An Auburn startup company that’s offering discount electricity to Maine homes and small businesses is working to triple its customer base over the next six months and hoping that wholesale power prices don’t rise. Those two factors will influence whether Electricity Maine LLC can make a profit, and whether it can guarantee small customers energy rates that are below the standard offer service rate.

For now, the guarantee is tentative and the discount is modest.

“If we don’t beat the standard offer, we don’t have a business model,” said Kevin Dean, a managing partner.

More than a decade after Maine restructured its electric industry to encourage retail competition, no company has successfully offered a lower-price alternative for home customers. A vibrant market has developed in the commercial and industrial sectors. But the high cost of attracting and retaining small customers here has been a turnoff for national energy suppliers.

In lieu of competition, the state maintains a default energy supply — the standard offer — that uses annual bids to smooth price swings. The vast majority of residents and small businesses accept the standard offer as their de facto power supplier.

With Electricity Maine, small customers now have a real choice. But it remains to be seen how much money they actually can save on their bills.

OVERSTATING AVERAGE SAVINGS

Electricity Maine is projecting 6 percent savings for Central Maine Power Co. customers through March. That savings is based on current, wholesale power rates and an above-average level of consumption. In media reports, the company has estimated that most homes can save $75 to $100 a year.

But checking that assumption against actual usage trends shows that Electricity Maine is overstating the average savings. A typical home in CMP territory uses 525 kwh/month and would save roughly $2.70 a month, or $32 year.

The savings is even less for homes served by Bangor Hydro-Electric, where the standard offer rate is lower.

In a recent interview, Dean said his estimate was an example that’s meant to make a confusing calculation more simple. A frugal customer might save only 50 cents a month, he said, while a power-hungry house could exceed $5. Over time, Dean said, he hopes the company can grow large enough to negotiate power contracts that could save customers 10 percent on their bills.

“Any savings are good savings,” Dean said.

Electricity Maine may have chosen a good time to challenge the standard offer.

Utilities are installing digital “smart meters.” Real-time tracking of power-use patterns will make it easier for suppliers to market special rates for homeowners who shift high consumption to times when demand is lower, such as waiting until night to run a clothes dryer. The advent of Facebook and other social media also has created a cheaper way to reach potential customers, compared with traditional advertising and marketing.

LOOKING TOWARD 5,000 ACCOUNTS

Electricity Maine began signing up customers a month ago. It now has 1,500 or so, 90 percent of them homes in CMP and Bangor Hydro service areas.

That’s not enough of a power load to negotiate a fixed-price contract with a supplier. Dean figures he needs to have at least three megawatts of demand, spread across a mix of 5,000 home and business accounts. That could allow him to offer deeper savings, he said, and achieve the volume needed in a business where profits are made on a fraction of a penny.

In the meantime, Electricity Maine has to buy electricity daily on a spot market run by the region’s power pool, where prices fluctuate by the hour.

To pay for its energy supply every day, the company is tapping a line of bank credit and personal cash that now exceeds $300,000, and could hit $5 million by year’s end. As customers pay their monthly bills, the capital is recovered.

Electricity Maine is launching at a time of stable wholesale power rates.

The standard offer rate in CMP’s service area is 8.5 cents/kwh. Electricity Maine is guaranteeing customers 7.99 cents. That rate is good until March, when the next standard offer rate takes effect. After that, Electricity Maine’s rate could go up or down, depending on the standard offer.

Predicting price trends is risky. High natural gas prices sent wholesale rates soaring in New England during 2008, then crashing as the recession took hold.

If prices fell again, the owners of Electricity Maine would stand to make a windfall. If prices spiked, they would need more money to cover supply obligations. One way they could control expenses in a rising market is to stop taking new customers, Dean said.

“I’ve been doing business a long time,” he said. “I’m not going to find myself upside down in a rising market.”

Dean and his business partner, Emile Clavet, own hotels, mobile home parks and other ventures that use competitive electricity suppliers. The unavailability of a residential supplier led them and another partner, Kirk Nadeau, to form Electricity Maine last year and become licensed with the Public Utilities Commission.

“No one was going after this market,” Dean said.

WHOLESALE PRICE TENDS ARE KEY

There are good reasons why, according to Mark Issacson, a partner at Competitive Energy Services in Portland, which negotiates power supply contracts on behalf of large customers. The company had negotiated green power contracts for wind and hydro, for earlier supply options that were priced above the standard offer. But these programs never drew enough customers to make money, Issacson said.

In the conventional market, roughly 80 percent of the cost of wholesale power in New England today is linked to fuel, Issacson said, mostly to natural gas. A supplier looking to offer a discount and make a profit needs to squeeze remaining costs and spread them out over a lot of customers. Social media is a smart tool, he said, because residents aren’t used to shopping for power.

“You’ve got a pretty tough competitor who has 100 percent of the market on day one,” he said of the standard offer.

Wholesale price trends are critical, Issacson said. Falling prices have lowered standard offer rates. The March 2011 rate is down 6 percent, but it’s blended with earlier years, making it easier for Electricity Maine to beat today’s standard offer.

“That only works in a falling market,” Issacson said.

The existence of Electricity Maine is appreciated by CMP, which delivers power but doesn’t sell or generate it. The utility is half done converting old mechanical meters to digital “smart” meters. They’ll help manage demand through time-of-use pricing, in which customers pay less for using power when it’s cheaper to generate. That could open the door for competitive suppliers to offer a variety of prices, eventually for charging electric cars and thermal storage heaters.

“People are starting to understand that electricity is a market and that they can take advantage of it,” said John Carroll, a CMP spokesman.

This new attempt to bring competition to small electric customers also is being watched at the PUC, which requires providers to post financial assurances, but doesn’t investigate them unless it receives complaints.

Tom Welch, the PUC chairman, said he plans to learn more about the company’s business model. He declined to offer an opinion of whether consumers should switch from the standard offer to Electricity Maine.

“We are absolutely not in the business of telling people which plans to sign up for in the competitive energy market,” Welch said.

Staff writer Tux Turkel can be contacted at 791-6462 or at:

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