Mainers may feel sting of FERC Ruling could cost power users millions

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BANGOR – A ruling last week by the Federal Energy Regulatory Commission could cost electricity users in Maine and throughout New England millions, possibly billions, of dollars.

State energy experts are calling the decision “bizarre,” saying the only ones to benefit from the federal ruling are the national companies that own most of the power generators in the region. These businesses will gain the millions, possibly billions, of dollars that ratepayers could be forced to pay starting in the next few months.

“I’ve never felt so powerless in my life,” said Robert S. Briggs, president of Bangor Hydro-Electric Co., which fought the penalty. “There’s nothing I can do about it. It [the ruling] takes place at a level that is way above any authority in this state.”

On Wednesday, FERC set a penalty at more than 50 times what regional market participants think is fair. The fee is charged to power suppliers when they do not meet a requirement to have in place all the electricity they are obligated to send over the grid daily plus extra in case it is needed during peak demand periods.

For most of the year, suppliers have been complaining that they are having trouble obtaining electricity to meet their obligations. They say power generators are holding back on the amount of electricity they sell and are forcing market prices to spike. Suppliers either must pay those high market prices – and pass those costs on to consumers – or face the penalty for not meeting their obligations – which also is passed on to consumers.

In a strange twist, the money collected in penalties for not meeting those obligations goes to the power generators.

ISO New England, the Maine Public Utilities Commission, the state’s three largest utilities and consumer groups, along with counterparts in the other five New England states, first sought abolition of the penalty, but decided that if one were to be imposed it should be at a low rate. In total, 70 percent of the participants in the New England Power Pool agreed to the low penalty.

The other 30 percent – mostly power generators – were in favor of the higher penalty FERC eventually set.

Since August, suppliers have been penalized by ISO New England, the governing board that oversees the grid, for not meeting its power requirements. ISO has charged 17 cents for each kilowatt, or 1,000 watts of power, by which the suppliers are short on their obligations each month.

ISO New England was confident that rate was adequate, and petitioned FERC to approve it.

FERC disagreed. On Wednesday it said that rate was too low and set it at $8.75 per kilowatt and made the penalty retroactive to Aug. 1.

For most Maine ratepayers, FERC’s decision translates to an additional 2 cents per kilowatt-hour for electricity supply only, said PUC Chairman Tom Welch. Transmission and distribution rates are fixed and not affected by the ruling. The increase has not been factored into rates yet.

Statewide, most consumers could be picking up the tab for “tens of scores of millions of dollars,” Welch said. Regionally, it could amount to billions.

“Our view is that the FERC is completely, utterly wrong here,” Welch said Thursday. “There is no justification to allow any price to be charged. [FERC] put out a four-page order that scores billions of dollars. That shows what little thought they gave to this.”

‘Gaming’

On a national level, the companies that own the power generators are the subject of a U.S. Department of Justice investigation for alleged “gaming,” or toying with market conditions for financial gains.

“They’re getting very, very nervous,” said one state energy expert of the generators regarding the investigation.

The New England states are not the only ones concerned about alleged “gaming” and its impact on consumer electricity rates.

In New York on Thursday, the staff of the Public Service Commission called on the New York ISO to shore up its procedures and rules to reduce the chances of “gaming” by the owners of power plants.

The regulators said that some manipulation of electricity supply contributed to a price spike most New York ratepayers experienced this summer.

“Allowing a generator to increase profits by raising prices above competitive levels, or holding back electricity output for sustained periods of time, undermines the normal functions of a competitive market,” said PSC Chairwoman Maureen Helmer.

Penalties hit Maine

The impact of FERC’s ruling was immediate.

Late last week, Central Maine Power Co. filed a petition with the PUC to recoup the amount it has been charged or will be charged by suppliers that are paying penalties for not meeting the power requirements because of market conditions.

CMP, which no longer produces electricity, buys power from suppliers and sells it to commercial and industrial users under a standard offer price set by the PUC. Standard offer is a default rate charged to consumers who have not chosen another electricity provider to sell them power.

Under the rules, any utility ordered to sell power through the standard offer system can recoup through rates any of the costs of buying that power.

In its petition to the PUC, CMP estimates that between Aug. 1 and Feb. 28, when its obligations to provide standard offer service ends, it will face additional charges of almost $12 million from suppliers who are assessed the penalties.

About 9,700 commercial customers and 316 industrial customers in CMP’s service territory could be hit with increased rates, said CMP spokesman Clark Irwin.

Residential standard offer users in CMP’s service territory will not face an increase to cover the penalties. The standard offer rate is set through Feb. 28, 2002, and is sold through a supplier and not the utility. Under standard offer rules, suppliers cannot petition the PUC to recoup cost increases such as penalties.

Residential, commercial and industrial standard offer users in MPS’ service territory too are locked into a rate through Feb. 28, 2001. The PUC has tentatively agreed with suppliers on standard offer rates that go into effect March 1, and Welch said those new rates shouldn’t be affected by FERC’s ruling.

If electricity rates – and not transmission rates – are increased 2 cents for residential standard offer consumers in Bangor Hydro’s service territory, it will mean a $10 per month increase based on using 500 kilowatt-hours. Commercial and industrial standard offer users, too, will face increases.

So far Bangor Hydro has not decided whether to ask for an increase, said company vice president Carroll Lee.

“We’re aggressively opposing [FERC’s decision],” Lee said.

Planning to fight

Regionally, ISO New England, on behalf of the majority of regional power market participants, is evaluating FERC’s order to come up with a way to fight it.

“We’re not too sure about it,” said Ellen Foley, a spokeswoman for ISO New England, the governing board that oversees the operations of the New England power grid. “We’re still evaluating the order.”

In Maine, a meeting of state energy experts is tentatively scheduled for Tuesday at the PUC. Among the suggestions is to ask the state’s congressional delegation to pressure FERC to change its ruling.

A FERC spokesperson did not return a telephone call for comment. But the commission, in its ruling, stated that the penalty rate should encourage generators -the ones receiving the fine money – to build more power plants to meet daily consumer demand plus during peak periods.

“This charge represents an approximation of the cost to install a peaking unit [power plant] and represents a reasonable basis for setting a level to incent the construction of new generation,” FERC writes in its ruling.

PUC Chairman Welch, however, said there is plenty of power generation in New England, and more plants will be coming on line within a year. New England, he said, for the most part has enough power to meet demand.

It’s the suspicious actions of the owners of the generators on a national level that is affecting the New England market, Welch said, and FERC’s action only will hurt ratepayers in the region.

“The sin of this is there is no capacity shortfall here in New England,” Welch said. “FERC is startlingly inconsistent in its logic. I think the government has stepped in in a misguided way.”