January 1997
Maine: Restructuring Plan Recommends Full Recovery Of Stranded Costs
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 05/98)

On December 31, 1996, the Maine Public Utilities Commission ("PUC"”) issued a "Report and Recommended Plan" (the "Plan") on the restructuring of the state’s electric utility industry. Under the Plan, by January 1, 2000, all ratepayers should have the option to select their power suppliers. The Plan provides utilities with the opportunity to recover stranded costs to the same degree that they recover their costs under the current regulatory framework. The Plan also requires two of the three investor-owned utilities located in Maine to completely divest their generation assets by 2006.

Effective January 1, 2000, all customers will have the option to select their power supplier and the PUC will no longer regulate persons who generate or sell electric power. The Plan provides, however, that the PUC will require suppliers to register with the PUC. The Plan also states that the PUC will adopt minimum standards of conduct for suppliers including notice requirements for changes in rates or terms of service and conditions for service termination by suppliers. The Plan requires competitive suppliers that serve a significant portion of the public or that offer services to the general public to file rates and terms of service with the PUC. The PUC will not, however, regulate the rates charged by these suppliers.

The Plan allows a standard offer of service for customers who do not choose a competitive supplier or who cannot obtain power from a supplier on reasonable terms. Under the Plan, the transmission and distribution ("T&D") company is not the supplier of last resort, rather the T&D company administers a bidding process and, subject to PUC approval, selects the entity that will provide power under the standard offer. The Plan caps the level of standard offer price at the total cost of power charges that existed prior to the introduction of competition under the Plan. If the total standard offer price exceeds this level, the PUC will investigate whether the introduction of competition at that time is in the public interest.

The Plan also provides that by January 1, 2000, all three of the investor-owned utilities presently operating in Maine must transfer all their generation-related assets to a company separate and distinct from the remaining T&D companies. The three utilities will be permitted to engage in generation activities through these affiliated companies until January 2006, when Central Maine Power and Bangor Hydro-Electric Company will be required to completely divest their generation assets. The remaining investor-owned utility, Maine Public Service Company, will be permitted to retain its affiliated generation company after 2006, but after that time will be permitted to provide generation services only to ratepayers located in its franchise territory. The Plan reasons that divestiture of generation is required because common ownership of generation facilities and T&D assets is an impediment to competition and that functional separation alone is inadequate. In the area of qualifying facility ("QF") generation, the Plan states that the contractual obligation between QFs and utilities will be an obligation of the T&D company, which will periodically sell QF power to third persons using a bidding process.

The Plan also provides utilities with a reasonable opportunity to recover legitimate and unmitigatable stranded cost. The Plan notes that this recovery opportunity is comparable to the recovery of costs under the present regulatory framework. The Plan justifies this recovery approach by stating that changing the cost recovery rules after investments have been made could impair the state’s credibility and deter long-term investments in Maine.

The Plan also states that the PUC would estimate each utility’s stranded cost prior to the introduction of competition and that the PUC would reexamine these estimates and make corrections, if needed, in 2003 and in 2006. The PUC’s reexamination of estimates for QF related stranded cost charges will continue through the term of the QF obligation. The Plan provides that stranded costs will be recovered through a non-bypassable wires charge.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716