Maine experienced years of controversy about long-term energy contracts at high prices before the state’s electricity system was revamped and a “competitive” market for the sale of electricity was created in the late 1990s.
Apparently, however, the Public Utilities Commission has forgotten the lessons learned from that experience. Maine has embarked on the approval of long-term contracts for certain favored sources, such as renewable energy and offshore wind energy, relying on vague, unsupported and unenforceable public policy purposes.
As a result, residential ratepayers pay relatively short-term prices based on wholesale market contracts for Standard Offer Service plus surcharges of these long-term contracts that distribution utilities, such as Central Maine Power Co., pass along to ratepayers.
Last week, the Public Utilities Commission deliberated a “term sheet” from Statoil Hywind Maine Project that states that the terms were negotiated between the commission and the distribution utilities (CMP, Bangor Hydro and Maine Public Service).
The PUC approved this term sheet for a 20-year contract that will begin upon the commercial operation of one to four wind turbines located off the Maine coast, probably not until 2016. The commission directed the Maine utilities to buy the energy and capacity from Statoil’s wind turbines in an amount up to 12 megawatts annually, a negligible amount needed to serve Maine homes and businesses.
The PUC has not yet issued its formal written order on this contract.
The price for the energy delivered by this project is far in excess of the market price for electricity being paid by Maine consumers now and for the foreseeable future.
The contract price in the term sheet starts out at 27 cents per kilowatt hour, but this price will change annually. In contrast, the current comparable price in the wholesale market for energy is about 5 cents per kWh.
Statoil will use “commercially reasonable efforts” to obtain funding from other sources, including U.S. Department of Energy grants and subsidies, spend 40 percent of its expenditures in Maine and employ certain numbers of employees in Maine.
The expenditures and jobs created in Maine also are negligible in light of our significant unemployment rate.
Maine residential customers will pay an extra 0.00145 cents per kWh to subsidize this pilot project. If a customer averages 750 kWh per month, the price for this contract will be $1.09 per month or more than $13 per year.
The largest industrial and commercial customers, however, will pay nothing because the statute that authorizes this type of contract excused those customers who don’t purchase electricity from the utility from contributing to any costs.
All of these actions are based on the nebulous and unproven notion that wind power that produces electricity will reduce our need for oil or other polluting resources.
Electricity in New England, however, is not generated primarily by oil or coal, but by natural gas, hydropower and some remaining nuclear power. Expensive wind, therefore, will increase the cost of essential electricity service for Maine homeowners and small businesses without any realistic connection to solving the real problem of relying on fuel oil to heat our homes.
The Public Utilities Commission approved this contract based on the 2010 statute that implemented the Governor’s Ocean Energy Task Force.
While the PUC is required to conduct a competitive solicitation for long-term contracts to supply capacity and energy from one or more deep-water offshore wind energy pilot projects, the law stops short of ordering the PUC to approve any specific contract.
The PUC’s job is to approve reasonable electricity prices, not economic development and job creation.
The PUC should exercise its discretion and refuse to pass these costs along to Maine families and businesses for an expensive pilot project that should, in a competitive market for electricity, be shifted to those willing to take the risk.
If Maine lawmakers believe such projects are worthy, they should raise taxes to achieve their policy objectives.
Instead, the Legislature and the Public Utilities Commission have foisted another expensive project on the backs of hard-working and poor electric ratepayers without any consideration of the ability to pay this subsidy or why ratepayers should undertake these risky investments.
Barbara R. Alexander of Winthrop was the director of the Maine PUC’s Consumer Assistance Division from 1986-1996. Since 1996, she has been a consultant for state and national consumer advocates for a wide range of public policy issues associated with utility regulation.
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