The price of electricity for Maine homeowners and businesses will skyrocket this winter, and state agencies are trying to prepare the public.
For a midsized business, such as a grocery store or a small sawmill, energy costs would jump from the $870 they spent in September to over $2,000 in January, a 130 percent increase, according to a release Monday from the Public Utilities Commission and several other state energy offices.
Business customers served by Central Maine Power Co. will see their standard-offer electricity rates jump from 6 cents per kilowatt hour in October to 15 cents in January, the release said. The standard-offer rate is the default cost for consumers who don’t shop for electricity.
“There is no doubt that we are faced with difficult times ahead with respect to electricity costs in Maine,” said PUC Chairman Tom Welch. “Businesses are likely to be especially exposed this winter to rising electricity prices.”
The statement – from Welch, the Governor’s Energy Office, the Maine public advocate and Efficiency Maine – focuses on businesses. But Maine homeowners also will pay more for electricity as the weather turns cold and when the standard-offer price is reset in March.
The increases affect only the energy supply portion of electricity bills, not the distribution services provided by CMP or Emera-Maine. For homeowners, the monthly bill is split roughly in half between energy and distribution costs.
The cause of the increase is the high cost of natural gas delivered to New England in the winter. Half of the electricity in the region is generated by natural gas-fired power plants. A lack of capacity in the pipeline system squeezes supply and sends prices skyward during the coldest days.
The coming rate shock will be felt throughout New England. In Massachusetts, rates for many household customers will climb 37 percent.
Homeowners and small businesses in Maine also could see substantial jumps. The average home customer served by CMP uses 540 kilowatt hours a month, so every 1 cent per kilowatt hour increase adds $5.40 a month to the bill. The current standard-offer rate in homes served by CMP is 7.5 cents per kilowatt hour. If it goes up to 11.5 cents in March, which is in line with current market prices, that would be a monthly increase of $21.60 in the cost of energy.
For now, the best thing Mainers can do to lessen the impact is increase efficiency and thereby use less electricity. Businesses can schedule reductions in energy use during peak periods, officials suggest. Help is available from Efficiency Maine, which oversees conservation programs.
Midsized businesses will notice the impact first because many have power contracts in which rates change monthly. The standard-offer rate for a midsized business will go from 6.2 cents a kilowatt hour this month to 8.6 cents in November, 11.9 cents in December and 14.9 cents in January, said Harry Lanphear, a PUC spokesman. That would raise the energy supply portion for a typical midsized business customer that spent $870 in September to $2,000 in January, the PUC says.
“If you’re not paying attention, this is going to sneak up on you during the coldest months of the year,” Lanphear said.
Lisa Martin, executive director of the 300-member Manufacturers Association of Maine, said she estimates about half her members use the standard offer for electricity and many of them are likely unaware of the steep increases predicted for the winter.
“It’s going to have a major impact,” she said.
The business rate increases also are a leading indicator of what Maine households are poised to face, whether they get their electricity from the standard offer or from a competitive provider, as roughly half the state’s ratepayers do.
A good way to compare the costs of competitive providers is with a chart on the website of the Maine Public Advocate’s Office.
For instance: Electricity Maine is the state’s largest competitive power provider. A two-year rate plan it offered previously was set at under 8 cents a kilowatt hour. The company recently informed one of its customers of a renewal rate of 11.39 cents in December.
“Customers who renewed a couple of months ago, when real-time cost of power was less, may have received a lower renewal rate,” said Emile Clavet, co-founder of Electricity Maine. “As with any commodity, there are peaks and valleys and electricity is no different.”
The rate increase came as a shock to one Electricity Maine customer, Steve Southwick of Standish.
“I am surprised by a 42 percent increase,” he said.
Southwick is on a budget plan with Electricity Maine, so he pays $74 a month for his total bill. He figures the new rate will add $10 or so a month in energy costs to his bill. Southwick hadn’t been following the news about natural gas prices in New England.
“I haven’t figured out who to blame yet,” he said.
Energy experts blame the region’s inadequate pipeline network, which can’t move enough gas from new fields in Pennsylvania, especially on bitterly cold days when demand at power plants, homes and factories peaks.
The market response to this bottleneck can be seen in average wholesale natural gas prices in New England. Those prices averaged $6.55 per million BTU during the winter of 2010-11. This winter, they will be $15.76 per million BTU, according to data tracked by Competitive Energy Services in Portland, which negotiates power contracts. That’s a 140 percent increase – and it doesn’t include sudden spikes on the so-called spot market, on the coldest days.
“On those days, it could hit $60, $70 or $80 (per million BTU),” said Richard Silkman, the company’s chief executive officer.
With gas prices nearly tripling in four years, power suppliers must factor in the increase when they submit bids to sell energy for the PUC’s standard offer or from competitive providers, Silkman said.
“They bid what they believe will be the market price, plus a margin for profit,” he said.
Maine households on the standard offer have been insulated from these sudden price swings because the PUC has been bidding only one-third of the total standard-offer price each year. The idea was to even out fluctuations in the rate, so consumers wouldn’t suffer sticker shock if wholesale prices shot up.
That policy, however, also keeps rates artificially high when the market is falling. So the PUC bidding process will change this year, with standard-offer bids reflecting more-immediate, real-time prices. That process will begin later this fall and rates will change on March 1, 2015.
“I wouldn’t speculate on what that request-for-proposals will be for residential customers starting in March, but I’d be surprised if prices didn’t go up,” said Lanphear, the PUC spokesman. “It’s where the market’s going.”
One way to anticipate the change is to see what competitive providers such as Electricity Maine are charging for contracts starting this winter, said Public Advocate Tim Schneider.
“I think they are indicative of what the next annual solicitation will be for the standard offer,” he said.
The upward trend also will affect people who use natural gas to heat their homes.
In southern and central Maine, the bill for the average Unitil home customer will go from $934 for last year’s six-month heating season to $1,120 this year, if a rate request is approved by the PUC. That’s about a 20 percent increase, said Alex O’Meara, a Unitil spokesman, or $31 a month.