A Tale of Two States

You could not find two adjacent states taking more opposite approaches to electric markets than Maryland and Virginia. But they still have one thing in common that could be good for electrical contractors. Governors of both states have issued orders for conservation upgrades worth millions.

Maryland rate caps were permitted to expire on schedule and a reverse auction was held by incumbent utility, Potomac Electric Power Co. (Pepco), to select power suppliers for those users that choose to accept its default rate instead of selecting a competitive provider. New rates took effect on July 1, 2004. The Apartment and Office Building Association (AOBA) concluded in a report to its members as follows. “Pepco’s small, nondemand-metered commercial accounts will experience total bill increases similar to those for residential customers (i.e., 16 percent on average). However, medium-size commercial accounts (i.e., accounts having maximum metered demands of less than 600kW) will on average experience 35 percent increases in their total annual billings. No calculated bill impacts for commercial accounts having maximum metered demands in excess of 600kW were reported, but annual bill increases for large customers are expected to be considerably greater than the 35 percent average increase for medium-size commercial customers.”

To help mitigate its members’ costs, the AOBA formed a new company to aggregate their loads and began marketing generation service last summer for delivery after June 30, 2004. Those companies that have entered into power-supply contracts with AOBA Alliance Inc. have already secured substantial cost savings. In February 2004, a coalition of Maryland trade associations known as the Mid-Atlantic Aggregation Group Independent Consortium (MAAGIC) signed an agreement with a Pittsburgh electric supplier and launched a campaign to sign up hundreds of the state’s retailers, hotels, restaurants, printers, gas station dealers and other businesses. There are 17 aggregator and broker businesses licensed to do business in Maryland, according to the Public Service Commission.

In contrast, Virginia legislators adopted an extension of electric price controls or rate caps until the year 2010, helping prevent little if any competition from intruders. Analysis by Morgan Stanley estimated the extension of capped rates will add $487.5 million to the value of incumbent utility Dominion Resources Inc. and will add $1.50 per share to its stock. Return on equity climbed from 6.1 percent in 1999, when electric rates were capped, to 17.8 percent in 2002, the latest year for which figures are available, according to a Richmond Times-Dispatch analysis of Securities and Exchange Commission filings. In comparison, return on equity in the Dow Jones Utilities Average is about 5 percent, while Reuters financial news service calculates average return on equity for electric utilities at 8.9 percent. The extension of price controls by the Virginia General Assembly clearly is a win/win both for consumers and investors of the incumbent utility.

Here is the good deal for contractors. Both Virginia and Maryland have embarked upon long-term energy conservation retrofits under so-called “performance contracts.” These deals finance energy upgrades through the savings from more efficient operating costs. Norfolk State University was the first Virginia public university to comply after Gov. Mark Warner set ambitious goals in a July executive order for state agencies to slash energy consumption. NSU will spend $2.1 million to upgrade its lights and heating and cooling systems, but the project will save the school $2 million over the next 12 years. The College of William and Mary, Virginia Commonwealth University, George Mason University, the Virginia Department of Corrections and Southwest Virginia Training Center are picking a performance contractor. A leading contender is Evansville, Ind.-based Energy Systems Group LLC, the same contractor that Norfolk State University hired. ESG acts as the design-build GC and hires the specialty contractors directly, according to Russ Nelson, regional manager.

Pepco Energy Services, an unregulated subsidiary of Pepco Holdings Inc. announced it was chosen by the Maryland Department of General Services for energy efficiency and guaranteed savings programs for state agencies, universities, K-12 schools, local government and county facilities. “Pepco Energy Services is excited to be a continued resource for the State of Maryland as it strives to reduce energy consumption and air emissions through both standard and renewable technologies,” noted David Weiss, president of the Performance Management Group of Pepco Energy Services. They will contract with specialty firms that are qualified by experience, safety records, workers’ comp rates and bonding interest. These kinds of opportunities might exist in your state too. Check your state energy office and local utilities for possibilities. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be reached at 703.321.9268 or lewtag@aol.com.


About the Author

Lewis Tagliaferre

Freelance Writer
Lewis Tagliaferre is proprietor of C-E-C Group. He may be reached at 703.321.9268 or lewtag@aol.com .

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