An assessment of retail rate trends and generation costs in Maine

The Independent Energy Producers of Maine (IEPM) commissioned the Brattle Group to prepare an analysis on retail rate trends and on the economics of utility cost-based generation in Maine. Brattle Group’s white paper was submitted to Maine Public Utilities Commission in regard to Docket 2007-317, an inquiry on reentry of electric utilities into the energy supply business. Appendix A of the paper details the "Economics of wind power in Maine".

Executive Summary excerpt:

Both cost-of-service generation and long-term power purchase agreements ("PPAs") have the potential to reduce rate volatility. We find, however, that most of the available generation technologies do not offer the prospect of rate reductions. Adding new natural gas or oil-fired generation would likely fail to reduce rate volatility by further increasing Maine's exposure to volatile natural gas and oil prices. Adding biomass, small hydro, and clean coal generation on a cost-of-service or PPA basis would help reduce the state's exposure to natural gas and oil price volatility, but would likely increase (not decrease) rates, particularly in the near term. Adding wind power offers the potential to reduce both the level and volatility of Maine retail rates- although the prospect of long-term rate reductions would be very limited. Even adding 500 MW of cost-based wind likely would reduce retail rates in Maine by only approximately 1 percent over the 20 year life of the facilities. In addition, under cost-of-service regulation, most of the rate reductions would occur in later years, while rates might even increase slightly during the first several years.

Importantly, any long-term benefits of adding cost-based wind generation are not contingent on utility-ownership of such generation, but could also be achieved through long-term costbased contracts or cost-of-service arrangements with non-utility generators. Similar benefits likely could also be achieved through conventional long-term PPAs. While long-term PPAs would be slightly more expensive than arrangements that directly pass costs on to customers on average, they could offer more attractive (e.g., levelized) pricing paths than traditional cost-ofservice regulation and would also reduce the risk imposed on retail customers by leaving more cost recovery risk with the generation developer.

Iepm Whitepaper 9 5 07 (1)

Download file (104 KB) pdf

SEP 5 2007
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