Some of southern and central Maine’s largest employers have seen the price they pay for electric service jump by an average of 19 percent since last summer, and the increase has nothing to do with the cost of generating electricity.
Rather, the hike in the delivery charges on their Central Maine Power Co. bills is being driven by factors that include the conclusion of refunds for transmission line investments, added money for the Efficiency Maine Trust and a pause in federal damage awards of lawsuits over defunct nuclear plants such as Maine Yankee in Wiscasset.
The increased charges apparently have led two companies to call the office of Gov. Paul LePage and, according to the governor, threaten to leave the state and take a total of 400 jobs with them. LePage used the exchange to again highlight Maine’s above-average energy costs and scold lawmakers and the media for ignoring a crisis.
“One company told us their energy bill is going up $125,000 and they simply can’t sustain it,” LePage said on a radio talk show Jan. 5.
LePage has declined to identify the companies or provide specifics. But by targeting only the cost of energy, the governor is failing to identify the actual cause of a more complex problem that has saddled Maine’s biggest energy users with a $35.2 million increase in their electric bills since July.
Its effects are already being felt at places like Huhtamaki, a food and drink packaging plant in Waterville.
“It’s like a roller coaster, but there are more ups than downs,” said Paul Serbent, a technology manager at the plant.
Huhtamaki is a Finnish company with 17 manufacturing plants in the United States. The Waterville plant has 500 employees and is best know for making Chinet tableware.
Last July’s steep rise in delivery rates came as a surprise, Serbent said, adding hundreds of thousands of dollars in costs. It hurts efforts to attract new business in Waterville, he said, and increases the risk that Huhtamaki could shift production elsewhere.
“The products we make in Waterville, we can make in other facilities,” Serbent said.
His concerns were echoed by one of Maine’s largest private employers, Bath Iron Works. With roughly 6,000 workers, it competes for multibillion-dollar contracts with shipyards in states that have lower energy costs. The company declined to share cost information, but released this statement:
“Generally, the contracts are multi-year, fixed-priced contracts for which any increases in costs, whether forecast or not, erode BIW’s competitive position. Stability and predictability of costs is particularly important when bidding for work that will be performed years into the future.”
MULTIPLE FACTORS, VOLATILE RATES
The companies’ concerns reflect the uncertainty in predicting and planning for energy costs. While the Maine Public Utilities Commission sets multi-year rates for transmission and delivery charges for companies like CMP, those rates are adjusted annually to take into account the ebb and flow in the utility’s revenues and expenses.
Ironically, while delivery charges have been increasing, wholesale electric prices in the region have been falling, according to grid operator ISO-New England. In 2015, they were at their second-lowest level since 2003. Although Maine had the lowest industrial energy rate in New England at 9.16 cents per kilowatt hour, the national average was 6.6 cents per kwh, according to U.S. Energy Information Administration figures for November 2016.
But over the same time, costs associated with building new transmission lines have been rising. The refunds that went away last July had temporarily insulated Maine electric customers from the higher delivery prices they’re seeing on today’s bills.
Even more confounding, the delivery price hikes that companies are struggling with today are set to reverse direction this July.
Prices will fall a total of $57 million for all customers. The drop is linked in part to the recent expiration of expensive long-term contracts for two wood-fired power plants that the Legislature, through the PUC, told CMP to sign in the 1990s.
But this good news won’t last. In 2020, experts say, delivery prices may be headed up again.
These price swings also are being felt by home customers, who are absorbing an additional $20.6 million in charges from last July through this June. The changes have pushed an average CMP home bill from $79.02 last June to $81.59 today.
But the impact is much greater on manufacturers, because transmission expenses represent a larger portion of their bill. Unexpected price changes make it harder to budget and bid for future work.
MULTIPLE FACTORS AFFECT POWER BILLS
These changes take place in a process by which the PUC reviews the annual revenue requirements for utilities. In the case responsible for today’s rates, the PUC agreed that CMP could collect an additional $55.8 million to cover its delivery costs. That period began July 1, 2016, and will run through this June.
Some of that increase was tied to new expenses. Topping the list was a new budget for Efficiency Maine Trust, which offers rebates to homes and businesses to cut their power bills. That added $13.4 million to CMP’s revenue needs.
Another contributor was Maine’s 7 percent share of the cost for new transmission lines in New England, $7.6 million.
But the biggest changes came from the loss of credits, not new costs.
In 2015, the Federal Energy Regulatory Commission reduced the return on equity in the rates charged by owners of transmission lines in New England. CMP customers got $24.2 million. But that money has been fully refunded and the credit was removed from rates.
