Monday, July 31, 2006

Rethinking the power structure

By TUX TURKEL, Portland Press Herald Writer

Copyright © 2006 Blethen Maine Newspapers Inc.

Should Maine pull the plug on its 35-year membership in New England's electric power pool?

Does it make economic sense? Would reliability suffer if Maine formed its own transmission organization?

How about forging stronger connections with neighboring New Brunswick and swapping more power with Atlantic Canada?

These are heavy issues to ponder midsummer in Maine. But with hundreds of millions of dollars hanging on these questions, more than two dozen interested parties filed written comments and sent representatives earlier this month to meet with the Maine Public Utilities Commission, which has been asked by lawmakers to study the topic and report back in February.

The outcome is sure to affect the electric bills of homeowners and businesses for years to come.

Maine has come to a similar crossroads before.

To break the region's dependence on imported oil in the 1980s, well-intentioned policymakers created incentives for developing hydro, wood and other renewable energy sources. When oil prices unexpectedly crashed in the early 1990s, high-priced supply contracts helped push electric bills up 40 percent.

That set the stage for a radical restructuring of Maine's electric industry.

Facing pressure from frustrated voters, lawmakers dismantled the historic arrangement by which utilities generated power and regulators oversaw rates, in favor of a new model that relied on competition to control prices. The plan forced utilities, including Central Maine Power Co. and Bangor Hydro-Electric Co., to sell their power plants. Today's restructured marketplace, occupied by unregulated companies and dominated by natural gas-fired generation, is the legacy of their decision.

Restructuring's grand experiment got off to a good start, until oil and natural gas prices hit record levels. Now rates are climbing again, and homeowners and businesses are complaining.

To make matters worse, plans to boost generating capacity and upgrade transmission lines in southern New England will cost Maine consumers more than $300 million, state officials estimate.

These and other factors have again brought Maine to a pivotal point.

Consumers and businesses see electricity as a fundamental need, observed Kurt Adams, the PUC's chairman. But as prices rise, there's a growing sense that Maine has lost control of its energy future to a dereg- ulated marketplace dominated by regional power generators, systems operators and federal bureaucrats.

"People feel like they don't have any vehicle to control costs," he said.

This growing frustration has formed a backdrop for the inquiry now before Adams and his associates. On a parallel track, the PUC is conducting a second study for the Legislature on whether it can direct CMP and Bangor Hydro to enter into long-term energy contracts aimed at stabilizing prices.

Maine has been part of a regional electricity grid for more than 35 years. A central dispatch and control center in Massachusetts manages the minute-by-minute demand for power across the six states. It was initially run by the New England Power Pool and has been operated since 1997 by ISO New England, the region's independent system operator.

But a request by federal utility regulators to boost generating capacity in fast-growing parts of Connecticut and Massachusetts has strained this relationship. It was further eroded by the cost-sharing formula in a controversial plan designed by ISO New England.

The plan was opposed by Adams and other officials in Maine, which generates more power than it uses. They consider the deal a windfall for large power companies, at the expense of Maine electric customers. That frustration is shared by lawmakers. That's why they told the PUC to explore alternatives to staying with the regional power pool and the policies of ISO New England.

To help frame the discussion, the PUC asked interested parties to respond in writing to a series of specific questions. The agency asked, for instance, how a stand-alone transmission organization in Maine could dispatch and control generators. It asked for thoughts about the cost of a Maine-only system, a northern New England system or one joined with eastern Canada.

Not surprisingly, the responses are fairly technical. And they reflect the points of view of the interested parties.

FPL Energy Maine Inc., which purchased CMP's power plants as part of restructuring, opposes Maine's withdrawal from ISO-New England. Take a long-term view, FPL suggests in its responses. Maine has been both a net importer and exporter of energy. The equation can change quickly, as it did when Maine Yankee abruptly closed in 1997, and more recently when five gas-fired power plants were built in the state.

A Portland lawyer representing the power generator also made this point: Despite rising prices, Maine has saved millions of dollars since restructuring took effect six years ago, compared to what rates would be under traditional cost-of-service regulation.

"But it's very hard to get people to look long-term when you're hurting today," said Patrick Scully. "People are looking for someone to blame and some way to make it right."

Large Maine businesses that use lots of power have a different perspective.

Comments from the Industrial Energy Consumer Group are very critical of ISO New England's capacity and transmission planning. The system is just too expensive for Maine, according to the group, which includes paper mills and other manufacturers. Rather than thinking about the study as a comparison of different political jurisdictions, the group suggests - New England vs. Canada, for instance - the PUC should reframe the question in a more basic way: What sort of transmission organization is best for the people of Maine?

"The first step is to recognize you have a problem, and that's what we're doing here," said Tony Buxton, a lawyer representing the group.

Also on the table is the idea of forming stronger links with Atlantic Canada.

This concept has a certain appeal. Maine already has a transmission line connecting New Brunswick, and a second one is being built. Sections of northern and eastern Maine that are isolated from New England's power grid are connected to New Brunswick. On a corporate level, Bangor Hydro is owned by Emera, a Nova Scotian utility.

Various legal and tariff issues would need to be ironed out for a joint Maine-Canadian regional transmission organization to succeed. But comments submitted to the PUC by the New Brunswick System Operator note that some of the solutions can be found in agreements with transmission organizations in Manitoba and British Columbia, and their counterparts across the U.S. border.

Utilities also are weighing in. Central Maine Power is using the forum to push for a debate over the wisdom of Maine's restructuring law, which it says has left consumers at the mercy of a volatile wholesale energy market. In a recent newspaper column, Sara Burns, the company's president, made a case for CMP to once again build and own power plants.

It's too early to say whether CMP's back-to-the-future campaign will gain any traction.

Stephen Ward, the state's public advocate, said CMP's argument suggests that consumers could have avoided the impact of rising energy prices, if the old regulatory regime had stayed in place. That's not likely, he said. The often-unappreciated benefit of restructuring is that shareholders - not ratepayers - assume the financial risk for building power plants.

The PUC will take the next few months to weigh the alternatives to Maine's current relationship with the regional grid. And after attending the recent meeting at the PUC, Ward said he's encouraged by the agency's open-minded approach to gathering information. It correctly assumes, he said, that no one knows the right answers to the questions.

And despite growing anger over rising electricity prices and the policies of regional energy planners, Ward said, it's far from clear that Maine can come up with a better alternative.

"I don't see this in any way as a forgone conclusion," he said of the study. "I see it as due diligence."

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

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