BANGOR – A plan by Bangor Hydro-Electric Co. to offer one rate for power at an 8 percent discount from a current combination of two charges has been ruled illegal by the Maine Public Utilities Commission.

The proposed rate may also be higher than what consumers could get when it is supposed to go into effect March 1, 2002.

Late last month, Bangor Hydro submitted a plan to the PUC that would bundle standard offer electricity rates and transmission fees into one flat rate for the next four years. The utility wanted to sell standard offer electricity to residential customers for 5.5 cents per kilowatt-hour, down from the current 7.3 cents.

Standard offer is the default rate customers pay for their electricity if they have not chosen another supplier to sell it to them. Currently 98 percent of all customers in Bangor Hydro’s service territory purchase power through this service.

Transmission rates, however, would go up from 9.4 cents per kilowatt-hour to 9.8 cents. The combined effect would be a decrease of 8.4 percent in what Hydro customers pay for both power and transmission.

Bangor Hydro no longer generates or sells electricity, only transmits it, and charges a rate for that delivery.

But last year, and until the end of February next year, Bangor Hydro has been buying wholesale power, selling it at a standard offer rate set by the PUC, and being told not to make a profit on the transactions.

Under the plan submitted last month, Bangor Hydro wanted to change its status to a for-profit power supplier. Bangor Hydro would assume the risk for purchasing such a large amount of electricity for standard offer, and would be prepared to take a financial hit if customers chose to buy power at lower rates from someone else.

Bangor Hydro chief executive officer Carroll Lee said the utility was seeking a way to bring stability to electricity rates paid by Bangor Hydro customers, which have gone up 18 percent in 11/2 years. He said other suppliers have not looked at selling electricity to residential users in Bangor Hydro’s service territory, and he is unsure if that is going to change any time soon.

“We’re still concerned that a competitive market doesn’t exist for most” of our customers, Lee said. “We’re disappointed the commission was not willing to give it consideration.”

The assumption of financial risk by Bangor Hydro, though, is what was ruled illegal Monday.

Under Maine’s electric industry restructuring law, which went into effect March 1, 2000, the state’s three largest utilities were told to get out of the power generation aspect of the business and simply transmit electricity. By doing so, the financial risks associated with making electricity – called stranded costs when the risk is greater than what the power is sold for – were to be avoided in the future.

PUC Chairman Tom Welch said Monday that Bangor Hydro’s attempt to return to a risky environment was “an attractive invitation to apply traditional regulatory items.

“While I don’t rule out the possibility … [it] might be justified in some circumstances, I don’t find those circumstances here,” he said.

Competition has been slow to come to Bangor Hydro’s customers, but that is changing – slowly, said PUC analyst Phil Lindley.

“Why lock in Bangor Hydro’s customers to a four-year deal when the market could be a whole lot more attractive next year?” Lindley said. “No matter what the standard offer prices are today, next year and the year after and the year after and the year after could be different.”

The lower prices could be coming, Welch said. Electricity prices are tied to the futures market, and the wholesale rates are showing signs of moving downward.

“What that suggests to us [is] the proposal by Bangor Hydro isn’t measurably better than what we’re likely to get in the standard offer bid process,” Welch said. “Market prices have declined noticeably since the last time we did the standard offer bid process.”

Bids from companies wanting to sell standard offer power were due to the PUC on Aug. 7. Welch said he has looked at the bids, although the review process and the selection of standard offer providers still is under way.

The bid process is confidential, and Welch said he could not release any figures. But, he said, they are at or lower than the 5.5 cents proposed by Bangor Hydro.

“We’re going to work hard to make sure we haven’t given up something we can’t replicate,” Welch said of his denial of Bangor Hydro’s proposal.

Lee said his company’s proposal, though, set the standard offer bar by which competitors have aggressively tried to meet or beat.

“We hope the commission’s right, that this is going to work in the near future,” he said.