TESTIMONY BEFORE THE ENERGY, UTILITIES AND TECHNOLOGY COMMITTEE
An Act To Ensure Transmission and Distribution Utility Accountability
Gerry Runte, Worthington Sawtelle LLC
March 17, 2022
Senator Lawrence, Representative Berry, and Members of the Joint Standing Committee on Energy, Utilities and Technology (EUT): My name is Gerry Runte and Managing Director of Worthington Sawtelle LLC.
Testimony in support of L.D. 1959.
It is well established and understood that Maine’s investor-owned utilities (IOUs) have very poor reliability and customer service. Until the introduction of LD 1959 there seemed little acknowledgement that they operate the way they do because they are allowed to conduct “business as usual.” The current rules as promulgated by the PUC and legislature have enabled CMP’s poor performance and will continue to do so as long as they remain in place. The solution is also in the hands of the PUC and the legislature. Performance-based rate policies, such as those laid out in LD1959 are the best first steps towards improving CMP’s performance and bringing value back to Maine citizen ratepayers.
Currently 16 states have some form of advanced performance-based ratemaking (PBR).
Source: Navigant Consulting
Performance based mechanisms can be designed to assess safety and reliability, customer satisfaction, facilitating customer owned generation and adopting of energy efficiency programs.
Hawaii is the latest and most advanced version of PBR in the US. Hawaii implemented its version of PBR last June. It illustrates one way this approach can work to end the cost of service “spend money to make money” model. [i] Hawaiian Electric Company is required to submit a 5-year plan that begins with fixed rates the first year and limits annual rate increases to three factors: inflation; unforeseen events; and a “productivity factor.” The productivity factor is based on metrics Hawaiian Electric’s for customer experience, utility performance and desired societal outcomes. If Hawaiian Electric reduces its costs below the annual limits, it can keep the difference; if its costs exceed the limits it takes a loss. See Table the table below.
Source: State of Hawaii Public Utility Commission
In the oft-cited J.D. Power studies[ii], 4 of the 6 utilities that scored above average in CMP’s category (East Large) all operate in states where some form of PBR exists. Maine has no performance standards, none. Maine’s regulatory structure is an anachronism and follows last century’s cost of service model. Is it any wonder that the IOU’s performance is as poor as it is?
You’ll hear two major objections to fixing the IOUs with PBR: we tried it and it didn’t work; and the Hope Supreme Court decision prevents us from penalizing them.
Maine experimented with a very rudimentary form of PBR twenty years ago. Poorly constructed and not having the advantage of today’s technology, it was deemed a failure.
A Supreme Court case, FERC v. Hope Natural Gas, is frequently cited by opponents of PBR as prohibiting a penalty on utilities of it threatened a reasonable rate of return. Washington State, Virginia, Florida, and Minnesota have all successfully navigated the perceived constraints of this case, implementing PBR multiyear rate plans.
This legislation is a great first step in bringing Maine’s regulation of public utilities into the 21st century. But is only a first step. Once this method is implemented, Maine needs to take a detailed look at best practices around the country and in other countries to further improve and refine this starting point. The bill should be amended to add this requirement.
A long time ago while working for a utility, a friend quipped “The number one core competency of investor-owned utilities is to make sure no one changes the rules.” The IOUs behave the way they do because that’s what the rules allow them to be, and they have been very successful making sure the rules do not change.
Change the rules and the behavior will change.