Expanded power grid mandated FERC says 12 states must form new market

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BANGOR – Federal regulators on Wednesday told New England that it will have to join its six neighboring southern states and form one power grid.

The Federal Energy Regulatory Commission, which regulates wholesale electricity markets, has directed 12 states – from Maine to the Virginia border – to set up one board to be responsible for the wholesale electricity market and the flow of power through the lines.

For New England power users, comfort in knowing that they have extra electricity in reserve for heavy consumption days during the summer and winter may be lost. Some of that reserve could be shipped to New York, Pennsylvania or other states with a higher concentration of users to help them out during those extreme times.

“It may mean some dilution of the strength of the New England market,” said William Nugent, a member of the Maine Public Utilities Commission.

FERC dismissed suggestions by ISO New England, the governing board of the six-state power grid, on the best way to set up a regional transmission organization to watch over the grid and its pricing policies.

“Apparently FERC wasn’t persuaded by what we said,” said Nugent. “This may be good, this may be bad. Our concern is that ratepayers not be harmed. I’m not sure what the impact will be on the markets.”

New England was not the only region directed to set up a regional power market. By unanimous votes, FERC told overseers of power grids in the South to do the same thing. A mediator will help the regions develop the new power market systems.

FERC has maintained that large, regional power management organizations are necessary if electricity is to flow freely in a competitive national marketplace.

“The actions will go a long way toward facilitating … more efficient regional power markets,” said Lynne Church, president of the Electric Power Supply Association, which represents independent power producers.

What’s upsetting to New England overseers is that FERC asked them and the southern states in December 1999 to meet certain criteria in putting together the regional transmission organizations. At that time, it suggested that new overseers and rules be put into place that would ensure that the public benefited from competition.

In January, ISO and six transmission companies, including Bangor Hydro-Electric Co. and Central Maine Power Co., told FERC that its objectives could be met by two groups. The first, ISO New England, would administer the wholesale pricing markets, and a second, a to-be-created Northeast Independent Transmission Co., wouId oversee the transmission lines.

The New England Power Pool, currently composed of power generators, transmitters, state regulators and consumer groups, would have a modified role in making rules for the electricity market. Under ISO’s proposal, steps would be taken to make sure power flowed freely between New England and New York and that the market conditions and rules be similar.

Nugent said those conformance standards were being worked out. FERC, he said, just isn’t giving regional groups enough time to do what the federal agency asked them to do.

On Wednesday, FERC said it disagreed with ISO’s plans and asked that the 12-state board be established. FERC, however, has not issued its final order on its recommendation, and market participants do not know yet how they will do it.

Ellen Foley, a spokeswoman for ISO New England, said her organization was disappointed that FERC did not accept its filing. “Our filing satisfied all the criteria that FERC wanted,” Foley said. “We believed our filing was in the best interest of New England consumers.”

For Maine consumers, the voices that speak for their interests at regional power grid meetings may be softened or not heard at all when the room is filled with more participants from more states.

“If you get a really large and unruly government structure it may be more difficult,” said Donald Sipe, an attorney for the Industrial Energy Consumers Group, a coalition of high-volume power users. “It could leave Maine as the tail wagging behind the dog. Maine could become a very small state.”

What is unknown about FERC’s ruling is who would have a larger role when one governing board is established. Concern exists among regional overseers that power generators would have more of a say when establishing a price for the electricity they produce.

Late last year, FERC sided with power generators who sought higher fees for installed capacity, or ICAP electricity. This is power suppliers are required to have in reserve in case it is needed during peak demand times. Suppliers have contended that the generators are holding back on the amount of electricity they will sell, thus forcing them to purchase ICAP electricity and pay the higher fees. The money then goes to the generators, and suppliers pass them on to consumers.

Estimates on how much the high fees would cost New England consumers have reached $2 billion.

But last month, the 1st U.S. Circuit Court of Appeals ruled that FERC and the generators must re-examine the high rate and, if possible, determine a lower rate. FERC is expected to come up with that amount later this month.

With FERC’s decision Wednesday, the possibility exists that ratepayers eventually could spend less money for their power. By establishing one board, up to three market governing groups that oversee prices among the 12 states are eliminated. Each board charges its own administrative costs when evaluating whether to sell the electricity among the states.

“It should make the market more liquid,” Sipe said.

New England currently sells electricity to its southern neighbors as a part of normal operations. But the system gets stretched during peak demand periods, usually when weather conditions are extreme. Those periods could test the new system.

Two years ago, New England experienced three power warnings when electricity usage threatened to take up all of the available supply. On June 7-8 and June 28-29, power was imported from New York, Quebec and New Brunswick to ease the crunch.

But during the third warning on July 6, when a record for power consumption was set, no electricity was available to import to New England. ISO initially sent some to New York to help out there, but later asked for it back. The next day, when temperatures were cooler in Maine, states including Pennsylvania, Maryland and New York were under the threat of rolling blackouts. New Jersey had issued temporary service interruptions in several areas to avoid widespread power outages.

This year, because of new generators online, New England has not experienced power warnings because of the availability of extra electricity, despite new records being set for power consumption.

The Associated Press contributed to this report.