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Power play
Big business has benefited from electricity restructuring in Maine, but residential customers are still waiting to reap meaningful benefits.

Phil Harriman suggests that he might be happier today had he been wrong back in 1997.

In a lopsided 185-to-1 vote, Harriman, then a Republican state senator from Yarmouth, cast the lone objection to a bill that would change the way Maine’s electric utilities operated.

Eight years after the vote and five years to the month after the change took effect, Harriman says there are people who are probably saying “‘Phil Harriman was right,’ but wish I was wrong.”

It was called deregulation then, a move by the state to end utility monopolies and let the open market dictate electric charges. The end result, however, has been more a restructuring of the way power is distributed than a full-scale deregulation.

The major promise of the change – that it would result in competition and thus lower electric rates for all Mainers – remains unkept. Even advocates begrudgingly acknowledge that.

But unlike Harriman, those advocates point to some other promises that are being kept.

Foremost, notes Public Utilities Commission spokesman Phil Lindley, is the fact that the state’s largest industries are enjoying lower electric rates because they indeed can pick and chose from various energy providers.

So can many moderately sized businesses.

And, Lindley points out, while there remains virtually no competition for residential customers to choose from, the PUC is acting as an aggregator on their behalf. It seeks bids from electrical generators and then chooses the lowest. That in turn becomes the “standard offer” rate that most households ultimately pay.

Lindley argues that competition for residential accounts takes place during that standard offer bidding process.

Maine’s experience with “deregulation” is not all that different from many of the 17 other states that also changed the way residential electricity markets worked. In the end, virtually all kept control of the wires end of delivering energy, but eliminated restrictions on which companies can generate and sell power, the Wall Street Journal reported earlier this month.

And as is the case with Maine, few of those states have seen competition develop that would lower consumers’ costs. Some states, said the Journal, are actually backing away from deregulation. And one – Montana – again requires residential customers to buy power through a regulated utility.

Rates going up

Lindley and other supporters of restructuring in Maine say the change has been good for residents, even though they say the best is yet to come.

This month, residential customers of Maine’s two largest providers were hit with an average $10-a-month increase, due to the increased cost of production. Even so, Lindley pointed out, the 13.7 cents per kilowatt-hour now paid by Central Maine Power Co. customers is actually cheaper by 1.3 cents than what they were paying five years ago when inflation is factored in. Bangor Hydro-Electric Co.’s 16.9-cent rate is a bit higher than the inflation-adjusted price of 16 cents per kwh in 1999. The cost includes production and delivery.

CMP and BHE were hit hardest by the law that restructured the way Maine’s utilities did business. Each was forced to sell off their generating assets. They had to get out of the business of making electricity and focus solely on maintaining the power line grid system and delivering the power generated by other companies.

The government mandate still has former CMP President David Flanagan stewing.

“I wasn’t a fan of the way they did it,” he says today. “They tied our hands and kept us from competing.”

The end result for CMP: A Florida utility bought its generating facilities and a New York utility bought what was left of the company.

But Flanagan says of restructuring: “It’s working fine, for industry. The results are not surprising.”

That’s because larger businesses and industry have the wherewithal to research options and negotiate with generators, he said.

PUC monopoly

“But it’s probably a mistake for residential customers,” he continued.

Restructuring not only failed to bring about competition – and lower residential electric rates – but in essence it made the PUC the monopoly, deciding which company provides power to households and how much those households pay for the power, Flanagan said.

In addition, both Harriman and Flanagan cite the loss of jobs resulting from the change. CMP went from 2,200 employees to 1,800, said Flanagan, noting he doesn’t know how many may have been restored over the last five years.

However, like Lindley, there are others who see the changes brought about by utility restructuring as being positive.

“I’m still a believer,” says former Gov. Angus King.

King led the charge for the change.

“Restructuring is working very well for large (industrial) customers,” he says. “Paper mills have been able to make pretty good deals,” for example.

Those deals have helped make the mills more competitive. That, in turn, means the state has been able to retain more jobs, and perhaps, King suggested, attract new industry with new jobs.

King said people should remember that under restructuring, utilities no longer pass on fuel adjustment charges to their customers. Given the spiraling costs of oil and natural gas – the fuels of choice when it comes to generating most of New England’s energy – that’s a significant saving for both commercial and residential customers.

“I think that’s pretty darn good,” the former governor said.

So does Maine’s public advocate, Steve Ward.

By avoiding those fuel adjustment costs, he said, Mainers are truly reaping a benefit of restructuring.

Maine did that right, he noted, compared to Massachusetts, where utilities by law can still pass generating costs related to fuel issues on to consumers.

There, electric customers pay about 7.5 cents for standard offer power, Ward said. CMP’s cost for the same kilowatt-hour of power is just below 7 cents, while Maine Public Service, which serves Aroostook County, charges about 5.5 cents. Those figures don’t include delivery costs.

But Ward said it’s premature to say restructuring is working as advertised.

Still early

King agrees. “It’s still early” in the experiment, he said. There’s time for residential competition to develop, particularly if fuel costs remain high.

The more expensive oil and gas are, he pointed out, the more competitive renewable sources of energy become. And while Maine’s rivers are nearly maxed out when it comes to hydropower generating capacity, King said the next great hope for energy can be found along the state’s mountain ridges.

“Wind power,” he said, is coming into its own as technology advances despite the criticism of certain groups. King named the Appalachian Mountain Club as one such critic.

“I’m very disappointed that there is environmental opposition to wind development. I think that is just shameful,” said King. “Hiking the AT and seeing some wind turbines for 15 minutes shouldn’t bother anyone.”

Ward also sees wind power as potentially becoming a major factor in Maine’s energy mix.

When fully developed, wind turbine projects proposed for western Maine’s Boundary Mountains and Mars Hill in northern Maine could generate enough power to become a player in New England’s energy mix, he said.

Ward sees wind-driven electricity becoming a power in its own right, possibly in as few as three years. That’s also when, he said, the restructuring experiment might be seen as a success or failure.

More to come

Harriman said Maine electricity customers could also see better prices if regulators would allow Quebec Hydro to sell power in Maine.

Ward disagreed, however, saying not only would a number of hurdles need to be cleared, but that there’s no guarantee the price would be better than what is currently available.

Flanagan has his own concerns with renewables like wind and hydro, remembering when the government forced power companies to buy power from small electricity producers with the hope of encouraging more renewable energy sources.

Power companies ended up signing contracts to buy power at exorbitant rates, and although the requirement no longer exists, customers are still paying more than they should for power because of those lingering contracts, Flanagan said.

As CMP has extricated itself from those contracts, it has been able to lower delivery costs. In fact, the company says it has lowered its delivery price by 32 percent since January 2000.

The total cost of electricity for CMP customers fell from 13.1 cents per kwh in 1999 to 12 cents in 2000, when the first standard offer kicked in. The figure fell to 11.8 cents last year before being kicked back up by the new higher standard offer bid taking effect this month.

For now, hope for stable or possibly even lower costs lie with a PUC decision to change the way it seeks bids for the standard offer. The effort is aimed at reducing the impact of the volatile oil and gas market, the fuels used to generate much electricity.

Ward said people should give the restructuring experiment more time before giving final judgment to restructuring. Once the PUC institutes its new method for seeking standard offer bids, he thinks prices will stabilize, if not fall.

In the meantime, said Ward, offset this month’s average $10 increase in electric bills by installing compact fluorescent energy-efficient light bulbs.

Six of the bulbs, said Ward, will cut that $10 in half.

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