The fingerprints of climate change and how to respond to its impacts are scattered among the hundreds of pages of initial testimony filed with state regulators in early August by Central Maine Power, which is seeking a three-year rate hike.

Again and again, a theme emerges. Dealing with stronger and more frequent storms and complying with policies aimed at moving away from fossil fuels for transportation and buildings will require unprecedented investment to transform the electric distribution grid. CMP proposes to accelerate that process by spending $570 million between 2023 and 2025 on a plan it has dubbed Powering Maine.

If fully granted by the Public Utilities Commission, CMP’s rate request would generate an additional $100 million in revenue by 2025. An average residential bill would edge up 8 percent by then, or a total of $10 a month.

The average monthly residential bill today, including both distribution and electricity supply costs, is $126. CMP’s request is only for distribution; the company doesn’t generate power.

“To update the grid and respond to the pressing needs,” the company stated in its initial testimony, “CMP needs to substantially increase its capital investments from historic levels over the next several years.”

That won’t sit well with many Mainers. Rates for electricity supply – which make up half of a typical residential bill  – shot up to record highs in January. There’s no relief in sight for 2023 and with heating fuels also expensive, many residents face a perilous winter.

Customers have begun reaching out to the PUC with dozens of emails, pleading with the agency not to grant any rate hike. Their comments reflect frustration, anger, even disbelief.

“To say I am in total disagreement with CMP’s proposal for yet another rate increase does not adequately express how much I resent this company for even having the nerve to make this request,” wrote Elizabeth Huntley of Portland.

But outrage like that will have to simmer. The schedule set for the case lays out many months of data requests, technical conferences with lawyers and consultants, and byzantine back and forth among a large cast of formal intervenors. They include business interests such as manufacturers represented by the Industrial Energy Consumer Group and retail giant Walmart, which has 17 stores and a distribution center in CMP’s service area.

Other intervenors include Efficiency Maine Trust, the Natural Resources Council of Maine and the Governor’s Energy Office. Gov. Janet Mills has come out against the rate request, saying Maine people can’t afford it now. As a barometer of interest, more than 480 parties appear on the case’s online notification list.

The case will reach a climax in mid-May, when the PUC has scheduled up to four days of public hearings. The commissioners are expected to decide the case in mid-July. New rates would take effect Sept. 1, 2023.

MULTIPLE FORCES AT PLAY

No one is happy when power goes out, even for a minute. Few would argue that planning for climate change and clean energy is a bad idea. But between now and next summer, utility regulators will wrestle with a fundamental question: How much more should electric customers, already burdened with high energy bills, be forced to pay over the next few years to strengthen and update the distribution system?

Maybe some of the expenses can be deferred to save customers money in the short run, said William Harwood, the state’s Public Advocate. His office has expressed initial opposition to the rate hike, saying it will contribute to financial misery during a period of high inflation.

“It’s like the roof on your house,” said Harwood, who represents customers in utility issues. “If you don’t replace it this year, there’s a chance it will leak. But can you put it off until better times?”

Answering these questions involves a few added complications.

Maine recently passed a landmark utility reform law that will add strict new oversight into how CMP and Versant Power make investments, and mete out penalties for poor performance. The law, L.D. 1959, requires the state’s two investor-owned utilities to take part in an “integrated grid planning” process aimed at supporting the state’s transition to a clean-energy economy and meeting aggressive climate action goals. The process begins in November at the PUC and could take years to fully play out.

That has some stakeholders in the case asking: Does it make sense for the PUC to consider a rate hike now to cover specific investments, without knowing how they may fit into integrated grid planning?

“This filing comes right as we’re in the middle of working with the PUC and other state agencies on L.D. 1959,” said Oliver Tully, director of utility innovation and reform at Acadia Center, a regional environmental advocacy group.

Tully is concerned that CMP will get approval to make investments without going through the stakeholder planning process laid out in the new law.

And if that’s not enough to consider, there’s yet another dimension – a campaign to create a statewide consumer-owned electric distribution company. It’s not part of the case, but will be swirling in the background.

The campaign is aimed not only at CMP, but Versant, which serves much of eastern and northern Maine.

Last November, Versant’s distribution rates went up by more than 17 percent, resulting in a $5 monthly increase in a typical residential bill. The company said it needed more money for reliability improvements, including storm response, outage restoration and tree trimming.

A scant nine months later, Versant is seeking another distribution rate hike to replace an outdated metering system, upgrade its tree-trimming program and fill other needs. Versant is asking for revenue that would increase the monthly bill for a home using 500 kilowatt hours a month by $10.50.

CMP is the state’s largest utility, with 646,000 customers. Versant has 159,000 accounts. It’s no surprise that these rate requests are happening now, according to Rich Silkman, chief executive at Competitive Energy Services in Portland and an intervenor in the CMP case.

Our Power, the state’s consumer-owned power movement, is in the final stages of collecting signatures for a proposed ballot initiative in November 2023. It would force CMP and Versant to sell their assets to create a statewide, nonprofit distribution company called Pine Tree Power. The two utilities want to lock in higher levels of revenue before that vote, Silkman said, because their ability to do that afterwards is uncertain.

“The timing of these rate increase requests is not accidental,” he said.

The prospect of two parallel cases at the PUC that could pile additional charges on most Maine electric customers is bound to give more ammunition to the Pine Tree Power campaign. As the rate cases heat up, look for Our Power to tap into customer anger to galvanize support. In mid-August, for instance, the coalition sent a news release contrasting CMP’s second-quarter net earnings of $40.5 million with the struggle of average Mainers to pay their bills.

“Making investments in grid resilience is good,” said Andrew Blunt, Our Power’s executive director. “But under the current business model with an investor-owned utility, you have to make an extraordinary return on investments.”

