How are CMP prices set?  

Who decides Central Maine Power's prices?	The prices, practices, and level of profitability of CMP and other Maine public-utility companies are regulated by the Maine Public Utilities Commission (PUC). The PUC was created by Maine law and began work in 1914. Its three commissioners - currently Kurt Adams, Chairman, and Commissioners Vendean Vafiades and Sharon Reishus - must be nominated by the Governor and confirmed by the Maine Senate. The Commissioners are assisted by legal, technical, financial, and consumer-assistance staff. PUC proceedings use court-like standards of evidence, procedure, and decisions, and include opportunities for interested citizens or groups to participate as formal intervenors or to receive information updates. PUC offices are at 242 State Street, Augusta ME 04333-0018. Telephone (207) 287-3831. The PUC's Internet address is http://www.maine.gov/mpuc.
How does the PUC set CMP’s delivery prices?	The PUC separately sets the four pieces that make up CMP’s delivery prices. The distribution piece covers the costs of local power lines, meter readers, bucket trucks and so forth. For most customers, this is the biggest piece of CMP’s delivery price. The transmission piece covers the costs of large power lines and substations. The stranded cost piece covers costs of power contracts with small hydro, biomass, waste-burning and nuclear plants that are left over from before CMP became a delivery-only utility (CMP ceased selling energy when that part of the electric business was de-regulated in March 2000). The conservation assessment funds energy efficiency iniatives. The PUC sets the distribution piece annually per the terms of the Alternative Rate Plan 2000. The PUC sets the stranded cost piece at least every three years. CMP’s total transmission costs are set annually by federal regulators, but the PUC has a say in how the costs are reflected in CMP’s delivery prices.
What is the Alternative Rate Plan 2000?	The Alternative Rate Plan 2000 (ARP 2000), which was approved by the PUC in September 2000, is a price cap mechanism that is expected to help keep changes in delivery prices for most CMP customers below the rate of inflation through the year 2007. Under ARP 2000, low inflation and other costs are resulting in delivery price reductions that are saving CMP customers millions of dollars.
Why is ARP 2000 needed	The original Alternative Rate Plan (ARP) held changes in CMP prices below the rate of inflation from its launch on Jan. 1, 1995 through its expiration on Dec. 31, 1999. On March 1, 2000, CMP customers received a significant, one-time price cut funded by the State-mandated sale of CMP’s power plants. Handling future price changes required developing a successor to the original ARP. The PUC adopted the original ARP to improve on traditional methods for setting prices. Other states have used indexed price-cap plans like the ARP to regulate telephone-utility prices. Maine was the first state to apply such a plan to electric utilities. Before the ARP, price changes could require months of litigation, and no one could predict the number, amount, or timing of resulting price changes. This made it hard for customers (and CMP, for that matter) to plan or budget. The intent of the original ARP and its successor, ARP 2000, is to hold price changes below the rate of inflation, to adjust prices only once a year and make them more predictable than under traditional regulation, to offer more incentives for efficient utility operation while monitoring service quality, and to give CMP pricing flexibility to respond to competing energy sources that might otherwise draw electric load off the system and raise pressure on prices for remaining customers.
How does ARP 2000 work?	ARP 2000 puts adjustable caps on CMP's prices. A formula determines the annual price-cap adjustment effective each July. The formula starts with the prior-year inflation rate as measured by the federal Gross Domestic Product Price Index. That percentage is reduced by a "productivity offset" to reflect CMP's ability to achieve efficiencies. That number can be further adjusted if the PUC determines that there are extraordinary or mandated costs that need to be recovered, if earnings have slipped below a minimum level to ensure maintenance of service, or if CMP has failed any of eight tests for service quality and reliability. The resulting final number is the percentage by which existing price caps on CMP's delivery prices are allowed to change. However, it is not an automatic change. The ARP 2000 gives CMP some flexibility to consider competitive energy-market conditions and possible effects on the amount of electricity customers use before implementing any permitted change. The process typically begins in March when CMP files its calculations and explanation. After hearings and deliberations, the PUC issues its decision which takes affect July 1st.
Will high quality service be maintained?	Yes, CMP must meet these comprehensive service standards: Customer Average Interruption Duration Index (CAIDI): Baseline is 2.32 hours per year. Outages affecting more than 10 percent of customers in CMP's service territory are excluded. System Average Interruption Frequency Index (SAIFI): Baseline is 2.10 interruptions per year, again excluding outages affecting more than 10 percent of customers in CMP's service territory. MPUC Complaint Ratio: Baseline is 1.17 complaints per 1,000 customers per year. Percent of Business Calls Answered: Baseline is 80 percent of calls answered within 30 seconds, except on days when more than 10 percent of customers in CMP's service territory are affected by outages. CMP may also ask to exclude calls if uncontrollable events cause a temporary surge in call volumes. Percent of Outage Calls Answered: Baseline is 80 percent of calls answered within 30 seconds by Customer Rep, Interactive Voice Response, or third-party facility for high-volume calls. New Service Installation: Baseline is 93 percent of new services installed and energized by date promised under Customer Service Guarantee. Call Center Service Quality: Baseline is 84 percent favorable survey response on the Rep's knowledgeability and customer satisfaction with call. Market Responsiveness: Baseline is 95 percent of all complete and properly transmitted enrollments from Competitive Electricity Providers processed within PUC rules' timeframe. An annual Customer Report Card is published that describes service indicator performance.
Is that all there is to ARP 2000?	No. ARP 2000 allows for upward price cap adjustments to reflect extraordinary costs from major storms, disasters, changes in law or regulations, and some other sources. However, CMP is liable for the first $3 million in extraordinary costs in any given year. ARP 2000 also provided for downward price cap adjustments for costs from the 1998 ice storm and past energy conservation programs that were fully paid off in 2002 and 2003. In addition, price cap adjustments may reflect gains and losses on sales of property, and a sharing of any earnings shortfalls, that is, if the return to CMP’s shareholders drops below 5.2%.
Does anything threaten delivery price stability?	The ARP 2000 will keep the distribution piece of CMP’s delivery prices stable through 2007. The stranded cost piece is projected to decline over time as power contracts expire. The transmission piece is less predictable, but it makes up a small portion of delivery prices for the majority of CMP customers. As a result, CMP’s delivery prices should remain stable through 2007.