BANGOR – What are stranded costs and what are they doing on my electricity bill?

That’s what a Presque Isle legislator wants to know, so he has proposed a $1.1 billion bond to pay off certain debt accrued by utilities.

Democratic Rep. Jeremy Fischer doesn’t believe the bond he’s proposing will pass. He wants to initiate a discussion about why stranded costs take up a significant portion of Mainers’ power bills.

“I wanted to bring a little bit of attention to stranded costs,” Fischer said recently. “We’re not going to bond $1.1 billion.”

Attention is what Fischer is getting as conversations are swirling in the State House about the sheer financial magnitude of the bond. At $1.1 billion, it is equal to or slightly more than the roughly 35 bonds considered last week by the Legislature’s Appropriations Committee, of which Fischer is a member.

The timing of the discussion is interesting. Today marks the fifth anniversary of the legislatively mandated restructuring of the state’s electricity industry. Its intended hope was to bring down some of the highest power rates in the country.

After five years, the combined rate for electricity and its transmission, when adjusted for inflation, is about as high as it was in early 2000, around 16 cents per kilowatt-hour.

One of the benefits to industry deregulation was a consumer protection built into the law that mandated that there be no more stranded costs, at least as they were defined five years ago.

“No more stranded costs can be incurred on the generation side anyway unless someone changes the law,” said Phil Lindley, spokesman for the Maine Public Utilities Commission.

Stranded costs are the result of a 1980 state law that required subsidized electricity conservation. The state’s three largest utilities – Bangor Hydro-Electric Co., Central Maine Power Co. and Maine Public Service Co. – were told to buy at above-market rates and transmit power generated by biomass, hydro and waste-to-energy plants. By the end of the 1980s, more than 40 percent of the state’s electricity supply was from renewable sources compared to 5 percent nationally.

The cost of the renewable power, however, was high. Tens of millions of dollars in renewable energy purchases were tacked on to electricity bills.

Businesses and residential users revolted, according to industry insiders, and complained to the PUC. The Legislature responded by capping electric rates and ordering that the renewable energy and conservation contracts be bought out, costing millions more.

The multimillion-dollar contract buyouts became stranded costs.

Under electric-industry restructuring, the three utilities no longer generate power, just transmit it.

And under the restructuring law, the stranded costs – which today total approximately $1.1 billion – are to be paid off by 2015, from the approximately 3 cents per kilowatt-hour charged to electricity users.

Most of the stranded costs should be paid by 2009, according to the PUC.

Under Fischer’s bill, the three utilities would be paid their stranded costs and they would be removed from the power bill. The reduction would be seen in the “transmission” portion of the bill. The state would bond approximately $1.1 billion at a 5.8 percent interest rate, and the bond would be paid over 10 years. The savings would come in interest rates because generally state government can garner lower rates than utilities.

Some states already have bonded stranded costs, including Pennsylvania, Ohio, New Jersey and Massachusetts. The process is called securitization. Unlike taxpayers paying for the stranded-cost bonds, the bonds are incorporated into electricity rates. However, the utilities are protected from incurring huge financial losses from stranded costs if they face a substantial reduction in business.

Fischer admits that he didn’t know that the amount of outstanding stranded costs were $1.1 billion when he began having discussions with members of the Legislature’s Utilities and Energy Committee about what should be done to lower power bills.

He also acknowledges that he didn’t know the amount when he wrote legislation to bond the stranded costs.

“We thought we were talking about $100 million, $200 million or $300 million,” Fischer said.

After he saw the $1.1 billion amount, Fischer said he wasn’t too keen about promoting the bond bill, but believed that a conversation on stranded costs remained necessary, especially since every so often bills are proposed that could affect what people pay for power.

“There are always people introducing things … that would increase the cost,” he said.

The Legislature currently is considering at least three bills that could affect rates. In the first bill, the Utilities and Energy Committee will hear testimony on limiting to 3 percent the amount of an annual increase in telephone and electricity rates.

For power, the 3 percent rule would apply to a combination of standard-offer electricity, transmission and stranded costs – the three components of power bills.

Standard offer is a default rate for electricity that just about all residential users statewide pay because they have not selected a competitive power supplier. Competition among power sellers for customers’ business was to be a result of electric-industry restructuring, but so far that competition has materialized only for medium- and large-commercial businesses and industries.

Another measure would require that a certain percentage of standard-offer electricity sold in Maine be from renewable energy sources.

Still another measure would require the PUC to exclude from transmission rates any utility costs that the Federal Energy Regulatory Commission finds imprudent.

Also, the Legislature is aggressively pursuing a renewable energies policy, something promoted heavily by Gov. John Baldacci.

“We all support renewable energy,” Fischer said. “But we do have to be cognizant of the costs associated with it.”

Last week, the Utilities and Energy Committee recommended a bond to reduce greenhouse gas emissions. The committee’s recommendation that the bond be no less than $5 million and no more than $50 million is en route to the Appropriations Committee, which decides which bonds go before voters.

Half of the bond amount would go to the Maine State Housing Authority to provide no- or low-interest loans to low- and moderate-income households to convert to cleaner energy sources, according to Rep. Lawrence Bliss, D-South Portland, who is co-chairman of the Utilities and Energy Committee. The other money would be available as loans to businesses to update emissions equipment, he said.

“The happy side of this is the reduction of global warming and a reduction of greenhouse gases,” Bliss said. “It’s one of those situations where everybody wins.”

Stephen Ward, the state’s public advocate, is in favor of the greenhouse-gas emissions reduction bond, but he said he could not comment on the stranded-costs bond at this time.

“You get a big bang for your buck on reducing energy emissions,” Ward said about the greenhouse-gas emissions reduction bond.

Fischer’s $1.1 billion stranded-cost bond bill was to be heard by the Appropriations Committee last week, but he requested that it be moved to the Utilities and Energy Committee. That’s a place where the “serious discussion” on stranded costs should occur, he said.

“I assume they’re going to do some sort of study on it [stranded costs],” Fischer said.

The Utilities and Energy Committee cannot approve bond requests to put before voters; only the Appropriations Committee can do that. But what the Utilities and Energy Committee can do is give a recommendation to the Appropriations Committee on whether the bond should or should not be approved.

Bliss said last week that the bond is not likely to pass his committee, but that he wants a discussion on stranded costs. He said that since none of the members of the Utilities and Energy Committee were on it when stranded costs were approved in the 1980s, they need to become educated as to what they are and why they are on power bills.

One place to start the education process on stranded costs is to study Public Utilities Commission reports on how electric restructuring is affecting the state, according to electricity market insiders. The electric deregulation law required that the PUC inform the Utilities and Energy Committee annually, and the reports are presented in December.

“If they look at the restructuring report, its there,” said PUC spokesman Lindley. “That’s the reason for that report … to provide the education.”