Prices at smaller utilities work their way into debate over Maine’s energy future

A lobster boat plies the waters off Vinalhaven, where three wind turbines generate some of the island’s electricity. Vinalhaven and North Haven get their electricity from Fox Islands Electric Cooperative, one of the small utilities that operates in the state. Gregory Rec/Staff Photographer

Small, local electricity co-ops and municipally owned utilities in Maine tend to charge customers less for electricity, a fact that’s finding its way into the debate over the future of the state’s two investor-owned utilities.

In addition to Central Maine Power and Versant Power, eight municipal or co-operative utilities do business in Maine. The larger ones sell power at a lower cost than the two dominant investor-owned utilities.

Backers of the Nov. 7 ballot initiative calling for a publicly controlled utility known as Pine Tree Power cite those generally lower rates in their campaign talking points. Comparisons appear in their literature and on the website of Our Power, the group behind the ballot question, where it states “CMP and Versant charge Mainers 49% more than Maine’s consumer-owned utilities.” The claim is repeated in letters to the editor and by progressive action groups.

However, a review of rates listed by the Maine Public Utilities Commission shows the claim is true for some electricity customers, but not others.

COMPARISONS ARE CHALLENGING

Comparing investor-owned utilities to smaller co-ops is not simple. Since Maine restructured its energy markets in the early 2000s, CMP and Versant can only deliver electricity; before the restructuring they could both generate and deliver electricity. The state’s utility regulators approve rates and determine how much profit the two investor-owned utilities may earn.

Smaller power companies, which also are regulated by the PUC, can generate and distribute electricity.

Philip L. Bartlett II, chairman of the Maine Public Utilities Commission, which oversees energy markets, said smaller co-operatives don’t necessarily charge less to customers. “I wouldn’t say there’s a common dynamic,” he said. “I don’t think ownership is a driving factor, although it helps.”

Unlike investor-owned utilities, municipally owned utilities and cooperatives do not pay returns on equity, reducing the cost of investments, Bartlett said.

CMP, which serves 80% of the state’s residential load, charges customers 28 cents a kilowatt-hour – a combination of the supply rate of 16.6 cents a kWh, over which it has no control, and 11.4 cents a kWh for the delivery charge, according to the PUC. Versant’s rate, which covers 12.6% of the residential load, is 30.2 cents a kWh, similarly broken down by 15.4 cents a kWh for supply and 14.8 cents a kWh for delivery. Versant also serves a smaller area that it charges 27.1 cents a kWh.

In contrast, the Eastern Maine Cooperative in Calais charges customers 14.9 cents a kWh, Van Buren and Kennebunk Light & Power each charge 12.5 cents, Madison Electric Works offers electricity at a rate of 13.5 cents and Houlton’s customers pay 11.4 cents. Combined, the five companies serve just 3.5% of the state’s residential load, with Eastern Maine Cooperative accounting for about one-third.

The rates at four other local companies – Matinicus, Monhegan, Fox Islands and Isle au Haut – are higher than at CMP and Versant, ranging from 32 cents to 75.2 cents a kWh. All are on islands where delivery costs are high and populations are tiny.

Nationally, investor-owned utilities serve two-thirds of all customers, public power serves 15.3% and cooperatives provide 13.2%, according to the American Public Power Association.

MORE THAN RATES AT PLAY

Backers of Question 3 say it’s more than just lower rates that drive support for the measure. They add that the revenue would be held locally, in contrast to Versant, owned by a Canadian-based company, and CMP, a subsidiary of Avangrid, which is owned by Iberdrola, a Spanish company.

“Pine Tree Power money would stay in our community,” said Lucy Hochschartner, deputy campaign manager for the initiative.

Richard Silkman, chief executive officer of Competitive Energy Services, a Portland energy management firm, cited the municipal and cooperative utility model for reasons other than the cost of electricity. Maine must build out its grid to adapt to increased electrification required to counter the impacts of climate change, and nonprofits can raise the capital necessary at a lower cost than investor-owned utilities, he said.

For example, a municipally owned utility can take advantage of its tax-exempt status, a benefit not available to investor-owned utilities, he said. To raise capital, an investor-owned utility might issue shares, with investors demanding a higher return, said Silkman, who supports Pine Tree Power. Issuing stock is unpopular among investors who worry the value of their shares will be diluted.

Critics of investor-owned utilities say shareholder demand for higher profit at least partly drives up costs. Utilities and their supporters push back by saying they largely pass along costs associated with power generation. For instance, the price to generate electricity in New England follows natural gas costs that have jumped as demand spiked after the COVID-19 pandemic eased and markets were roiled by Russia’s invasion of Ukraine.

Judy Long, manager of communications at Versant, said several factors are responsible for higher costs at investor-owned utilities. For example, unlike cooperatives and other smaller utilities, the investor-owned utilities are required to establish interconnection links with solar energy and wind projects, and must comply with reporting and accounting mandates not required of consumer-owned utilities.

“I fail to see how just making an investor-owned utility a consumer utility would cause any significant decrease,” she said.

CMP did not speak on the record about comparisons with customer-owned utilities.

Barb Hamilton, office manager at Fox Islands Electric Cooperative Inc., said an undersea cable is a big part of the utility’s rate of 39 cents a kWh. “It’s an added infrastructure that other utilities don’t have,” she said.

In addition, with just 2,000 or more accounts, the cooperative is limited in how broadly it may spread its costs, Hamilton said.

Matt Rancourt, finance director of the Kennebunk Light & Power District, said one driver of lower costs charged by municipal or co-operative power companies include delivery, or distribution, rates that are lower for smaller companies with fewer expenses.

BENEFITS TO BEING SMALL

Public Advocate William Harwood said the smaller utilities, unlike CMP and Versant, can buy power in the wholesale market and re-sell it to their customers, hewing closer to the wholesale price. Wholesale market costs in New England have been consistent in recent years, ranging from about 10.5 cents to 10.9 cents a kWh in 2022, according to ISO-New England, the region’s grid operator. However, retail power supply rates vary significantly, from 17.47 cents to 29.28 cents a kWh as of Jan. 1.

The wide range among retail rates is due to several factors at the state level such as different state policies, the timing and length of utility procurements, and other distribution-side charges, said Matthew Kakley, a spokesman for ISO.

The Maine PUC procures power sold to customers of CMP and Versant through its standard offer, although consumers can contract directly with other suppliers if they don’t want the standard offer.

Also, Harwood said the smaller utilities can generate power, which was made off limits to CMP and Versant when Maine restructured its energy markets two decades ago. The Fox Islands Electric Cooperative, for example, which serves Vinalhaven and North Haven, benefits from a 10-mile cable under Penobscot Bay. In 2009, Fox Islands Wind LLC installed a renewable green-energy wind farm of three turbines on Vinalhaven.

They produce about 10 megawatt hours of power a year, with most purchased by Fox Islands Electric Cooperative. More than a century earlier, in 1915, the privately owned Vinalhaven Light and Power Co. relied on coal-fired electric generation.

For Kennebunk, the lower electricity prices are an economic development tool.

Stephen Houdlette, director of economic vitality at Kennebunk, said the city has considerable manufacturing businesses for its size and electricity costs are key to keeping them.

Laura Dolce, executive director of the Kennebunk-Kennebunkport-Arundel Chamber of Commerce, said the lower electricity prices also help draw residential development.

“Some people will only buy houses where KLPD serves them,” she said.