Electric woes caused by industry restructuring, weak regulation

Note: While I mention CMP, Maine's largest electric utility, the subject is relevant across the U.S. 

 

The news is full of reports about skyrocketing electric bills across the country and numerous outages in the Northeast. Maine gets it share of both.

Something is wrong when the complaints occur as often and as loudly as they do now. Utilities and their friends have come up with ready responses that squarely place the blame on somebody else.

Customers are faulted for not recognizing their power consumption increases as they run electric heaters or oil burners. And frequent nor'easters get the blame for what seems to be an unusually high number of outages.

Of course, electric consumption increases in cold, dark winters. And, this year, the cost of fuel to run utility generation may also have increased. So it is not surprising that as usage increases, bills are higher. And some customers look only at the bottom line and ignore the number of kilowatt-hours.

But this is not the most severe winter ever, so some huge increases seem to be caused by more than usage. CMP, for example, has removed the prior year's monthly usage from the bill, making ready comparisons impossible. That deletion makes it more difficult to accept the explanation that it's all a matter of usage.

One obvious culprit is the meter. Utilities have installed so-called “smart” meters, supposedly because they will allow customers to manage their usage better, obtaining greater efficiency and lower costs. While that promise mostly goes unfulfilled, it has worked well for utilities that can eliminate meter reader jobs.

During a major, recent nor'easter, smart meters turned out to be dumb. They could not highlight outage locations very well, nor did they provide good data to the central office, which would help it efficiently assign repair crews. Despite their shortcomings, a big part of the meter’s cost is recovered in a customer's rates and will be for many years.

Given these known defects, it just might be possible that bills, way out of line with past experience, may be caused by defective meter information. To relieve customer worries while the cause is being investigated, the regulators should announce that their payment obligation will be limited to the previous year's level.

Without such action, customers bear all the risk when their bills shoot up. And when a utility falsely warns them they may be cut off if they don't pay the bill, they can rightly feel they are victims, not customers. CMP and others should not only withdraw such bills, but be fined for issuing them.

While customers, utilities and regulators scramble to figure out what went wrong, they will miss the big picture that can reveal underlying problems. It began with industry restructuring. Electric power supply was separated from wires. Many utilities ended up as wires companies.

The utilities’ monopoly position as wires companies was an opportunity to coin money. With a limited commitment to maintenance plus government incentives to build more transmission lines at customer expense, their outlook brightened. The cost of power was reduced by competition, but the cost of wires in the customers' bill zoomed up.

Federal utility regulators allow higher rates to encourage more transmission. State regulators mostly stay on the sidelines until problems arise.

Regulators depend on technical input from utilities rather than having staff capable of conducting continuous, independent review. While they may hire outside consultants when a problem arises, this approach does nothing to prevent problems.

To top this situation off, as Congress and state legislatures restructured the industry, they levied new burdens on ratepayers. They imposed public policy mandates on customers' bills, ranging from low-income assistance to promoting renewables. It was a lot easier to load these costs on electric customers than to increase taxes.

The failure of regulators to be more aggressive contributes to both the frequency of weather-caused outages and billing alarms such as are now occurring. Studies to find the causes of these problems are no substitute for continuing surveillance to prevent them.

Beefed-up regulation would undoubtedly cost more. But electric rates increase to cover utilities' costs of dealing with storm outages or fixing meter problems. Adequate regulation should reduce some of these cost increases.

The bills add up. Customers struggle with outages. Regulators belatedly investigate. Customers subsidize the very meters that may be causing their problems. Utilities maximize profits by cutting field personnel. Customers foot the bill for the utility lawyers who defend company practices.

Instead of viewing the current problems as likely to be soon forgotten, now is the time for legislators to take a new look at the electric industry and how it is regulated.