Retail electric choice started in Maryland in July 0f 2000, with multi-year transitions at each of the four investor-owned utilities (Baltimore Gas & Electric, Pepco, Delmarva Power and Light, and Allegheny Power). These utilities sold off their power plants, and now only own the transmission and distribution wires, while also providing "backstop" power to customers who do not shop for electricity. With the move to competition, Maryland utilities have separated their service into two parts:
- Regulated distribution of power, which is still only provided by the utility, and
- Supply of the electric commodity, which is open to competition.
Customers can choose to receive their electric supply from their utility, or an alternate electric provider.
Customers who do not shop for supply from an alternate electric provider in Maryland receive Standard Offer Service, or SOS, from their utility. How SOS is priced depends on a customer's class and size.
Large business and industrial customers (those above 600 kW) receive hourly prices from the PJM wholesale market. These prices vary with the spot wholesale market price of electricity, which is extremely volatile. Thus, most large customers have contracted with a competitive energy provider to avoid these hourly prices, and receive rate stability.
Medium-sized business customers (25 kW to 600 kW) receive an SOS price that changes quarterly, and are known as Type II customers. All the electricity supply to serve these utility SOS customers is bought every three months, meaning prices often vary widely during the year. Customers can avoid these price fluctuations by contracting with a alternative electric provider.
SOS prices for residential and small commercial customers (under 25 kW) change every six months. Supply for this class, known as Type I, has been "laddered" to shield customers from exposure to the wholesale market at any one time. The supply needs for these customers are split into quarters, and 25% of supply is procured every six months for a period of two years -- meaning the SOS price is a revolving mix of old and current supply contracts. While intended to shield small customers from the price volatility witnessed by larger customers, this "laddering" can also raise prices through risk premiums. The SOS price also does not fall as quickly when the wholesale market price falls, because only a small part of SOS supply is being bought in the current market. Customers can take advantage of falling prices faster by choosing a competitive energy provider that offers lower rates when market prices fall.
Customers who choose an alternate electric provider still have their power delivered to them by their local utility, and contact their utility for all outage reporting. Customers can choose to receive either a single bill from their utility for their delivery service and energy supply service, or can receive two bills, one from each company.
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