RATE RISE REASON

It is easy to complain about an upcoming jump in electricity prices in Maine. The price increase, approved earlier this week by the Public Utilities Commission, is, however, overdue. As part of electric deregulation, the PUC in 2001 negotiated a three-year deal that kept electricity prices constant. Although the price of natural gas, which generates much of Maine’s power, has doubled in the last two years, the cost of electricity for residential customers has not. That contract is set to expire and a new one has been negotiated and, as with so much else, the price of the product has increased, so consumers will pay more.

When it restructured the state’s electric market, the PUC negotiated a “standard offer” price for electricity for customers of Bangor Hydro Electric Co. and Central Maine Power Co. Those contracts are now up for renewal. Because consumers have paid a steady price for power, while the costs to suppliers have increased, a rise in consumer electricity bills was anticipated. In fact, the PUC expected a larger increase than the one that was approved. That’s because natural gas prices were lower the day the contract was signed than when the process of soliciting bids began several weeks ago. The commission agreed to a 30 percent increase in rates for electricity generation. Standard offer customers will now pay 7 cents per kilowatt hour, up from 5 cents. The average consumers will see about a $10 increase in their monthly electric bill.

Public advocate Stephen Ward acknowledges that this will adversely affect some people, but, he adds, Maine’s electricity users “have done well for awhile.” Through restructuring, distribution costs have been decreased as have stranded costs, the price of government mandated projects that are passed on to a utility customers. In fact, Bangor Hydro will reduce its stranded costs, which now are 3 cents per kilowatt hour, at the same time that the standard offer price increases. The utility was also required to reduce its costs of distributing power to consumers by becoming more efficient.

“We’re ahead of the game,” Mr. Ward concludes. Before deregulation, utilities could go to the PUC to ask for price increases nearly as often as they wanted. The PUC had little choice than to approve the requested increases.

The price increases approved by the PUC on Tuesday will go into effect on March 1 and appear in April’s utility bills. Under the plan approved by the commission, utility regulators will now re-negotiate one-third of the state’s contracts each year. That will bring more price stability at a time when energy prices remain volatile.

Electricity prices have increased, in part, because many nuclear power plants have been retired and replaced by natural gas-fired plants and the price of natural gas has risen dramatically in recent years.

Currently, natural gas prices are high because of high oil prices, uncertainty about the future of Iraq and the Middle East and uncertainly about building liquefied natural gas facilities in the Northeast. If these uncertainties wane, natural gas and electricity prices could drop. This decrease would be reflected when the state renegotiates standard offer contracts in the future.

Maine residents have avoided electric rate increases for three years. Now, the inevitable – a price rise – has happened. Complain if you want.