The mounting, secret taxes in electric bills

Most households are paying a tax that nobody talks about. Though far less exciting than today’s presidential campaign, this issue may affect most families.

If you get this tax bill, you pay it once a month. The best part about it, at least for the legislators who have created it, is that the “taxpayer” is never told about it. It is a secret tax, but the penalty for failure to pay it is so powerful that people comply. If not, their electricity may be cut off.

Every electric bill includes a number of charges that cover neither the power nor the wires. These charges have been levied by legislatures to pay for their policies, but without the usual need to raise taxes.

Some of these charges have been around for a long time, like the cost of paying for utility regulation. But new charges are being added from time to time when legislators decide to adopt a new public policy. Regulators themselves may be required by law to add on such charges.

Controversial as he may be, Gov. Paul LePage has been consistent in arguing for efforts to reduce Maine’s electric rates, among the highest in the country. In his abbreviated, written “State of the State” message to the Legislature and not the usual formal speech, he devoted a major part of it to this issue.

LePage focused on power supply that causes high electric rates. He wrote that companies considering investment in Maine back off when they learn about the cost of electricity. He might also have mentioned the adders to electric rates, many of which, unlike power supply, are under state control.

The broadest effect of this hidden tax is on customers struggling to make ends meet. The Legislature seems to pay little attention to the rate impacts on ordinary customers of its energy policies. Perhaps each time a charge is added, it is considered too small to have much of an effect. But the small charges, federal and state, add up.

The U.S. Supreme Court decided in January that the Federal Energy Regulatory Commission can regulate “demand response” – the temporary shutdown of generators to reduce the need for higher cost power. The idle generators will usually be paid the same as the rate paid for the most expensive power used. This applies in most states.

In the end, that may save customers money by avoiding the use of higher cost power. But underlying the policy is the fact that all generators are paid, not the price they offer to the market, but the price charged by the most expensive power used. Using the actual cost of power supply, as was formerly the rule in New England, is gone.

To encourage renewable power, the Maine Public Utilities Commission requires that utilities buy from higher cost renewable power generators. Solar power, subsidized at above-market prices, could be added soon. The higher cost is passed on to customers.

Then, there’s the famous typographical error. In 2013, the Legislature passed a major energy policy bill that included a $3 per month boost to electric bills to pay for increased energy efficiency. But, thanks to a typo, the bill would produce $38 million less than expected.

The PUC was asked to correct the error in line with legislative intent. Not surprisingly, it said it must do what the law says and not what might have been meant. So, back it went to the Legislature who got into a fight with LePage over fixing the error.

Almost overlooked in meeting the need to do more to promote efficiency and potentially reduce costs was the fact that the $38 million would be collected from electricity customers. Fixing the error involved a rate increase, but almost no attention was paid to that aspect of the matter.

If no other reform were possible, the add-on charges should be shown on the electric bill as they are on most phone bills. In that way, the Legislature would have to take some responsibility for policies that raise costs.

This is not exclusively a Maine problem, though the state provides a good example. Thanks to FERC requirements and other states’ rules, it happens elsewhere.

States should fund desirable energy policies. But they should not hide their cost. Beyond requiring bills to show the added costs, legislatures should fund their energy programs, like other policies they adopt, through taxation not utility rates.

Instead of hidden charges, even for good reason, tax-financed measures could force legislators to make better, more public decisions.