September 4, 2006
Commentary
Bringing it all back home | Maine needs to re-examine the deregulation of its electricity supply market
By Sara J. Burns
I recently got a call from a customer, the president of a large manufacturing firm, who just wanted some simple answers about the electricity business. Like many of our customers, high supply prices are cutting into his budget and news stories about future price increases and potential shortages have him worried. He wanted to know, "What's driving the costs, and can anyone do anything to make the future more stable and predictable?"
I wish I could give him short, reassuring answers, because we have nearly 600,000 customers who would also like to know what's ahead, and who's in charge. Those questions have been more difficult to answer since Maine restructured the utility industry and deregulated electricity generation about 10 years ago.
In 1997, Maine's legislators and governor approved the Electric Industry Restructuring Act with the objective of creating an unregulated energy supply market, in the belief that unregulated competition would keep electricity prices down. CMP and other utilities were directed to divide themselves into two parts -- delivery and generation. The utilities were allowed to continue as regulated operators of the power lines that deliver electricity to homes and businesses, but they were forced to sell their power plants and hydroelectric dams to unregulated generation companies from out of state. The same law took away much of the Maine Public Utilities Commission's authority to oversee energy resource planning and electricity supply prices, leaving this role to the unregulated side of the industry.
As a regulated delivery utility, we've done our part. Our delivery rates for residential and small business customers have dropped 28% in the past six years. During that time, we've invested nearly $300 million for system capacity and reliability, for new technology, and to make our business more efficient. And this year, we increased the pace of investing to $70 million.
That should give customers some reassurance, but electricity supply price increases and supply uncertainty are largely driven by events in the unregulated side of the industry, and the consequences are bleak. For example, electricity supply prices for residential and small-business customers have risen nearly 70% since 2004. Large commercial and industrial customers have faced even greater price increases, and these trends are likely to continue, because New England's electricity prices are increasingly driven by the region's dependence on high-priced fuels such as oil and natural gas.
In addition to rising supply prices, there are concerns about regional energy shortages because of generation capacity and transmission problems in Connecticut and Massachusetts. Despite the opposition of Maine regulators and utilities, Maine consumers are about to get hit with a $300 million dollar charge to pay unregulated generation companies extra just to stay online. (See "Out of the pool?" page 35.) These are serious challenges for Maine.
Only 18 states took part in the electricity supply deregulation experiment. Two states, Arkansas and New Mexico, have already repealed their deregulation laws. California has suspended the provisions that contributed to its notorious blackouts and price spikes. Closer to home, Massachusetts, Connecticut, Rhode Island and Maryland are now looking at ways to take back control of their electricity supply pricing, including having generation plants built by regulated utilities.
Last session, the Maine Legislature acknowledged that rising supply prices and uncertainty are hurting Maine consumers when they approved "An Act to Enhance Maine's Energy Independence and Security." The act directs the Maine Public Utilities Commission and the newly created Maine Energy Council to review the performance of Maine's energy policies and submit their findings and recommendations to the Legislature later this year. We're glad the policymakers are returning to this issue.
It's clearly time for the Maine Legislature to answer the question, "Are consumers better off since Maine deregulated the electricity supply industry?" I think many of our customers would say it hasn't worked. Legislators should do what is necessary to take back control of long-range planning and resource management. They need to tame the energy supply price swings and market volatility that make it hard for homeowners and businesses to manage their budgets. And this may be the time to align public utility regulations with public policies to manage demand and encourage alternative energy sources.
For the sake of our customers and the Maine economy, I hope our policymakers will look at all the options to stabilize the price of electricity supply, including bringing our regulated utilities back into the energy business if that makes the most sense.
I wish I could give him short, reassuring answers, because we have nearly 600,000 customers who would also like to know what's ahead, and who's in charge. Those questions have been more difficult to answer since Maine restructured the utility industry and deregulated electricity generation about 10 years ago.
In 1997, Maine's legislators and governor approved the Electric Industry Restructuring Act with the objective of creating an unregulated energy supply market, in the belief that unregulated competition would keep electricity prices down. CMP and other utilities were directed to divide themselves into two parts -- delivery and generation. The utilities were allowed to continue as regulated operators of the power lines that deliver electricity to homes and businesses, but they were forced to sell their power plants and hydroelectric dams to unregulated generation companies from out of state. The same law took away much of the Maine Public Utilities Commission's authority to oversee energy resource planning and electricity supply prices, leaving this role to the unregulated side of the industry.
As a regulated delivery utility, we've done our part. Our delivery rates for residential and small business customers have dropped 28% in the past six years. During that time, we've invested nearly $300 million for system capacity and reliability, for new technology, and to make our business more efficient. And this year, we increased the pace of investing to $70 million.
That should give customers some reassurance, but electricity supply price increases and supply uncertainty are largely driven by events in the unregulated side of the industry, and the consequences are bleak. For example, electricity supply prices for residential and small-business customers have risen nearly 70% since 2004. Large commercial and industrial customers have faced even greater price increases, and these trends are likely to continue, because New England's electricity prices are increasingly driven by the region's dependence on high-priced fuels such as oil and natural gas.
In addition to rising supply prices, there are concerns about regional energy shortages because of generation capacity and transmission problems in Connecticut and Massachusetts. Despite the opposition of Maine regulators and utilities, Maine consumers are about to get hit with a $300 million dollar charge to pay unregulated generation companies extra just to stay online. (See "Out of the pool?" page 35.) These are serious challenges for Maine.
Only 18 states took part in the electricity supply deregulation experiment. Two states, Arkansas and New Mexico, have already repealed their deregulation laws. California has suspended the provisions that contributed to its notorious blackouts and price spikes. Closer to home, Massachusetts, Connecticut, Rhode Island and Maryland are now looking at ways to take back control of their electricity supply pricing, including having generation plants built by regulated utilities.
Last session, the Maine Legislature acknowledged that rising supply prices and uncertainty are hurting Maine consumers when they approved "An Act to Enhance Maine's Energy Independence and Security." The act directs the Maine Public Utilities Commission and the newly created Maine Energy Council to review the performance of Maine's energy policies and submit their findings and recommendations to the Legislature later this year. We're glad the policymakers are returning to this issue.
It's clearly time for the Maine Legislature to answer the question, "Are consumers better off since Maine deregulated the electricity supply industry?" I think many of our customers would say it hasn't worked. Legislators should do what is necessary to take back control of long-range planning and resource management. They need to tame the energy supply price swings and market volatility that make it hard for homeowners and businesses to manage their budgets. And this may be the time to align public utility regulations with public policies to manage demand and encourage alternative energy sources.
For the sake of our customers and the Maine economy, I hope our policymakers will look at all the options to stabilize the price of electricity supply, including bringing our regulated utilities back into the energy business if that makes the most sense.
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