Central Maine Power Co. is asking state regulators to approve a new rate plan that would add roughly $2 a month to the average home bill each year for the next five years.
The additional revenue would help upgrade distribution and billing systems with the aim of improving reliability, and let customers take better advantage of new pricing options.
The pending rate case will highlight two key issues: whether home and business customers want to pay higher rates to make service more reliable, and whether they are they willing to pay more for a product electricity when overall use is declining.
At the root of the case is this question: Is CMP’s service good enough as it is?
This question will be debated over the next 14 months or so, as state regulators open a case into how much money CMP should receive to distribute electricity between 2014 and 2019. Documents to start the process are being filed today at the Maine Public Utilities Commission. A summary of CMP’s plan was reviewed by MaineToday Media.
CMP says it needs to keep investing in its network of substations and distribution wires. It also says it needs to upgrade technology to replace its aging billing system and allow customers to take advantage of new pricing options for using power at different times, such as at night, when demand and costs are lower.
If CMP’s arguments prevail, the improvements would add a couple of dollars a month to an average home customer’s bill for the five-year period, according to the utility’s estimates. A home bill today that includes energy and transmission charges averages $73.23 a month.
“This is a chance for people to decide what they want, based on what they can afford,” said John Carroll, CMP’s spokesman.
Eric Byrant, senior counsel at the Office of Public Advocate, said CMP’s estimate may be too low; but he agrees that the upcoming rate case will involve trade-offs and choices.
“You can spend endlessly and never have total reliability,” he said. “You have to draw the line somewhere.”
In a separate proceeding, CMP is seeking to recover some of the money it spent to install 615,000 “smart” electric meters and restore power after major storms. If fully approved by the PUC, distribution rates could rise as high as 8 percent this July, or roughly $1.90 a month on a typical home bill. Better estimates will emerge in the next month or two as the case proceeds.
Another case, set for August, will consider a redesign of how rates are set for each class of customers, such as residential and commercial.
Those cases at the PUC won’t have any influence on what customers pay for energy supply, or for improvements to New England’s transmission grid.
Energy costs, which make up the largest share of a monthly bill, rise and fall with the wholesale price of natural gas, which fuels the region’s power plants. New England utility customers also share the cost of transmission upgrades, such as CMP’s $1.4 billion reliability project that’s half done.
Both energy and transmission costs are projected to rise in the years ahead. That’s because several transmission projects are underway or planned, and natural gas prices are likely to increase over time from historic lows. Energy and transmission costs make up roughly two-thirds of a typical home bill.
The three distribution cases before the PUC aren’t unexpected requests for additional money.
Since 1995, CMP has operated under five-year alternative rate plans. They are agreements between CMP and state regulators that set annual targets for service quality, responsiveness and outage duration, to name a few. CMP is rewarded with a certain level of revenue when it performs well, and can be penalized for falling short. In the past four years, CMP has met or exceeded the targets.
CMP also has managed to keep distribution charges relatively flat over the past decade, in the $25-a-month range; but setting new targets is tricky, because it involves predicting the future.
For instance, when the current rate plan was being developed in 2007, officials assumed electricity sales and customer demand would grow over the next five years. But the deep recession, warmer winters and other factors ruined those projections. Instead, sales were well below expectations and the number of customers grew only slightly.
Looking ahead to 2019, CMP expects these trends to continue. Weak business growth, little new-home construction and increased spending on efficiency and conservation will lead to flat electricity sales over the period, the company said. And if the state ramps up spending on energy-efficiency programs, it said, power sales actually will fall.
Consequently, CMP will ask in the pending rate case to “decouple” the revenue it’s allowed to earn from electricity sales.
“Our business model is predicated on people using electricity, but that’s in conflict with conservation and efficiency goals, Carroll said.
CMP could become an active participant in encouraging efficiency, Carroll said, if its revenue wasn’t tied directly to sales.
This argument has been made in other states, according to Bryant, but Maine is different. It’s one of only a few states where a separate agency Efficiency Maine Trust oversees conservation efforts. Utilities handle the task elsewhere.
However, it’s still possible that electricity demand will rise in the near future, according to Beth Nagusky, Maine director of Environment Northeast. If the state chooses to ease its dependence on oil with efficient electric heat and plug-in cars, for instance, a greater share of overall energy use could shift to electricity, she said.
“This case is going to involve major changes that will have an impact on how rates are set and recovered, and the incentives CMP has to promote or oppose cost-effective energy efficiency,” she said.
At the Public Advocate’s office, Bryant said his agency plans to hire expert consultants to study the impact of decoupling revenue from sales, as well as other complex issues that will be raised in the case.