Paying for power

The Public Utilities Commission today is expected to begin discussions in a complex, nuanced and arcane corner of electric-utility rate design that would be worth ignoring if it did not, unfortunately, promise to affect residential bills. The PUC’s conclusion should be based on providing the most protection the users of the system who have the fewest options.

The problem, in short, is that Central Maine Power Co. owns expensive power contracts, purchased at the state’s behest to meet goals such as reducing dependence on oil or conservation, and now some of the largest users of CMP, who don’t like the idea of paying for those expensive contracts, want to generate their own power and rely on CMP minimally, perhaps in emergencies. The questions are as follows: Are these large users responsible for helping to pay down these pricey contracts? And if so, how should they pay?

First, the notion that electric users owe the utility for this cost as a diner might owe a restaurant for a meal is inaccurate. This can be seen in the bills for new customers, who must help pay for the above-market costs even though they were not connected to the system when contracts for those costs were signed. Ratepayers currently pay off the contracts based on usage — use more power; pay a greater share of the contracts. But if a homeowner suddenly decides to use the system only occassionally, no one is going to try to force him to pay off these cost based merely on his potential demand.

Yet that is what CMP and the PUC staff have recommended for industrial users, proposing to charge what they call a standby fee for large users who self-generate but want to remain connected to the system. Their reasoning is that if these companies do not pay this fee, the cost will be shifted to other ratepayers, who could expect, perhaps, a 3 percent increase in the next couple of years soley because of this. It is economically unfeasible for almost all users but the largest to generate their own power.

As a theory of rate design, the standby fee doesn’t hold up well at all; as a practical matter, it protects the greatest number of ratepayers from higher fees. Because, unless you believe the Industrial Energy Consumers Group, which wants CMP shareholders to pick up the tab, other users will have to compensate for the lost revenue. The IECG wants its members to pay stranded costs just like anyone else, based on power use.

To further complicate the issue, the standby fee operates like an exit fee, which is a charge for industrial consumers who opt to leave the system entirely. Just as the Legislature specifically allowed for standby fees, it specifically prohibited exit fees. There is no practical difference between the two fees because the power grid can already meet the demand for the industrial users, so the cost for transmitting power is the same whether the demand is one kilowatt or 1,000.

What CMP has in its favor is that it has met its obligations. That is, operating under the purview of a state commission and policies that have often put social agendas ahead of decisions that would best serve the power company, it has delivered power whenever it was needed to whoever needed it. The exchange for meeting this obligation is that it enjoys certain protections from the open market. One of those protections certainly could be that it be given the opportunity to recover reasonable costs from the broadest number of users.

It’s no wonder that the PUC has twice before declined to consider standby rates, in the late 1980s and early ’90s. The issue turns not on a neat mathematical formula but on the often amorphous social contracts that allow public utilities to operate. Even as the state heads for electric deregulation, it cannot leave those contracts behind.