Nearly 90% of Maine homes and small businesses pay the default price for their electricity supply costs, which are set by the state once a year. Press Herald file photo
From now through the end of the year, Maine electricity customers will pay about $200 more apiece for their power than they would have if the Public Utilities Commission negotiated power supply contracts the way most other New England states do.
In Connecticut, Massachusetts, New Hampshire and Rhode Island, rates for household electricity supply are plummeting roughly 40%, reflecting new, six-month contracts that benefit from the collapse of record-high natural gas prices.
But in Maine, where contracts for standard offer service are negotiated only once a year, customers are stuck until January with historically high rates from last autumn.
Standard offer service is the default electricity supply for people and businesses that don’t sign up with a competitive power provider. Nearly 90% of Maine homes and small businesses are on the standard offer.
If Maine’s PUC conducted semiannual bids as other states do, most home and small-business customers of Central Maine Power and Versant Power could have seen supply rates fall from roughly 16 cents/kilowatt-hour to 10 cents or so. For an average home using 550 kilowatt-hours a month, that would have reduced an $88 charge to $55 – a savings of $33 a month.
Put another way, the average household in Maine will pay a total of $198 extra through December. With nearly 720,000 homes and small businesses on the standard offer, that adds up to a total of $142 million.
These figures were compiled for an analysis by the Portland Press Herald using comparison data from Connecticut, Massachusetts, Maine, New Hampshire and Rhode Island. The analysis was reviewed by Maine’s public advocate, William Harwood, and Barbara Alexander, an energy consultant and former consumer assistance division director at the PUC. Both are critical of the state’s current policy.
The analysis did not include Vermont, where the rate system isn’t comparable. Unlike the other New England states, Vermont has an all-in-one system that generates, purchases and distributes power.
CONFUSION OVER RATES
The Press Herald conducted the analysis because electric bills are rising this summer, and there’s confusion about what’s driving the increases. It comes after the PUC conducted an unusual deliberation on June 30, cutting standard offer charges by a penny per kilowatt-hour, for an average customer savings of $5.50 per month.
The PUC is aware of the frustration. Last Thursday, the commission held a special media briefing to help answer mounting questions from Mainers about the recent rate hikes. Philip Bartlett, the agency’s chair, outlined drivers behind the increases, including recently amended state net-energy billing policies meant to encourage new solar projects. He acknowledged the role of wholesale natural gas prices but didn’t address issues around standard offer bid design.
CMP and Versant customers this month will see their bills rise to cover a range of PUC-approved costs in distribution rates that include renewable energy policies, settled rate cases and storm restoration expenses. They total roughly $10.26 a month for CMP customers and $17.59 a month at Versant.
Electricity supply and distribution are separate in Maine. CMP and Versant only deliver power; the companies don’t generate it and don’t profit from supply charges. Standard offer service is provided through a competitive bidding process at the PUC with generating companies such as NextEra Energy and New Brunswick Power.
But because customers see both charges on their utility bills, it’s easy to assume CMP or Versant are responsible for the total increase. In fact, the current 16.6 cents/kWh standard offer cost in CMP’s service area far exceeds the company’s delivery charge of 11.4 cents.
“The increase in supply price has been the primary driver of high electricity bills in Maine over the past two years,” said Jon Breed, CMP’s spokesman. “Throughout, CMP has been working with our customers to help them manage their usage to lower costs, and we also work to connect customers to meaningful assistance programs.”
The PUC’s practice of seeking standard offer bids for an entire year has recently become a source of controversy. A resolve passed by the Legislature and signed last month by Gov. Janet Mills, L.D. 987, will compel the commission to reexamine its methods.
At issue is the question of whether consumers benefit more from stable rates over time, or from lower rates sometimes and higher rates other times.
“This is a period in which we’re getting hammered,” Harwood said. “It’s unfortunate to be coming on top of increases in distribution rates. Now we have sky-high total prices.”
A lineworker with Central Maine Power tests power lines in Oakland last December, after a storm knocked out electricity to thousands of customers. Storm restoration costs are one of the factors driving higher electricity rates in Maine. Michael G. Seamans/Morning Sentinel
Another point of view, Harwood said, is that today’s record rates can be balanced against savings that customers enjoyed in prior years, such as 2021, when the standard offer rate was 6.4 cents. States with a biannual bid had to pass on increases sooner than Maine did, he noted.
But Alexander, who has worked with AARP Maine to oppose the current policy, said that reasoning is faulty. Seniors on fixed incomes and households living in poverty don’t average out utility expenses over years, she said. They worry about paying this month’s bill – and their budgets can’t handle steep spikes.
Of the 13 states with deregulated electric utilities, Alexander said, Maine is the only one with an annual bid policy.
“That’s a clear indication of the inappropriate approach that was adopted in Maine,” Alexander said. “The objective in these other states has been price stability. The only way to do that is to buy at different points in time.”
