Protecting ratepayers

The Legislature’s message to electric utilities for the last three years has been unmistakable: Though transmission and distribution will remain regulated, electric service in Maine is about to experience the risks of the marketplace — and the utilities better get used to it. Central Maine Power not only got used to it, the company embraced it with a gusto that would have made Adam Smith proud, and now groups that demanded restructuring are reaping the whirlwind they sowed.

Central Maine Power’s parent, CMP Group, recently agreed to merge with Energy East, a New York-based company that is trying to expand its revenue-producing opportunities after it, like CMP, was forced to sell its power generators. The price of the merger was $953 million, some $473 million above CMP’s book value. The question before the Public Utilities Commission is whether ratepayers will be harmed by the deal, with consideration given to how Energy East will recoup this premium.

The merger comes several months after CMP concluded the sale of its generation to FPL Energy for a price well above expectations, giving stockholders reason to cheer, ratepayers a promised 10 percent cut and the legislators who promoted restructuring reason to think they were onto something. Stockholders would make out even better with Energy East, with the value of their shares rising from about $20 before the merger to a proposed purchase price of $29.50.

The state’s Office of the Public Advocate and the Industrial Energy Consumer Group, however, have offered expert testimony that includes a variety of conjecture on how ratepayers could suffer under the merger and, indeed, the PUC must proceed cautiously in reviewing it. But the standard for approval is fairly low. Rather than demonstrate a benefit for consumers, the utilities must merely show that ratepayers will not be adversely affected by the reorganization.

CMP can do better than that, and has a chance in the coming days to make the hostile testimony so much fuel for the boiler. The company is expected to shortly file a rate plan with the PUC that will spell out the formula it will use to keep price increases below the rate of inflation and set standards for service, much as it does currently through its Alternative Rate Plan. This is the place for the company to indicate exactly how it intends to treat Maine customers for the coming years. Because the PUC need not make a decision on the merger until December, it has ample time to review the rate plan and make sure it includes guarantees to protect consumers. The risk then is properly with the shareholders.

An important point made by several of the testifying experts and one that CMP might concede is that oversight of a public utility within the much larger, multi-state corporation like Energy East would be more difficult. The PUC should ensure that it maintains a clear view of the company and prevents CMP’s components from becoming so scattered that overseeing them becomes impossible. It needs to be able to identify standards of performance and service, as it does through ARP, before the merger and require the company to act at least as well after it.

Ratepayers will benefit from this merger if it leads CMP into a more economically stable and technologically advanced existence. Rather than speculating about what might happen, as opponents of the merger have been doing, the PUC can set rates and service standards that treat ratepayers fairly and guarantee outcomes.