by Tux Turkel, Staff Writer, Portland Press Herald
This year’s shockingly high electric rates in Maine aren’t just a one-time blip.
The conditions that sent electricity supply rates up more than 80 percent starting in January for most Maine households and small businesses are likely to persist into 2023, according to the latest projections, exacerbated by uncertainty over lingering impacts from Russia’s invasion of Ukraine.
Today’s electricity supply rates are higher than they’ve been for at least 10 years, state figures show. Hope that the increase was a brief spike tied to domestic wholesale natural gas markets is fading. It has been replaced by the reality that the “forward” prices energy traders pay for natural gas and electricity contracts for delivery next winter aren’t easing – and there’s no relief on the horizon at least until 2024.
“The global dynamics aren’t great,” said Philip Bartlett, chair of the Maine Public Utilities Commission. “From everything I’ve seen, unless there’s a change, we should expect to see high prices next year, with some reductions after that.”
Each fall, the PUC conducts a competitive bid process to lock down the “standard offer” electricity supply for the year ahead. The majority of Mainers buy their power at the standard offer rate, and they were jolted in January when rates shot up from roughly 6 cents per kilowatt-hour to nearly twice that amount in Central Maine Power and Versant Power service areas.
There’s no way to know exactly what rates standard offer suppliers will bid this fall for 2023. But here’s an indicator: Competitive energy providers that do business in Maine are advertising 12-month, fixed-rate contracts ranging from roughly 12 cents to 20 cents per kWh. The cheapest deal, a seven-month contract, is 10.4 cents per kWh.
“That’s a signal that they see prices staying elevated,” Maine Public Advocate Bill Harwood said. “The message is: The competitive market is letting us know that prices aren’t coming down, and may even go up.”
Today’s high rates have been blamed on wholesale natural gas prices because half of New England’s electricity is generated with the fuel. Supply-and-demand issues tied to the pandemic were a contributing factor, but the war in Ukraine added a new and unpredictable dimension, roiling global petroleum markets and triggering record gasoline and heating oil prices in March.
GAS EXPORTS RAISE PRICES
A big unknown now is how quickly European nations that have relied heavily on Russian energy imports can make good on pledges to wean themselves off that dependence, and how it will affect the United States. Early indications are discouraging.
Historically, natural gas prices have been driven largely by domestic production and demand. That began changing six or so years ago, when the U.S. began exporting liquefied natural gas overseas. Now the U.S. is the world’s largest exporter.
This is an important development because New England doesn’t have enough pipeline capacity on the coldest winter days to fuel both power plants and heating needs. It supplements its pipeline gas supply with liquefied natural gas, largely from import terminals in Boston Harbor and Saint John, New Brunswick, Canada. Now the region will be paying higher prices as more gas heads overseas to help Europe.
The impact was summed up this month in a blog written by Andy Price, president and chief operating officer at Competitive Energy Services in Portland, which helps businesses negotiate long-term power contracts.
“(Liquefied natural gas) prices in Europe and Asia are trading at more than $30 per (million BTUs) for the upcoming 12 months – six times the benchmark price of natural gas in the U.S. – due to concern that Europe’s supply of natural gas from Russia is at risk,” Price wrote. “As a result, consumers in New England are facing some of the highest forward prices for natural gas in history for peak winter months.”
More specifically, this means power supply contracts for 2023 cost a lot more than back in 2021, before the gas run-up and war. But these so-called futures contracts also suggest that prices will start to ease in 2024 and 2025. It reflects the uncertainty about when and how much Europe will be able reduce its reliance on Russian gas and oil, according to Rich Silkman, the chief executive at Competitive Energy Services.
“The market is saying, chances are, Europe won’t be able to solve its problems next year,” Silkman said. “But two years from now, the market may be in a better supply-demand relationship.”
But 2023 is top of mind for businesses that are trying to decide now about long-term electricity contracts. For them, Silkman’s company is offering a free annual online energy market seminar on May 18, with an apt title: “Winter & Preparing for Winter: The Two Seasons of New England Energy.”
HIGH PRICES HURT BUSINESSES
Today’s market conditions are especially unwelcome at midsize businesses that use a lot of electricity, such as local grocery stores. Many of them pay standard offer rates that change monthly, so they’re whiplashed by the volatility of winter price peaks. For instance, they were slammed last January with rates that hit 22 cents per kWh. With winter over, the rates are falling gradually, on their way to a low this June of around 8 cents. But the prospect of rates shooting above 20 cents again next winter is being watched with a sense of foreboding.
“That is causing me some heartburn,” said Christine Cummings, executive director of the Maine Grocers and Food Producers Association.
The group has 200 members consisting of independently owned, Main Street-type operations. A March survey found that nearly six in 10 of them saw rates rise by 50 percent, compared with the same month a year ago. Its members lobbied strongly for L.D. 2010, a bill aimed at providing some financial relief in the form of a tax credit for eligible businesses. The bill was signed into law Monday, but it’s unclear how much it will help owners that need to come up with extra money this spring to pay high electric bills.
“These businesses have had to take money from savings accounts or planned improvements on their buildings,” Cummings said.
Paying last winter’s bills is prompting Mark Humphries to put off some building improvements at his Northland General Store in Stratton. But so far, Humphries said, he has held off passing along higher electricity costs to customers. He already has had to raise some prices related to inflation, which has pushed up wholesale costs for almost all consumer goods.
“I hear it every day,” Humphries said. “People are talking about prices every day, from gas to groceries.”
Northland General Store and an attached cannabis retail shop – Northland Botanicals – benefit from Sugarloaf skiers and snowmobilers in winter and from hikers in summer. It’s busy enough to keep four workers employed. But if next winter’s electric bills are like the past winter, Humphries said he may need to cut payroll.
“If it happens next year, there will be one less job here,” he said. “Something will have to change.”
Nearby, John Beaupre said he saw his typical January electricity expenses rise from roughly $7,000 to $10,000. He owns four stores and a cannabis shop in the area, including Sugarloaf Groceries in Carrabassett Valley and Anni’s Market in Kingfield.
“It has deeply impacted our bottom line,” he said.
Beaupre, who has been in business for 35 years, said he’s probably better able to absorb the costs than some smaller operations. He wonders what will happen if the rates are as high next year.
“I would assume a lot of my peers and competitors would go out of business,” he said. “That’s a massive expense.”
POLICYMAKERS SEEK SOLUTIONS
For policymakers, projections of sustained high electric rates beg the question of whether anything can be done about it.
Harwood, the public advocate, believes Maine’s standard offer bid process needs to be adjusted. One approach could be to seek bids for both long- and short-term contracts, to smooth out rate impacts as a hedge against volatility. But the real answer, he said, is for New England states to speed up the transition to renewable generation and away from their dependence on natural gas.
At the PUC, Bartlett agreed it’s time to consider something other than annual bidding. The agency had done multiyear contracts in the past, he recalled, but it’s tricky. If long-term contracts are signed when wholesale prices are high, customers are trapped if and when costs relax.
It’s a balancing act, Bartlett said, to weigh price stability against seeking the lowest possible prices at a given time. And it’s a matter of perspective. The PUC was criticized by some last fall when it accepted high bids for this year’s standard offer.
“But with some of the prices we’re seeing now, the current standard offer is looking good,” Bartlett said. “Had we gone out to bid a couple of months later, we would have seen even higher prices.”
Photo by Gregory Rec