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Maine Welcomes Plunging Energy Prices, But Will They be Short-Lived?

AUGUSTA, Maine - Last October state energy officials issued a warning to many Maine businesses:  Be prepared for sharply higher electricity when winter comes. But that message has changed - at least for time being - as forecasters now predict that electricity prices will come down for many consumers in the spring.

Most of Maine's electricity comes from natural gas, and a surge in demand during the cold weather months was predicted to lead to pipeline constraints and a doubling of electricity prices for mid-sized businesses who subscribe to the state's so-called standard offer rate. That's already happened, but it looks like these high prices will be short-lived.

"If I had to describe the mood in our office, we are ecstatic about this change," says Maine Public Advocate Tim Schneider.

Schneider was reacting to news this week from utility regulators that the standard offer electricity price paid by residential and small business customers throughout most of the state will be lower by as much as 14 percent for the 10-month period beginning March 1. Medium-sized businesses can expect a 17 percent reduction.

So what's behind this? Probably the biggest single factor, says Schneider, is the recent fall in crude oil prices, which are currently hovering near a six-year low.

"And it makes some intuitive sense because we still have a regional natural gas pipeline capacity constraint, we still have a region that's more reliant than anywhere else in the country on natural gas generation," Schneider says. "So when we've reached those constraints, and we don't have enough gas to meet the needs of our natural gas generators, we roll over to oil."

And with oil prices now so low, says Schneider, the region can reap the benefits of lower consumer prices in times of high demand. But Schneider is reluctant to attribute the lower electricity rates entirely to the price of a barrel of crude - after all oil prices can be volatile and these new rates will be locked in for the rest of the year.

Another important factor, he says, is a change in how the Public Utilities Commission does business. For the first time this year, the standard offer term will be 10 months, rather than 12 months, which means it will not include January and February of next year - typically the coldest two months of the year.

He admits that electricity prices would be heading lower in March anyway, but "they are lower than they would have been had those two months been included," he says. Schneider says this also means there's more uncertainty now about where electricity prices will be headed next year, and consumers should be prepared for the party to end.

In the meantime, electricity users are relieved at the prospect of the upcoming 10 month breathing space. "With oil prices dropping, and the electrical prices dropping, that really could relate to more jobs," says Lisa Martin, executive director of the Manufacturers Association of Maine, which represents more than 300 companies.

Those companies, Martin says, are also looking beyond the short-term, however, and want to be prepared for a likely rise in electricity prices next year. "Stability is critically important for these companies," she says, "so what we're hoping and trying to put forth is making sure these companies are looking out 12 months, 24, 36 months out, and making sure they're making sure they're making some of the best decision they can on their energy costs and budget going forward."

One solution is to find ways of expanding New England's pipeline capacity to bring more natural gas into the region. Another is to keep pushing for consumers to become more energy efficient.

Michael Stoddard is executive director of Efficiency Maine, which promotes conservation and offers incentives to consumers in the form of rebates. He's says there are record levels of demand from business and residential customers looking to invest in programs to reduce energy consumption and cost - but there are factors holding it back.

"The challenge with energy efficiency has always been that it requires some upfront investment," Stoddard says, "and especially when economic times are tough it is hard to come up with the initial money to make those investments."

However, Stoddard says he's hopeful that consumers will use some of the extra money afforded them by lower electricity prices to invest in energy efficiency measures, so when prices go back up again, it won't be such a big deal.