A similar thing happened with nuclear refunds. In 2013, the federal government began reimbursing the owners of Maine Yankee and two other New England plants nearly $160 million in damages for the government’s failure to take spent nuclear fuel and other radioactive waste. Utility customers got back that money, so the revenue loss going forward for CMP adds $12.3 million to rates.
NEW CREDITS ON THE HORIZON
But just as prices shot up abruptly, they’re also scheduled to tumble down. The PUC and CMP have been calculating the revenues and costs that will set delivery rates for a three-year period starting July 1. On Jan. 27, the two parties reached an uncontested agreement that will reduce CMP’s net revenue for delivery rates by $57 million. Three big changes will erase the price hike from the last period. The end result is that delivery prices that rose by double digits last time will drop by a similar level in the next rate period.
Most of the big decline stems from the expiration of two costly, 20-year old power-purchase agreements with wood-fired power plants. That will cut CMP’s revenue requirement by $29 million. Also pending is a fresh slug of federal money, mostly for spent fuel storage. That will add $24 million to the pot.
These changes will be welcome for businesses such as Huhtamaki and Bath Iron Works, but the volatility represents a dilemma, said Drew Landry, a lawyer who works with industrial customers.
PUC policy is to give refunds and credits back as quickly as possible. The question, Landry said, is whether it makes more sense to hold back some savings to blunt future increases and smooth rates.
One thing that would help, Landry said, is for CMP to alert companies sooner to big price changes.
CMP says it’s trying to do that. The company sent letters to large customers last May with its best estimates. Account managers also met with the biggest customers. But changes such as the nuclear refunds and transmission regulations can happen suddenly, said John Carroll, a CMP spokesman.
“We try to make projections a year in advance,” he said. “Sometimes things change, so we try to explain that to customers. But when prices go up a lot, it’s shocking to them.”
UNINTENDED POLICY CONSEQUENCES
The agreement by which last year’s rate hike went into effect was signed by the PUC and the Maine Office of the Public Advocate.
It was approved while LePage’s acting energy director, Angela Monroe, was working on the case in her previous job as a longtime utility analyst at the PUC. In a recent interview, Monroe said she was comfortable with the accuracy of the revenue numbers that led to the increase.
As to LePage’s comments about the high cost of energy for businesses, Monroe was asked if the governor is aware that the recent price spikes are caused by delivery charges and not supply costs.
“The governor has been briefed on the various components related to the recent rate changes,” she said.
But today’s well-meaning policies can become tomorrow’s rate hikes, Monroe said, and that’s the message LePage is trying to send to lawmakers. That theme was echoed by both Landry and Carroll, who highlighted policies enacted by the Legislature that had unintended consequences.
For instance: Utilities in the 1990s were ordered to sign long-term contracts for above-market rates with wood energy and hydro plants. The goal was to reduce fossil fuel dependence. But some deals wound up being very expensive when oil prices unexpectedly fell. CMP was then told to buy out the contracts in an effort to save customers money. Today, new contracts for wind and solar projects are being folded into rates, with the assumption that they will be less expensive than natural gas.
“Every time there’s another power-purchase agreement with a wind or solar farm,” Carroll said, “it could be a net benefit for consumers or it could be negative, depending on how prices move.”
MORE UNPREDICTABILITY ON HORIZON
Although the upcoming rate change will bring relief, there’s concern that delivery prices will change again in 2020. The reason is tied to the soaring cost of transmission lines.
New England utilities, including CMP, have been on a building spree to upgrade the high-voltage lines that move power from state to state. Some of the construction is meant to upgrade obsolete equipment. Other work is needed to meet new requirements for reliability and security, and to prevent blackouts. Together, they have added billions of dollars to electric bills in the region.
In December, federal energy regulators opened a case to investigate why transmission rates in New England are much higher than other parts of the country. The Federal Energy Regulatory Commission said the region’s rates are “unjust, unreasonable and unduly discriminatory or preferential,” despite the fact that the agency has approved the projects and rates of return over many years.
It’s unclear how this proceeding will advance under President Trump. In his first week in office, Trump replaced the former chairman with another commissioner, Cheryl LaFleur. A couple of days later, the former chairman, Norman Bay, resigned, leaving two commissioners on the five-member board. That has left the commission without a quorum in the short run, and subject to speculation that it will regulate with a lighter hand under commissioners nominated by a Republican administration.
Tux Turkel can be contacted at 791-6462 or at: