Wednesday, April 23, 2014
After falling since 2009, the rates that most Maine homes and businesses pay for electricity are rising again, as the cost of upgrading New England's power grid begins to show up in their utility bills.
The Maine Public Utilities Commission announced recently that the delivery portion of Central Maine Power Co. bills will go up 7.1 percent starting this month. Bangor Hydro-Electric customers will see a 4.5 percent rise.
The initial increases are modest: A CMP home customer with an average monthly bill of $81 will see another $3 or so.
But this little-noticed change signals the start of rate hikes that will play out over the next five years or so. And there's not much that politicians such as Gov. Paul LePage, who repeatedly says that lowering electricity costs is one of his top priorities, can do about it.
That's because an estimated $4.6 billion in transmission projects are planned or under way in New England through 2016, and Maine's share of the investments could be as high as $375 million.
That would add a couple of pennies to each kilowatt-hour consumed in the average home, or another $12 or so per month, according to calculations done by The Portland Press Herald and reviewed by the PUC.
But rising transmission rates are only half the story.
Overall electric rates eased in recent years primarily because of record-low prices for natural gas, which is used to generate much of New England's power. Wholesale gas prices are stable now, and that may help temper the transmission impact for home customers over the next year or so. But if the demand for natural gas grows as the economy eventually recovers, Mainers also could see a modest hike on the energy portion of their bills.
These factors show how regional transmission polices and market forces -- rather than hot-button programs such as renewable energy subsidies -- are the primary drivers of Maine power bills.
But government mandates do contribute to overall costs. In the response to a law enacted this year on behalf of the Le-Page administration, the PUC is starting an inquiry into the costs of programs that include renewable-resource requirements, low-income assistance and money to fund Efficiency Maine.
"It's whatever else we're adding to the bill," said Kenneth Fletcher, LePage's energy director. "We want to stop the bleeding. We don't want to add more in."
The pending rate hikes don't come as a surprise to Fletcher, or anyone who follows Maine's energy industry. They were predicted more than two years ago, when state regulators were reviewing the need for CMP's Maine Power Reliability Program.
Building transmission is very profitable for utilities, which, per federal law, enjoy a high rate-of-return on those investments. Despite arguments from intervenors and the PUC staff that the state could have a reliable grid for less money, regulators approved what's considered to be Maine's largest construction project, costing $1.4 billion.
Now under way, CMP's project is designed to meet strict standards aimed at preventing blackouts. As a side benefit, it also improves connections to some power producers, including wind farms in western Maine.
In one sense, it's a good deal for Mainers, who pay only 8 percent of the cost. The rest is spread among other New England power customers. The thing is, Mainers also must share the cost of similar projects in other states.
Utilities say it's a once-in-a-generation effort to upgrade the region's power grid.
"This is basic infrastructure that everyone relies on," said John Carroll, CMP's spokesman. "You have to make big steps forward for what are long-lived assets. You have to think long-term when you look at transmission rates."
But opponents continue to question whether all the infrastructure is necessary. Environment Northeast, which has an office in Maine, did a study last year showing that transmission spending was growing much faster in the region than in the rest of the country. It also argued that not enough attention is being paid to cheaper, non-transmission alternatives, such as energy efficiency and clean-power, small-scale generators.
As costs mount, regulators are taking a closer look at non-transmission alternatives. But this process won't blunt the impact of spending for projects that have already been approved.
A breakdown of CMP's home rates over the past decade shows what's happening:
Oil and natural gas prices rose after 2005, and electric rates followed. Record energy costs in 2008 propelled total home rates to 16 cents per kilowatt hour, a high for the decade.
The recession and the collapse of gas prices in 2009 sent overall prices tumbling to 14 cents/kwh earlier this year, nearly back to 2005 levels.
All the while, transmission rates hung at roughly 1.5 cents/kwh. Now they're inching up.
This month's transmission hike will increase rates roughly a half-penny, largely to begin paying for CMP's project. As the rest of the project, and other New England upgrades, are put into rates, the transmission portion of the bill will grow to roughly 4 cents/kwh.
For home customers, transmission costs coupled with an increase in energy prices could push total rates close to 20 cents/kwh later this decade, according to Richard Davies, the state's Public Advocate.
"I do think the pressures are going to be more upward than downward in the near future," he said.
For small businesses, the impact will depend on the role electricity plays in total expenses, according to David Clough, state director for the National Federation of Small Business.
"It will matter for some," he said. "It's a couple of cents multiplied by a large volume. It adds up."
For manufacturers, the costs could be substantial, according to Tony Buxton, who represents companies in the Industrial Energy Consumer Group.
A breakdown of CMP's commercial rates shows transmission stayed below 1 cent/kwh until 2009. With the new change, rates will nearly double from what they were three years ago. That will put them at a level near today's depressed prices for natural gas.
"It's crazy," Buxton said. "We're now paying as much to transport the electrons as to generate them."
Against this backdrop, the PUC is set to review the costs of various government programs that are funded through electric rates, and decide how to present that information to consumers. Programs include funding for the Regional Greenhouse Gas Initiative, renewable portfolio requirements, Efficiency Maine and low-income programs, as well as the Public Advocate's and PUC's offices.
Buxton and other experts say they don't expect all these programs to add up to 1 cent/kwh, but that it's worth calculating their total contribution.
"The bottom line is we should include every cost," Buxton said. "There are no silver bullets in this business. You're going after one-tenth of a cent at a time."
Staff Writer Tux Turkel can be contacted at 791-6462 or