The price Mainers pay for electricity is closer to the national average today than it was in 1999, just before Maine restructured its electric power industry.

Maine’s overall prices were 48 percent higher than the national average in 1999, according to the U.S. Energy Information Administration. 2010, the price gap had shrunk to 20 percent.

Government figures also show that Maine now has the lowest overall electricity prices of any state in the Northeast, except Pennsylvania.

These conclusions were drawn from a price comparison by the Maine Sunday Telegram and confirmed by energy experts. They run counter to conventional wisdom that deregulation has given rise to exceptionally high and rising power rates in Maine.

Some experts dispute how much influence deregulation has had on prices. But there’s wide agreement that the fluctuating cost of natural gas relative to coal now dictates how much Maine can do to close the power price gap.

That’s because cheaper coal is the dominant power-plant fuel in many states that enjoy lower electric prices. In addition, states with huge dams built long ago as part of federal power projects benefit from low-cost hydroelectricity — Maine gets only a small percentage of its power from hydro.

comparison, natural gas generates more than half of Maine’s electricity today, so when wholesale gas prices rise, electricity prices follow.

High electricity costs have long been a sore point among business owners and residents in Maine. It’s a topic that has gubernatorial candidates offering various proposals to cut energy costs. On Thursday, a panel of energy experts at the University of Southern Maine in Portland will ponder this statement and question: “After 10 years of deregulation, electricity costs for Maine businesses continue to rise. What can be done about it?”

Maine joined roughly two dozen states in deregulating its electric power industry in the late 1990s. Every state in the Northeast except Vermont took part in this experiment. The idea was to introduce competition into the utility business and let customers shop around for the best deals.

Maine lawmakers hoped that the electricity market would mirror telephone service, for which competition has expanded choice and lowered bills. But today, it’s obvious that people had different expectations of what could be accomplished.

The statement promoting Thursday’s panel discussion — that costs continue to rise — is true in absolute terms, experts say. Electric costs for businesses are up, because inflation and the rising price of energy in general has made everyone’s electricity more expensive than a decade ago.

But it’s not realistic to think deregulation could cut today’s rates to below what they were in 1999, according to Tom Welch, a Portland lawyer who chaired the Maine Public Utilities Commission from 1993 to 2005. Welch, the chief architect of Maine’s restructuring rules, said the goal was to slow the rate of growth in Maine and bring prices more in line with other states.

“Rates were lower in coal and hydro states before 2000,” Welch said. “They were then, and they are now.”

For instance, in 1999, the price of power in West Virginia was roughly 5 cents per kilowatt hour. Maine stood at nearly 10 cents, while the U.S. average was 6.6 cents.

Today, West Virginia’s rate has risen to 7.1 cents. Maine is up, but has narrowed the gap, at 12.3 cents. Maine also is closer to the U.S. average of 10.2 cents.

Maine’s 12.3-cent overall rate also compares favorably with its neighbors. Rates range from 17.3 cents in Connecticut and 17.1 cents in New York to 13.2 cents in Vermont. Only Pennsylvania, which gets half of its power from coal, is lower, at 10.5 cents, according to government figures.

Maine’s experiment with deregulation got off to an encouraging start when prices stabilized from 2000 to 2005. One reason is that customers were slowly paying down, through rates, the high-priced renewable power contracts that utilities were told to buy to reduce the state’s dependence on oil. These so-called stranded costs, which included a canceled reactor at the Seabrook, N.H., nuclear plant, totaled $2 billion.

During this period, New England also needed to replace the 900 megawatts of capacity from the Maine Yankee nuclear plant, which its owners voted to close in 1997. The answer was a new generation of high-efficiency natural gas power plants that were relatively cheap and fast to build. Gas burns cleaner than coal, and new sources in Canada promised a strong supply.

“We had to find 400 megawatts of new output in Maine and gas is what stepped into the breach,” said former Gov. Angus King, who served from 1995 to 2003. “It made sense, as long as gas prices were low.”