Also watch for CMP to counter the effort through a well-funded political action committee that its parent company, Avangrid, set up last year, Maine Affordable Energy. The PAC has spent more than $4.8 million already to help defeat the campaign, according to Maine Ethics Commission data, the most money of any PAC so far this year. That compared to roughly $159,000 for Our Power. A PAC funded by Versant’s parent company, Enmax, has spent nearly $42,000.

RISKS AND RETURNS

Whatever the merits of a consumer-owned utility, they won’t have any direct bearing on CMP’s rate case. But the issue of return on equity – a key measure of a company’s profitability for shareholders – will be front and center.

In determining what Maine law calls “just and reasonable” rates, regulators aim to set revenue for the utility so it can “perform its public service and attract necessary capital.” In this case, CMP is seeking a return on equity of 10.2 percent a year. It says that number reflects current conditions in financial markets.

Harwood and Tully say 10.2 percent is too high. Tully cited data from a report by S&P Global, the financial analytics firm, that was introduced in a recent rate case in Massachusetts. It found the average return for American electric utilities in the first quarter of this year was 9.35 percent.

The total value of CMP’s assets is around $1 billion. For context, the difference between a return on equity of 9.35 percent versus 10.2 percent is roughly $4.5 million of profit annually.

But the outlook for CMP getting all it’s asking for is in doubt, according to a Bank of America investment analyst who follows Avangrid.

In an Aug. 11 report, the analyst, Julian Dumoulin-Smith noted that CMP’s improved performance prompted the PUC to remove a penalty that restored the company’s return on equity to 9.25 percent. But he also cited “stakeholder pushback, including public opposition from Gov. Janet Mills.” That pushback plus inflation pressures “may result in unfavorable regulatory outcomes,” Dumoulin-Smith warned, adding that Avangrid was “acutely exposed to regulatory risk” because it also has pending rate cases at its distribution subsidiaries in New York and Connecticut.

This trend of rate requests attributed to climate issues is playing out nationally. S&P Global found the number of rate cases filed is at near-record highs. The reasoning and what’s at stake mirrors the issues in CMP’s proceeding.

“State regulatory support and authorization of adequate returns to ensure ongoing capital attraction in the utility sector will be instrumental,” the report concluded, “as the industry shifts away from fossil fuels to renewables and storage and invests in strengthening the nation’s power grid against climate and other risks.”

OLD POLES, NEW FOCUS

In its filing, CMP says it already has begun spending money for these measures, but isn’t being adequately reimbursed. The company says it has absorbed $23.6 million in storm recovery costs over the past three years above the level set in rates. That has made it difficult to achieve its allowed return on equity, the company says. CMP is proposing a new formula by which the company and customers share the costs of storm recovery.

CMP also wants more money to “pre-stage” private contractor crews that respond to storm outages. That can involve meals and lodging for workers, many from out of state, who must get into position when a major storm is forecast. Sometimes, the storm shifts track or isn’t as damaging as expected, and the money is spent unnecessarily. But if CMP hasn’t lined up these workers, the filing explains, utilities in other Northeast states will snag them.

CMP says it will need to “substantially increase its capital investments from historic levels over the next several years.” To illustrate its point, the company noted that 70,000 poles out of the more than 650,000 on its system are more than 60 years old, dating to a major buildout in the 1950s. Those poles are smaller and less resilient to worsening weather.

The company also wants to replace more of its 43,400 miles of bare conductor with covered “tree wire,” which resists faults and outages when a branch touches a line. Only 5,000 miles have been upgraded so far.

To justify the spending needed to do these things, CMP wants the PUC to change the way it historically determines the rate base, which is to look at past capital investments as a guide. That’s why it’s proposing a multi-year, future-looking plan. It’s a more sustainable way to make long-term investments, the company said, and for customers to pay for them.

“Indeed,” the company says in testimony, “the current regulatory policy in Maine results in the company having to invest above the level funded in rates in order to continue to provide safe and reliable service.”

TREES AT THE ROOT

All the attention to storms, poles and wires keeps coming back to one topic – trees, and how they are being affected by a changing climate.

Maine is nearly 90 percent forest. CMP’s service territory covers 11,000 square miles and is connected by 22,000 miles of distribution lines. They all must be kept clear, because fallen trees and branches are the leading cause of power outages.

More intense and frequent heat waves and downpours are making trees less healthy and more likely to fall, according to experts cited by CMP. Since 2009, contractors hired by CMP have trimmed every circuit on a five-year cycle, removing branches 8 feet on either side of a conductor and 15 feet above. They also remove so-called hazard trees, those identified as being weak, dead or prone to falling on power lines.

But as with so many services today, inflation and labor shortages have pushed up the prices being charged by tree contractors. CMP wants to make changes in its vegetation management program to stretch the dollars.

Based on observations over the past 13 years, CMP is proposing to extend the five-year trim cycle to six years. That would cut $16 million from the $113.5 million estimated budget. The company would use the savings to expand the hazard tree program and its “ground-to-sky” trimming procedure on three-wire lines coming out of substations. Ground-to-sky involves completely removing the canopy hanging over wires.

These and other measures will be reviewed in fine detail at the PUC over the coming months. Debate will center on how much should done through 2025, and what it will cost ratepayers. That last element is crucial, because it takes in a bigger concept called energy burden, which is the percentage of household income spent on all energy sources. Right now, household energy burden is high and poised to go higher.

Environmental advocates worry that if the price of electricity becomes too high, it will chill public acceptance and slow the transition to heat pumps and electric vehicles, and the renewable generation needed to power them.

“As we make this transition, the grid needs to be more reliable and resilient,” said Phelps Turner, senior attorney at the Conservation Law Foundation. “CMP needs to make investments. But the grid also has to be affordable to ratepayers.”

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