneman shopped around. He joined a cooperative formed by the Baltimore/Washington Corridor Chamber of Commerce and has saved nearly 9 percent on electricity.

Before deregulation, Maryland's utility companies -- the largest being Pepco and BGE -- owned their power generators and charged customers the rates set by the state's utility commission.

Series of auctions
But post-deregulation, utilities had to sell their generators. Now, they buy power on the open wholesale market. They do that through a series of auctions that run from December through February each year.

Before auction time, the utilities post information such as how many customers they have and how much electricity those customers use. Then electricity suppliers make bids under the watchful eye of the utility commission, and the lowest bids win. About 40 percent of the electricity sold to BGE for its business customers -- mostly large ones -- is provided by third-party suppliers.

The commission then translates how the winning bids will affect residents and businesses of different sizes, as it did this week when it posted the rate increases. The results affect those who have not made their own deals with suppliers as Danneman did through the chamber's cooperative.

In 2004, the chamber solicited bids from companies licensed to sell electricity in Maryland. Of the five sellers that applied, Connecticut-based Select Energy Inc. won a three-year contract.

The cooperative saved as much as 12 percent in its first year for its 123 members, including Beco Management Inc., a Rockville firm that owns, leases and manages office buildings.

"Thank goodness we participated and locked in our rates," said Madeleine Abel, the company's vice president of property management. "It's going to make a vast difference in our ability to market our buildings" because the company will not have to pass on the most recent rate increases to its tenants.

Other business owners, stung by previous deregulation, will wait and see.

Tom Washburn, owner of Moxley's Homemade Ice Cream Co., trimmed his advertising budget to offset rising energy costs, which he said rose 40 percent from 2004 to 2005.

Washburn said there is not much more he is willing to do. Jacking up ice cream prices at his stores in Towson, Timonium and Bel Air might put off customers. If he raised the temperature of the two walk-in freezers at his Baltimore ice cream-making factory from 20 below zero to 10 below, the ice cream would melt.

As for cooperatives: No thanks, at least for now, Washburn said, because bitter memories linger from the early days of telecommunications deregulation. Back then, Washburn signed on with a service that promised lower rates than Verizon's, he said. The result: His phone lines crashed on a Friday, wreaking havoc on that weekend's birthday cake orders.

"I'm going to wait a few years until these cooperatives work out the kinks," Washburn said. "If your service is not working, you've got bigger problems than saving a few bucks."

At Annapolis Lighting, conservation is the rule. The company switched from incandescent to lower-energy fluorescent bulbs in some fixtures, even though they do not look as nice. Some displays are switched off during the day. And all fixtures got lower-wattage bulbs.

"But we've got to be careful because this business is very sensitive to aesthetics," Klimoski said. "Our showrooms can't look dark and dingy."