Electric bills hide costly government policies

Electric bills hide turmoil in the electric industry.

Some recent events illustrate the point. The Maine Legislature sustained Gov. LePage’s veto of solar power subsidies. Renewable subsidies are pushing up costs. New transmission lines are raising rates. Major Canadian hydro projects, hoping for U.S. markets, experience runaway costs

Policy decisions contribute to hidden increases in the price of power. In short, the electric bill pays for more than economical, reliable power.

Back in 1993, Congress remodeled the industry. Formerly, utilities owned both power generators and all the wires, used to serve captive customers. Then Congress ruled transmission lines had to carry any producers’ power, not just that from the line-owners.

In many states, including Maine, utilities were forced to sell off their generators, becoming solely wires companies. The risk of costly, faulty power supply decisions was moved from their customers to independent power suppliers.

The goal was competition among suppliers in a reasonably open market. That worked and the customer’s cost of power may have fallen by about one-third, particularly for those sticking with the standard or default offer.

That’s the good news. The not-so-good news was that the cost of wires just about doubled, allowing the traditional utilities to thrive with little risk.

Wires costs rose because utilities convinced regulators that their transmission lines were old and needed replacement, not always the case.

Siting of new generators also boosted costs. Traditionally, to keep transmission costs low, generators were located close to big markets. But such siting became increasingly difficult.

Some thought that cheap power could be imported from Canada, avoiding siting problems. But that power wouldn’t be any less costly than prices set in the U.S. market where it would be sold. And production costs in Canada are rising.

Public policy encourages renewable resources like hydro, solar and wind. Costly lines from new, distant generators to urban customers may be necessary. That could be the result of recent proposals to generate power in Maine for use in Massachusetts.

But government ordered regulators to go even further. Renewable power could be expensive to produce, slowing its development. Regulators were required to build subsidies into electric rates to allow renewables to appear to be competitive with traditional fuels like coal and oil.

Higher costs paid by today’s customers would supposedly produce cleaner and less costly power for tomorrow’s customers. That’s been promised for decades with dubious results.

Regulators forecast future electricity costs and then price renewables in line with their predictions. The problem is they usually get their forecasts wrong. For example, today’s natural gas prices are far below what they foresaw. Plus, there are new wires costs.

Customers pay a premium price to subsidize renewables without gaining an immediate economic benefit. That’s a real problem for Maine, the poorest state in New England and one struggling to attract new industry.

When the Legislature fell short of the votes to override Gov. LePage’s veto of solar subsidies, it aided customers. The veto may have slowed solar development from becoming competitive and improving the state’s energy mix, but it kept the subsidy’s direct and indirect effects out of current rates.

Renewables deserve public support, but why should today’s customers be forced to pay the subsidy? If regulators were limited to setting rates only for reliable service, legislators could set public policy and subsidize renewables with tax revenues, not rates. Trying to finance subsidies by taxes could reveal if voters favor such support.

By shifting subsidies into electric rates, government levies hidden taxes. It’s public policy without public responsibility. But it can hurt low-income customers and discourage some industries from locating in a high-cost market. On this one, LePage is correct.

Utilities will soon face paying the costs of underused utility lines, as more local resources are developed to serve local users. That’s called “distributed generation,” and it is likely the wave of the future. With improved batteries and other power storage, smaller local solar and wind mini-grids will be possible.

Utilities may stop growing, if new lines are not needed. While they will be allowed to cover their costs, their profits might suffer. They will expect customers to cover expected profits.

The solution could be to allow utilities to become developers of small-scale, renewable generators. Waning profits from big wires projects could be gradually offset by local power systems.

The cost of electricity reflects policy decisions about what resources we use, where they are located and what we pay for them. The monthly bill hides all that.

(Disclosure: I was Maine’s first Public Advocate and headed the state energy office.)