Central Maine Power Co. is asking state regulators to sign off on a new way for the utility to charge customers for the electricity they use — or, rather, for the costs of delivering the electricity they might or might not use.
The electric utility that covers the southern half of Maine is negotiating a new, five-year rate structure with the Maine Public Utilities Commission.
In the process, CMP is proposing to more than double its minimum customer charge, raise distribution rates by 8 percent starting in July, and base those rates more heavily on the utility’s fixed costs to operate its network and less on customers’ actual power use. CMP is also seeking a “revenue decoupling” mechanism that would guarantee it a specific revenue return even if customer demand falls.
Another element of CMP’s proposal that’s generated significant attention is a plan to charge a “standby rate” to customers who generate their own electricity — largely through small-scale solar and wind installations — and feed it back into the grid for an electric bill credit. The standby rates would raise costs for most customers who generate their own electricity — by about $25 a month for residential customers — allowing CMP to recover what it calls “distribution grid” costs.
The utility industry is facing the possibility of a shakeup, and CMP’s rate structure filing reflects that. In a January 2013 policy paper, the Edison Electric Institute, the utilities’ trade association, warned of “disruptive challenges” that “all create adverse impacts on revenues.” A prime reason CMP cites for its revised rate structure proposal is “stagnant and/or declining sales.”
Utilities build their networks to handle peak demand, and it factors the costs of those networks into electric rates. But years of efforts to boost energy efficiency and conservation, along with the increasing use of “demand response” by utilities and grid operators — paying customers to reduce electric demand during the peak periods the grid is built to handle — are catching up with utilities and have the potential to dig into the bottom lines.
On top of that, the cost to install solar panels has dropped 80 percent since 2009, and installations have skyrocketed. That phenomenon further reduces demand from the customers who install them, and it costs utilities when those customers dispense their excess power back into the grid and receive a bill credit. CMP has more than 1,000 customers out of about 600,000 who have installed renewable generation, and that number can only be expected to rise.
The fact that CMP seeks to raise rates on its customers as their demand falls shows there’s a disconnect between power consumption trends that are reacting to market forces and a regulatory system that seeks to set rates that ensure both reliable service for customers and a reasonable rate of return for a monopoly utility.
As it’s proposed, CMP’s rate structure runs counter to public policies that offer customers an incentive to use less power generated by fossil fuel-powered plants. If there’s a drastically limited return on installing solar panels on your roof, what’s the point? Further, if overall electric rates don’t reflect a customer’s actual use, what’s the incentive for an industrial customer to install more efficient lighting or for a residential customer to buy a more efficient air conditioner or switch off the lights?
At the same time, under the current model, customers need their utility to stay afloat financially, and the utility needs to be able to afford to maintain and improve a reliable network.
Technologies available to customers to reduce electricity use will continue to improve. And technologies allowing customers with solar panels to store excess power and use it when the sun isn’t shining are also likely to improve, further reducing dependence on the grid.
What’s clear is that CMP’s rate design proposal goes against the principles Maine ratepayers should want their electric system to reflect in the form of incentives for conservation, efficiency and use of clean power.
What’s less clear is how Maine can smoothly transition to such a system design without sacrificing reliability. That’s a major question regulators must consider as they debate CMP’s rate design.