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PUC: Solicitation For Long-Term Utility Contracts, "Have Failed To Produce The Ratepayer Benefits"

February 2, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The solicitation of long-term utility contracts under a specific section of statute has not produced ratepayer benefits, the Maine PUC said in a conclusion regarding a notice of inquiry

The PUC was addressing specifically long-term contracting under Act to Enhance Maine’s Energy Independence and Security, P.L. 2005, ch. 677 (Act) and Part C of the Act (codified at 35-A M.R.S. § 3210-C). Other statutes also direct long-term contracting under separate processes; those processes were not within the scope of the PUC's instant inquiry and conclusion.

Under the § 3210-C process, the PUC solicits long-term contracts between generators and the utilities, with output to be sold into the wholesale market.

Regarding the § 3210-C long-term contracting process, the PUC said that, "the long-term contract solicitations conducted pursuant to the Act have failed to produce the ratepayer benefits, and have to date resulted in ratepayer costs. The Commission notes that these contract solicitations require a substantial devotion of Commission resources, as well of the resources of the bidders and the utilities."

"[T]he Commission’s experience in implementing the long-term contract provisions of section 3210-C has not resulted in any significant ratepayer benefit; rather, the process has resulted in ratepayer costs," the PUC reiterated

"If it were the case that the long-term contracting process under section 3210-C would be likely to result in ratepayer benefits, the devotion of resources would be in the public interest and the Commission would agree with commenters that a more predictable process (such as annual solicitations) would be worthwhile. However, this is not the case," the PUC said

"Therefore, the Commission declines to adopt a pre-set schedule for contract solicitations and will only conduct such solicitations when there is a sufficient reason to determine 'that the likely benefits to ratepayers resulting from any contracts exceed the likely costs,'" the PUC said

"It is important to consider the long-term contracting process in the context of Maine’s restructured electricity market. In Maine, unlike other states in the region, utilities do not have electricity load to serve. Accordingly, any energy, capacity or renewable energy certificates (RECs) purchased by a utility is sold into the wholesale markets at prevailing market prices. If the prevailing prices are greater than the contract prices, ratepayers receive a benefit; however, ratepayers pay a cost if market prices are lower than the contract price. Thus, in evaluating long-term contract proposals, the Commission must compare proposed prices with projections of market prices over the term of the proposed contract (usually 20 years). As widely recognized, projecting energy market prices over a 20-year period is difficult to do with accuracy and is inherently speculative. Thus, a long-term energy contract, by its nature, is risky and creates a potential of increasing ratepayer costs (often referred to as stranded costs) over time. It is this precise risk of additional stranded costs that was intended to be eliminated through Maine’s Restructuring Act," the PUC said

Docket No. 2015-00058

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