BANGOR – Bangor Hydro-Electric Co. will not be audited under a compromise agreement that includes significant rate reductions for customers and strict penalties for the utility if service quality becomes substandard.

The compromise – reached by staff analysts with the Maine Public Utilities Commission, Bangor Hydro officials, the state public advocate’s office, and representatives of the state’s largest industrial power users – must still be approved by the PUC.

If the 19-page agreement is approved, however, residential electricity distribution rates would drop by up to 12 percent over the next six years. The first rate reduction of 2.5 percent would take effect on July 1, 2003, and subsequent reductions of between 2 percent and 2.75 percent would take place every year after that. Delivery rates for small and large businesses also would be reduced by about 12 percent over the same time period.

Also under the compromise, Bangor Hydro – which is reducing its 425-person staff by at least 153 people in the next month – would face penalties of up to $840,000 each year if the utility does not meet tough service quality standards similar to those currently in place.

“It’s designed to hurt,” said Eric Bryant, senior attorney with the Maine Public Advocate’s office, about the agreement that was reached late last week. “It’s a big stick.”

The agreement also would spare Bangor Hydro an audit of its finances and operations, which the PUC was considering because of numerous consumer complaints it received concerning the high power delivery costs in the utility’s territory.

No date has been set yet as to when the PUC’s three commissioners will review the proposal, said spokesman Phil Lindley.

“There’s still a possibility the PUC won’t like this,” Bryant said.

At least 60 of Bangor Hydro’s 110,000 customers would probably prefer that the PUC reject the compromise and push for an audit. Those customers wrote letters to the PUC urging an audit because they were upset about receiving five rate increases in five years. What prompted discussions that eventually led to the agreement was a request from Bangor Hydro for its sixth rate increase – this one for $6.4 million – in as many years.

In early January, the PUC said it was considering an independent audit of the utility because of customer complaints about paying the highest transmission rates in the state. The PUC also wanted to know why Bangor Hydro needed yet another rate increase.

A couple of weeks later, the commission backed off at Bangor Hydro’s request and postponed a vote for 90 days on whether to start the audit. Bangor Hydro told the PUC it wanted time to implement any cost-saving measures that typically result from a merger. Emera Inc. of Nova Scotia purchased the utility in October for $205 million.

In late February, Bangor Hydro president Carroll Lee announced that the utility no longer wanted a rate increase of $6.4 million but instead would be cutting costs by $6.4 million. Then in late March, Lee announced that at least 153 positions would be eliminated by June through layoffs or early retirement. Up to 50 people will be offered jobs in a new company formed by Emera called Bangor Line, which would work on transmission line construction projects and help the utility to restore power during major outages.

Bryant, who acknowledged that some Bangor Hydro customers wanted the utility to be audited, said he believes the ratepayers are getting what they want through the agreement. Bangor Hydro will be required to keep up or improve its levels of service even with the planned job cuts.

“The whole service quality index is designed so that customers don’t notice a change,” he said. “[Bangor Hydro] has to continue service at existing levels.”

Bryant, however, said he doesn’t know how Bangor Hydro is going to keep up its levels of service with a smaller staff, but it doesn’t matter. Bangor Hydro, he said, has to meet those standards anyway or face substantial fines.

Any fines assessed Bangor Hydro would go toward further reducing electricity delivery rates, Bryant said.

What the negotiators of the compromise didn’t consider, he admitted, was whether Bangor Hydro should use the fines to hire more employees to fix the service problems.

“I can see where there’s a disincentive or a perverse result,” Bryant said. “It was not discussed. Even though it was in the back of everybody’s mind, the chance of Bangor Hydro screwing up in all areas of this [agreement] are very small.”

Under terms of the agreement, Bangor Hydro will be required to meet service standards that are comparable or even stricter than the ones that must be met by Central Maine Power Co.

Bangor Hydro will be required to keep to a minimum the number of hours and the number of times during a year that its customers are to be without power during a small outage. A small outage is defined as a car hitting a pole, for example, and cutting electricity to less than 10 percent of the customers in a particular service area.

Bangor Hydro customers, on average, should not be without power for more than 2.13 hours a year and should not experience outages more than 1.43 times a year, according to the agreement. For CMP customers, the average time without power can’t be more than 2.58 hours per year and electricity cannot be interrupted more than 1.8 times during the year.

Other standards include how quickly Bangor Hydro customer service representatives must answer telephone calls, and how fast repair or installation service is given. Also, Bangor Hydro must achieve an average annual bill error rate of 0.4 percent.

Lee, who is retiring as president of Bangor Hydro by the beginning of the summer, said he believes the utility will be able to meet the standards set forth by the compromise.

“That’s the plan,” he said. “Obviously our commitment is to maintain service quality for our customers.”