Bartlett, however, said the calculus is more complicated. He called the six-month bid strategy “a double-edged sword.”
Winter rates tend to be higher in New England, he noted, because of the region’s dependence on natural gas for half of its electricity generation. Price volatility pushed rates in other states higher in the winter than they were in Maine, where the impact was blended over 12 months.
“That’s not rate stability,” he said of the other states.
Bartlett said he welcomes the chance to review the current method and find improvements.
“I agree,” he said. “We need to evaluate whether there’s a better way to get more stability in the standard offer.”
DIFFERENT STANDARDS
Current PUC policy is to solicit standard offer bids each fall. That can have benefits. It coincides with how suppliers set market prices. And when wholesale markets are low, as they were in 2020 and 2021, it locks in attractive rates for customers in the coming year.
But that practice has risk. If wholesale prices suddenly soar, as they did in 2022, consumers will have to bear the impact over the next year. That’s what’s happening in Maine throughout 2023.
The situation is different elsewhere in New England.
In Connecticut, the standard offer rate for Eversource went from 24.1 cents per kWh to 13.8 cents on July 1. The rate for United Illuminating fell from 21.9 to 14.3 cents.
In Massachusetts, National Grid customers saw their supply rate fall this summer from 33.8 cents kWh to 14.1 cents. That cut an average home bill from $297 to $181, according to the utility.
In 13 states including Maine, electricity generating companies are contracted to supply power, while utilities such as CMP are responsible for distributing it. Shown here is the Merrimack Generating Station, a coal-fired power plant in Bow, New Hampshire. Jim Cole/Associated Press
In Rhode Island, Rhode Island Energy residential customers saw rates fall from 17.8 cents per kWh to 10.3 cents this summer.
In New Hampshire, where energy supply rates change twice a year, rates are falling from 20.2 cents kWh to 12.6 cents starting in August at the state’s largest utility, Eversource.
However, judging the merits of New Hampshire’s six-month bid process for what it calls default service is more complicated, according to Donald Kreis, the state’s consumer advocate.
“It’s too blunt an instrument,” Kreis said. “We need to fine-tune the default service portfolio to better serve customers.”
That means diversifying power supply contracts to include varied time periods and energy sources, Kreis said. He pointed to the New Hampshire Electric Cooperative, a nonprofit utility that has lower rates than investor-owned utilities such as Eversource, in part by having a mix of long-term contracts and spot market purchases.
New Hampshire also staggers its six-month bid solicitations mid-season, Kreis noted. For instance: Eversource’s summer rates run from Aug. 1 until Jan. 31. This helps smooth out the rate impact of high-power costs in winter.
These various rate strategies highlight the complexity of comparing electric rates in different states.
The complexity is compounded by the relatively small number of comparable examples. As Alexander pointed out, only 13 states have restructured or deregulated utility markets similar to Maine, which split off generation and distribution in 2000. The costs of various power generation sources – chiefly hydro, wind, gas, coal and nuclear – also play major roles.
It’s clear, however, that last year’s spike in supply rates – driven by natural gas prices – helped push total electric rates in New England higher than anywhere else in the country. The latest Energy Information Administration data from April pegs the region’s average total residential electric rates at 30.1 cents/kWh, with Maine’s average at 28.7 cents. That compares to 18.7 cents in the Middle Atlantic states and 13.1 cents in the South.
LADDERS AND WHIPLASH
The four New England states that conduct six-month supply bids use a strategy that energy experts call “laddering.”
That way, if wholesale prices change suddenly, the impact is blended over time and not felt as sharply. It’s a way to hedge bets. Consumers may not enjoy the lowest rates all the time, but they won’t get slammed by record highs, either.
The Maine PUC operated this way in the past. Here is a summary from the PUC’s annual report in 2005.
“The PUC continued to procure standard offer supply in accordance with the hedging program that began in 2005. The program relies on a ‘laddering’ structure that allows the PUC to secure portions of the required supply at different points in time, thereby reducing customer exposure to the volatility of the wholesale market.”
The laddering approach was used until 2013, when regulators decided it didn’t “track the market as well” as an annual procurement, according to a recent report done on Maine’s retail electricity supply for the Legislature by Exeter Associates.
The June 30 rate shave by the PUC was an unusual mid-term adjustment, attributed to an out-of-market contract for power supply involving the gas-fired Mystic Generating Station near Boston. Lower-than-expected costs for that power enabled the PUC to reduce the standard offer midway through its term, Bartlett said.
But don’t expect such adjustments on a regular basis.
The reduction also added to uncertainty about rates moving up and down in Maine. There’s a sense of “whiplash,” Bartlett said, which the PUC sought to clarify Thursday at its briefing. Beyond that, the agency is considering ways to help customers understand the details of this summer’s rate changes, possibly through more website information.
Ultimately, Bartlett said, the best way to achieve stable rates is to wean electricity production in Maine and the region away from natural gas, a global commodity that has seen prices rise and fall sharply in recent years.
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