But gas did not stay low. Prices spiked in 2005, after Hurricane Katrina, and again in 2008, when oil hit record highs. These events pushed up natural gas prices in New England, and electricity prices followed.

Then the reverse happened. Gas prices plunged last year in the recession, contributing to lower electric costs that have extended into 2010.

“The commodity market has the biggest effect,” said Richard Silkman, an economist and co-founder of Competitive Energy Services in Portland. Silkman, who helps companies negotiate power contracts, said prices have ranged from 15 cents per kilowatt hour after Hurricane Katrina to 5 cents today.

“When gas is high, we look terrible,” Silkman said. “When gas is low, we look great.”

But the impact of this roller coaster ride for gas has not been felt evenly among electric customers, and this complicates any analysis of restructuring.

“Restructuring had the most effect where the competition was strongest,” said Charles Colgan, a University of Southern Maine economist.

A robust market had developed to supply energy to Maine’s industrial and commercial customers, who can negotiate long-term contracts. Their overall rates now are the lowest in New England. Maine’s commercial sector made the most progress in bridging the national gap, government figures show. Overall prices were 43 percent above the U.S. average in 1999; today they are 17 percent.

Industrial rates were 45 percent above average in 1999 and are 24 percent higher today, although this comparison is less accurate because it doesn’t capture the discount rates available to certain industries in some states.

One promise of restructuring — retail competition for home and small-business customers — has clearly failed so far, Colgan and others say. Virtually all of these customers get power from the standard-offer service administered by the Maine Public Utilities Commission.

The staggered bidding process for the standard power supply has smoothed out the impacts of natural gas by blending higher- and lower-cost contracts. Since 1999, the gap between Maine’s residential price and the national average has shrunk from 58 percent to 28 percent.

In Colgan’s view, restructuring has slowed the pace of rising prices. The challenge now is how to go further.

“It’s not, ‘We’ve failed, how can we start over?”‘ he said.

In the campaign for governor, candidates have been debating the merits of various sources of energy and their potential to lower bills.

Democrat Libby Mitchell, for instance, favors wind power. Wind energy is free, but the capital cost of building wind farms is high. Even King, who is trying to develop wind projects in western Maine, acknowledged that wind won’t lower prices in the near future. Rates would have to climb back to where they were briefly in 2008, he said, for wind to compete on price.

“But if cheap power is our only goal, we’d be burning coal,” he said.

Republican Paul LePage speaks in favor of nuclear power, but no new nuclear plants have been built in the United States since the 1970s.

Thirteen projects have been proposed, all but one at existing nuclear sites where work had been started earlier, according to John Moens, an industry analyst at the U.S. Energy Information Administration. The only new site is in South Carolina. No construction has started and the developer, Duke Power, said the earliest completion date is 2016.

Because no U.S. plants have been built in decades, the government can’t estimate how long construction could take and what the power might cost, Moens said. One factor in the cost equation is federal financial incentives. Two reactors in Georgia, where preliminary site work is under way, have received $8.3 billion in federal loan guarantees.

Most activity is taking place in the Southeast, which Moens calls a “nuclear friendly” region.

“Like any enterprise, you want to build where you’re welcome,” he said.

To welcome energy development in Maine, independent candidate Eliot Cutler has proposed creating a public power authority that would use tax-exempt bonds to help entrepreneurs finance projects for in-state electricity use. The authority also could negotiate for “cheaper electricity” from Canada.

Candidates point to inexpensive water power from Canada as an option, notably from Hydro-Quebec. But Hydro-Quebec is known as a savvy negotiator, and there’s no evidence that it sells power at discount rates outside the province.

Here’s the latest indication: Hydro-Quebec recently signed a 26-year contract with Vermont, which gets one-third of its electricity from the company. The starting rate is 6 cents per kilowatt hour in 2012. Rates will rise, the parties have said, to stay in line with what’s projected to be the middle of the wholesale market over the life of the contract.

 

Staff Writer Tux Turkel can be contacted at 791-6462 or: [email protected]