FERC sets energy penalty Consumers may see higher electric rates

State energy officials, consumer advocates and utility company executives Wednesday were unanimous in their disappointment with a Federal Energy Regulatory Commission decision that could wind up costing electricity consumers in Maine $100 million or more through higher electricity costs.

Those increased electricity rates, according to Maine Public Utilities Commission officials, could translate into an increase in standard offer rates of between 0.7 cents and 2.5 cents per kilowatt-hour in the Bangor Hydro-Electric Co. service territory. For Bangor Hydro residential customers using an average of 500 kilowatt-hours per month, their average monthly bill of $83.55 could jump to as high as $96.05.

The much anticipated decision relates to the installed capacity, or ICAP, deficiency charge applied to suppliers that don’t make ICAP payments to generators in the New England Power Pool, or NEPOOL.

Residential customers in the Central Maine Power Co. region are protected from the price hikes as the energy supplier in their region agreed under contract to bear the risk of the ICAP penalties. Maine Public Service Co. customers also are shielded from the penalties because the utility company isn’t a member of NEPOOL.

Under rules established for NEPOOL, the companies that purchase power for resale to customers in New England must make ICAP payments to generators in the region. The payments are designed to provide electricity generators with the capital necessary to make additional investments in new sources of generation to cover peak demand in the area. Yet critics say there is no requirement that generation companies actually use the ICAP money to build new generation.

The term “installed capacity” reflects the maximum possible usage of electricity in any given region of New England, and is central to the cost of ICAP payments in that area. The amount of ICAP that suppliers must buy is determined by the peak usage of power in their region. Generation companies selling ICAP set the price for that coverage through the open market.

But not everyone is convinced the market is competitive enough to keep the cost of ICAP low. Robert Briggs, president of Bangor Hydro, said Wednesday that he has seen no evidence that the ICAP market – or the electricity supply market in general – is capable of lowering prices.

ICAP prices, which had been fluctuating around $3 per kilowatt-month, rose to about $3.50 per kwm Wednesday on news of the FERC decision. A kilowatt-month is a unit of measure related to the number of kilowatt-hours needed to supply a set amount of power per month.

“This market, in my judgment, hasn’t worked yet,” Briggs said. “I am skeptical that [ICAP charges] are going to be at the low end of somewhere between zero dollars and $8.75.”

New England regulatory officials and suppliers had advocated a 17-cent per kwm charge for ICAP deficiency penalties, while energy generation companies pushed for the $8.75 per kwm mark. In December of last year, FERC ordered that the $8.75 penalty be put in place, and also made it retroactive to August 2000.

New England officials immediately filed for a rehearing, saying the charge was too high and that the retroactive portion of the order was unfair. FERC granted a stay of the order and placed the request for a rehearing on its agenda. On Tuesday, FERC eliminated the retroactive portion of the order but kept the $8.75 penalty in effect. In issuing the order, FERC commissioners wrote that there just wasn’t enough available information to justify using a 17-cent per kwm penalty. Without that information, the FERC commissioners said they had to set the penalty at $8.75 per kwm.

Donald Sipe, an attorney for the Augusta-based Industrial Energy Consumers Group who had advocated the 17-cent penalty, said Wednesday that he was frustrated by the FERC decision. He also took issue with the FERC statement that there wasn’t enough evidence to support a 17-cent charge.

“I don’t know what further information they’re looking for,” Sipe said, “but we’re very disappointed by their order. Our estimation is that this could cost residential customers about 3 cents for every kilowatt-hour they consume.”

Thomas Welch, chairman of the PUC, said Wednesday that the commission wouldn’t immediately move to increase the rates because of FERC’s decision. The panel, Welch said, would likely wait about half a year to see where the market price for ICAP finally settles before reassigning the standard offer rates. “We certainly wouldn’t review rates until the middle of the year,” Welch said. “I think people deserve a break.”

Dave Lackey, spokesman for Sen. Olympia Snowe, said Wednesday that Maine’s congressional delegation was disappointed by the $8.75 penalty but also was encouraged that FERC eliminated the retroactive portion of their December order. The penalty set by FERC, Lackey said, “includes New England with power producers out West who are in a different situation.”

Lackey said Snowe hopes to work with New England officials and Independent System Operator New England – the agency charged with monitoring and supporting the sale and transmission of electricity in New England – to submit additional information to FERC. At some point, Lackey said, Maine’s congressional delegation hopes to convince FERC that the ICAP deficiency rate isn’t needed in the New England market.

Mark Ishkanian, CMP spokesman, agreed with Lackey’s assessment, adding that there is a chance that FERC will either reduce the ICAP penalty or eliminate it altogether. The penalty, Ishkanian said, “is a dark cloud on the horizon. But there are more chapters to be written in this battle, and we hope that reason will prevail.”

Stephen Ward, Maine’s public advocate, said Wednesday that while some may say the elimination of the retroactive portion of the order is good news, the totality of FERC’s decision is “clearly bad news.” The increased ICAP penalty, Ward said, simply means that many Maine electricity consumers will end up seeing higher energy bills.

“It will impose costs on just about any customer who isn’t completely protected by supplier contracts,” Ward said. The ICAP charges, he said, “really end up being a subsidy for a small number of [generators] in a dysfunctional market. I can’t think of any way, at this point, of making [ICAP charges] usable or rational.”

But FERC commissioners, in writing their order, said that the ICAP charges are essential to bringing new sources of electricity to the New England region. In addition, the commissioners disputed the charge that New England already had enough generation in place and therefore didn’t need the ICAP charges or expanded generation.

“While some have argued that the value of [the] ICAP [program] is low because the amount of generation is sufficient,” the commissioners wrote, “our recent dealings with New England do not demonstrate an excess of supply over demand.”

The high ICAP charges, the commissioners acknowledged, will have painful effects on some electricity consumers. Yet they insisted that the creation of additional generation would result over the long term in lower energy prices through an ample amount of supply.

However, Ward said he is concerned about people who simply cannot afford current electricity bills – especially those on limited Social Security incomes. “Those are the people who are really vulnerable,” Ward said.