DEREGULATION QUESTIONS

Deregulation of Maine’s utilities has not worked out entirely as planned. But, before lawmakers consider reworking or even undoing the current system, as several bills before the Utilities and Energy Committee today would do, they should want to know what worked and went wrong and why. Without this information, they could make changes that raise electricity prices or have other negative consequences worse than those they’re trying to fix.

Directing the Maine Public Utilities Commission to examine the benefits and adverse results of deregulation will put lawmakers in a much better position to make positive changes. The PUC currently does a cursory annual status report on deregulation and a regional study was completed in 2002, but a current, comprehensive review is needed.

There was an expectation that deregulation, which in Maine meant separating power production from its transportation and distribution, would lower electricity prices. This hasn’t happened to the extent anticipated, likely in large part because fuel prices have risen dramatically in recent years. In relative terms, however, states with deregulated markets have seen smaller increases than those without.

According to the Public Advocate Office, electricity rates in Maine have moved closer to the national average since deregulation. In 1999, Maine prices were 60 percent higher than the national average. In 2006, they were 39 percent higher. Prices in Maine have increased 11 percent since 1999 versus a 27 percent increase nationally.

An article in the November 2006 issue of Public Utilities Fortnightly said that “in 2005, when oil prices increased 135 percent and natural gas prices rose 210 percent, production/procurement costs rose only 5.6 percent. Indeed, if restructured states had used fuel-cost adjustment pass-throughs common in states with traditional rate regulation, rates would have been 15 percent higher.”

Another assumption of deregulation was that it would increase competition, again leading to lower prices. Because Maine is such a small market, this hasn’t happened to any great extent. In Aroostook County, the lack of competitive bids for residential electricity prompted the PUC to declare a market failure.

On the generation side, however, private companies have proposed several renewable energy projects, and a wind farm on Mars Hill is sending electricity to the power grid. Because of market competition, generators have also become more efficient, further holding down rate increases. Private companies, not ratepayers, assume the risk for new facilities, which will eliminate stranded costs. However, market risks, such as the difficulty of siting a new facility, have stopped construction of new power facilities to serve the state and region’s base load.

Utility markets are complicated and changing. Knowing what is the result of deregulation and what is attributable to other factors is necessary before considering major policy changes, such as allowing transmission and distribution companies back into the generation business, as three of the bills before the utilities committee would do.

Lawmakers should take their time on this complex issue.