Wholesale Energy Prices Ease, But Household Costs Still Set To Increase

Nov. 17—In a development that was unwelcome but not unexpected, the Maine Public Utilities Commission on Wednesday selected a bid that will increase electricity supply rates to most customers in Central Maine Power's service area by 83 percent.

The 2022 supply rate will jolt customers who buy their electricity via the state's "standard offer," or default power supply. Roughly nine out 10 CMP home and small business accounts are on the standard offer.

The hike will bring the supply rate from roughly 6.4 cents per kilowatt-hour to 11.8 cents, adding nearly $30 per month to the bill of a household with a typical usage of 550 kilowatt-hours, the PUC said. That dollar increase is almost identical to the one estimated for Versant Power customers next year, announced Tuesday.

The current average household CMP bill that includes both supply and delivery costs is $96.50. The change will raise a typical home bill starting in January to roughly $126 a month.

These increases only apply to the supply portion of a customer's electric bill, not the distribution expenses to bring the power over wires to homes and businesses. CMP only distributes electricity; it doesn't generate it.

For context, CMP's residential delivery rate is 11.1 cents per kWh. It was last adjusted in August and will be reset again next July.

The new supply rate will be in force for one year.

RATE SPIKE TRIGGERS DEBATE

That duration is triggering a debate over whether the PUC's policy of seeking bids only once a year is trading rate stability for a desire to snag the lowest prices. On Wednesday, the Office of Public Advocate, which represents consumers on utility issues, suggested that this year's negative experience should prompt a larger review of the state's standard offer bidding process.

These developments come one day after the PUC selected standard offer providers for Versant Power customers in eastern Maine that will raise supply rates by more than 88 percent, adding $30 a month to a typical bill.

CMP has roughly 560,000 residential customers in southern and central Maine, and distributes roughly 78 percent of the state's residential electricity supply.

In addition to home customers, businesses that get their electric supply through the standard offer also face steep rate hikes.

For CMP's medium-class business customers, the new prices will vary by month, averaging about 11 cents per kWh. More than half of those businesses get power supplied by competitive providers, not the standard offer. But those that don't will see an average 82 percent increase annually in the supply portion of their bill.

Prices for CMP's large business customers will be indexed to market prices and set in advance of each month.

During deliberations, PUC Chair Philip Bartlett lamented the higher prices but said they were the best available at this time.

As he did on Tuesday, Bartlett blamed the steep rise on high wholesale prices of natural gas, which is used to generate half of New England's power and typically sets the market price for electricity in the region. Dan Burgess, director of the Governor's Energy Office, called the new rates, "a direct result of New England's over-reliance on natural gas to power the electric grid."

Referencing natural gas reliance, Commissioner Patrick Scully suggested that as the region transitions to more renewable generation in the coming years, namely solar and wind, the impact of natural gas will be reduced. That will mean less volatility and fewer price swings, he said.

But Drew Landry, Maine's acting public advocate, said the pending sharp increase has another dimension.

Current PUC policy calls for seeking standard offer bids on an annual basis. That has several benefits. It coincides with how suppliers set market prices. And when wholesale markets are low, as they have been the past two years, it locks in attractive rates for customers in the coming year.

But that practice has risk. If wholesales prices suddenly soar, as they have in 2021, consumers will have to bear the impact over the next year. That's what customers face in 2022.

"The obvious downside of the current process is price stability," Landry said. "Price stability is one of the core principles of utility ratemaking."

But there is another strategy to get supply bids. Energy experts call it "laddering."

In that process, the PUC would solicit bids more than once a year. That way, if wholesale prices change suddenly, the impact is blended over time and not felt as sharply. It's a way to hedge bets. Consumers may not enjoy the lowest rates all the time, but they won't get slammed by record highs, either.

The Maine PUC operated this way in the past. Here is a summary from the PUC's annual report in 2005:

"The PUC continued to procure standard offer supply in accordance with the hedging program that began in 2005. The program relies on a 'laddering' structure that allows the PUC to secure portions of the required supply at different points in time, thereby reducing customer exposure to the volatility of the wholesale market. When the hedging program began, bids were requested for one-third load segments for terms of one, two and three years. That set the clock for subsequent procurements of one-third segments annually as the initial terms expired."

This technique is used in many states that have restructured electricity markets, according to Barbara Alexander, an energy consultant and former consumer assistance division director at the PUC. Maine is an outlier by conducting annual solicitations, she said.

"It would be the equivalent of purchasing one stock that looked good for your portfolio and just riding the wave of whatever impacted that stock," Alexander said.

As did Landry, Alexander said the current policy sacrifices the stability that many customers count on to pay monthly bills.

"As a consumer advocate who has done work in this field for 30 years, I'm appalled," Alexander said. "For a couple of years we got low prices. But now we're going to pay for it."

Asked whether he was concerned that the PUC may have chosen one-year bids at the peak of the current wholesale price trend, Bartlett defended the current practice.

Bartlett emphasized the low rates Mainers have enjoyed in 2020 and 2021, and that they wouldn't have seen prices as low with hedged bidding. He said it was the commission's current view that, over time, customers get a better deal with one large annual procurement.

"There's no magic bullet here," Bartlett said.

COMPETITOR PRICES LIKELY UP, TOO

The companies selected to serve standard offer customers in CMP's service area for 2022 weren't immediately identified. In recent years, they have been subsidiaries of NextEra Energy, New Brunswick Power and Constellation Energy.

In 2021, the power mix these generators provided was dominated by natural gas, making up a 70 percent share, according to PUC disclosure statistics. The mix was rounded out by 11 percent hydroelectricity, 9 percent oil, 4 percent biomass and 6 percent from miscellaneous sources.

In terms of climate impact, this energy mix emitted an average of 885 pounds of carbon dioxide per megawatt-hour, 15 percent above the New England average, the PUC reported.

The standard offer increase doesn't affect customers who get their electric supply from competitive energy providers, although those contracts also are expected to increase in price. Most home and small business customers rely on the standard offer — roughly 92 percent in Versant's service area and 87 percent in CMP's territory, according to 2020 PUC statistics.

During Tuesday's Versant deliberations, Scully suggested that electric customers dissatisfied with the standard offer rates might explore the offerings of competitive energy providers. Those rates, which aren't chosen or regulated by the PUC, might dip a few months from now, Scully said, if wholesale market conditions change.

That idea also was raised by Landry, who said it's possible that wholesale electric prices could moderate in the spring, after peak demand for natural gas this winter.

The Office of Public Advocate maintains a web page with some samples of competitive energy provider deals. A full listing of retail energy providers is available on the PUC website.

But that strategy also involves risk. Customers who sign contracts with competitive providers must be aware of the duration and terms, as well as possible early termination fees. The practices of one large provider, Electricity Maine, led to a class-action lawsuit and multimillion-dollar settlement in 2020.

The pending hike in electric supply rates is part of a trend in rising energy prices that are hitting consumers as winter approaches.

Average gasoline prices in Maine reached $3.43 a gallon this week, according to GasBuddy, approaching a 10-year high. That's up 15 cents from last month at this time and up $1.29 from a pandemic-induced driving lull prior to Thanksgiving last year.

A softening of wholesale petroleum prices, however, may cause prices at the pump to ease in time for holiday travel, GasBuddy says.

Fuel oil, which warms six out of 10 Maine homes, has risen from $2.85 a gallon at the start of the heating season to $3.16 in the latest weekly survey from the Governor's Energy Office.

Source : https://news.yahoo.com/costly-electricity-supply-add-30-234600784.html

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