A RATE INCREASE TO LIKE

Many Maine residents will grumble when they open their electric bills this spring because generation rates are going up about 10 percent. Before calling the Public Utilities Commission to complain, know the situation could have been worse.

Realizing that the prices for power can fluctuate dramatically, the PUC in 2004 decided to divide the state’s residential power needs into a series of three-year contracts. Each contract covers one-third of the demand for three years. Because the contracts are layered, price swings are moderated. For example, the bids to meet Maine’s residential power needs for the next year are about 60 percent higher than the current rates.

Because these rates apply only to one-third of the power that will be supplied, residential consumers will see just a 10 percent increase in Bangor Hydro-Electric Co.’s territory. The increase will be 9 percent for Central Maine Power Company customers. Because of how Maine’s energy marketplace is structured, the increased fees will go to the power generators not Bangor-Hydro and CMP, which deliver, but do not generate, power.

The power producers that bid on this round of contracts expect prices to be lower in 2007 and 2008, so the rate increases in those years are expected to be smaller.

Many industrial customers will see much higher rate increases because they are now coming to the end of three-year contracts and must re-bid their contracts when prices are extremely high. To mute the price increase, many industrial users are looking for ways to conserve electricity. Residential consumers can do the same to shrink their bills.

Electricity rates are higher now because the supply of natural gas, a major source of power generation, is limited due to damage to processing and transportation facilities in the Gulf Coast caused by Hurricanes Katrina and Rita. The wellhead price for natural gas has nearly doubled since January.

A year from now, prices are likely to be lower because the Gulf facilities will be back on line and a new liquefied natural gas facility could be in operation. Also, if consumers use less gas this winter, due to high prices and conservation pleas from governors and companies concerned about limited supplies, that could drive down the price.

Consumers don’t like to see prices go up, but in this case, the situation could have been much worse.