Most electricity used by customers of Central Maine Power and Versant Power comes from the so-called standard offer power supply selected by the Maine Public Utilities Commission.
In 1992, Congress decided that the transmission system should be open for use by power suppliers not only by the company that owned the lines. The Maine Legislature later decided to allow individual Maine customers to buy their own power and use the lines. If they didn’t do that, the state would select power for them: the standard offer.
Most people let the PUC do it. Because the PUC represents the largest amount of purchased power by far, it is likely to get the best price. The utility charges customers for both its wires and on behalf of the selected suppliers. The PUC regulates the cost of wires and the open market sets the cost of power.
Recently, the Maine Sunday Telegram focused attention on the commission’s policy of making selections every six months (“Rate-setting policy for ‘standard offer’ power supply is costing Mainers millions,” July 16). Regulators in four other New England states with the same system make their choices once a year. The longer-term decisions have been producing lower power costs, though it might not always work that way.
Shifting to annual deals might work better, but it stops short of a system that would enhance competition, producing even lower costs.
Right after the 1992 Energy Policy Act was passed, I began assisting municipal and cooperative utilities and large industrial customers in Maine and elsewhere in the U.S. in purchasing their own power supplies. Given the size of their power requirements, they could be attractive customers, similar to the standard offer users.
No customer must use the standard offer, but purchase choice occurred first under federal law for utilities that purchase power for resale to end-use customers. They’re called “consumer-owned utilities” in Maine.
I organized for a Maine customer the first major deal in the country under the Energy Policy Act. Madison Electric, a municipal or consumer-owned utility, sought power supply bids in the open market, and we came up with a new supply from out of state. Madison’s residential customers saw their rate drop by 26% overnight.
In that first purchase and all I did afterwards, from the Deep South to Pacific Northwest, I used the same system. I notified possible suppliers, prescreened to ensure they would provide reliable service, that my client wanted to buy power. Beyond availability and reliability, I would make my recommendation based on price.
While I specified the amount and the minimum period for a supply, sources had the option to propose for whatever term they chose. That meant a supplier would not be discouraged from making a proposal because it could not fit in a one-size-fits-all straitjacket. That could boost competition.
Suppliers were also invited to submit multiple offers, in effect bidding against themselves. Thus, an individual company could offer both a short- and long-term proposal.
This kind of bidding might require a careful, comparative analysis, but it improved customer choice. It also kept suppliers on their toes – none could know for sure even the outlines of possible competitive offers. Only one company ever complained about this system.
The result is that the power supply costs of consumer-owned utilities are often lower than the standard offer supply. Together with their lower wires costs, these utilities provide customer rates that are well below the investor-owned utilities’ combined rates for wires plus standard offer.
The message? The PUC could adopt the competitive power purchase model used by some large customers to bring down the standard offer cost.
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