Maine regulators have ordered a broad audit of the state’s second-largest electric utility, citing unspecified “questions and concerns” related to rate increases and other actions.

The Public Utilities Commission did not say precisely why it directed the audit of Versant Power on May 29. It cited four cases before the agency, including two for distribution rate increases that Versant says are needed to improve service and bolster operations. The utility serves 165,000 customers in northern and eastern Maine.

Of the other two cases the PUC cited, one was Versant’s request in 2019 to reorganize with its new parent company, Enmax, a Canadian energy company. The other resulted in reliability benchmarks.

Regulators will examine virtually all of the utility’s functions: the effectiveness of senior management and its board of directors in managing operations, customer service, credit and collection, metering, billing and the management of its transmission and distribution system. An audit can be required to determine “the degree to which a public utility minimizes or avoids inefficiencies which otherwise would increase costs to customers,” the PUC said.

“The audit is the result of a number of serious questions and concerns that have been raised in recent dockets regarding Versant’s performance of its obligations,” Patrick Scully, one of the PUC’s three commissioners, said in announcing the decision.

The commission approved distribution rate increases for Versant of 14% in the second half of 2023 and 12.5% for this year to pay for infrastructure, smart meter upgrades and in response to inflationary pressures. The average residential customer using 500 kilowatt-hours a month will pay about $10 a month more by the second year, regulators said.

In March, Versant came back to the PUC with a request for a third distribution rate increase of 24.8% to take effect Jan. 1, 2025. That would add another $12 to the average customer’s monthly bill, Versant said.

Chairman Philip Bartlett II said recent proceedings have raised concerns about whether Versant is “being effectively managed in meeting its statutory obligations.” He was not specific and, through a PUC spokeswoman, declined to elaborate.

“I think this is a wise step, and we’ll just have to see where it goes from here,” Bartlett said.

Commissioner Carolyn Gilbert said auditors will conduct a “deep dive” into Versant’s management.

“Hopefully, we can identify any deficiencies during this audit and begin addressing them to provide better service to Versant customers,” she said.

The PUC, which hired an outside firm to conduct the audit, said it will not participate in any findings of fact or conclusions of law.

A Versant spokeswoman said transparency with regulators is an “essential and expected part of our business.”

Public Advocate William Harwood said management audits generally occur every three to six years. 

CMP, a subsidiary of Avangrid, was audited in 2020. The PUC ordered the audit following an investigation of the utility’s rates. The auditing firm said that since 2019 CMP has restored resources and focused more on “effective service delivery.” It questioned how sustainable the changes are and said several structural and management problems undermined service.

Versant has said that higher distribution rates for 2023 are needed to replace the utility’s metering service, which has “reached the end of its useful life,” and deteriorating cables to customers on islands off the coast of Maine. Increased revenue also will support a new substation in Machias and pay for tree-cutting and other projects, Versant said.

The distribution rate, one of five rates billed to customers, is the cost to deliver electricity to customers and pays for construction, operation, maintenance and administrative costs.

Regulators pared the request from nearly 31.5% sought by Versant to make up a nearly $34.5 million gap in distribution revenue. They also imposed a penalty of up to $3 million to be repaid to customers if Versant falls short of new, stricter service quality standards on frequency and duration of outages, call answering, billing accuracy and timeliness in fulfilling field service requests.

Bartlett said at the time that customers must “see they are getting value for the rates they pay” as they increasingly use electricity for heating and transportation and as significant spending is called for to reduce greenhouse gas emissions.

A consultant for AARP criticized Versant for failing to offer a cost-benefit analysis to justify its rate increase for the replacement of smart meters.

When the utility asked the PUC for another rate increase in March, it said higher rates would help pay for storm restoration and operation and maintenance expenses deferred from its previous rate case. Spending also would be used to upgrade smart meters, improving the grid’s reliability and unspecified spending on employees.

Versant also cited increased vendor prices and inflation. The utility is not seeking an increase in its allowed rate of return on equity from its authorized 9.35%.

Versant recognizes that the request for higher rates “comes soon after its prior rate request” in May 2023, Flynn said in prepared testimony to the PUC in March. “We also acknowledge that the amount of its request is not insignificant,” he said.

He cited costs to hire and keep skilled workers, medical and insurance expenses, vegetation management and storm restoration costs, and other expenses. Versant also must grapple with aging equipment, the impact of severe storms, modernizing the grid and increased legislative and regulatory requirements, Flynn said.

At an April 2023 hearing with regulators, he said Versant has “invested significant capital.”

“We knew we needed to invest more capital to continue to improve and sustain reliability, and so there is a need to recover those costs on a reasonably timely basis,” he said.

Andrew Landry, deputy public advocate in the Maine Office of the Public Advocate, said that following years of underinvestment, Versant “has been engaged in an extremely aggressive capital campaign.” A question that arises, he said, is if Versant is “doing it too fast.”

“How many projects can you manage at once and how well?” Landry said.

Versant serves 165,000 Mainers across 10,400 square miles that its president, John Flynn, described as a “challenging service territory that includes a low customer count, low customer density and many heavily forested and coastal areas.”

The Northern Maine Independent System Administrator, which administers the region’s grid, described the area as “electrically isolated” in portions of Aroostook, Penobscot and Washington counties. “Northern Maine is characterized by low population density and a very low electric demand in comparison with other electricity markets,” it said.

Seth Berry, an advocate for public power and former Democratic state representative who was House chairman of the Legislature’s Energy, Utilities and Technology Committee, said Versant officials “technically” answer to state regulators, “but also to senior management of Enmax.”

Berry and other supporters of last year’s unsuccessful effort to win voter approval of a publicly owned power company cited revenue and profit headed to foreign owners of Maine’s utilities as one of several reasons Mainers should demand tighter control of the state’s energy industry.

CMP, Maine’s largest utility, is a subsidiary of Avangrid, which is part of Spanish energy giant Iberdrola.