POWER SHARING

One of the more intriguing developments to come out of last week’s summit of New England governors and eastern Canada premiers was the decision to pursue the joining of the region’s electrical systems. Such a merger, all the leaders agreed, could advance cross-border cooperation and, the New England leaders hoped, perhaps defeat their federal government’s plan to merge their electrical system with New York’s.

This well-intentioned plan has two flaws. The first is that the U.S.-Canada record on cross-border cooperation is spotty, but with a distinct pattern. The two countries work nearly as one on global issues, such as a war on terrorism, but the unity unravels as the issues come closer to home and involve economic matters in which one country’s gain is the other’s loss – such as softwood lumber, fishing, natural gas and tariffs on shoppers. Electricity is such an issue.

The two countries are, of course, far too civil to let economic differences turn too ugly, so the usual sequence is to hold meetings, conduct studies and publish reports, but not to produce tangible results. Thus the second flaw – while all this distraction is going on, the New England-New York merger would be consummated.

The tone of the New England governors at the summit was angry, and with good reason. The Federal Energy Regulatory Commission is committed to enlarging power marketing regions through such mergers as proposed for the New England and New York systems in the belief that larger marketing regions will result in greater efficiencies and lower costs. FERC is pursuing this course without even perfunctory consultation with the affected regions even when, as in this case, New England would be harmed, perhaps for a few years, perhaps longer, and New York would benefit.

The reason is that, in this government-mandated sharing, New York would get most of its power from base-load sources in New England, while the power coming the other way would mostly be from peak-load plants in New York. The difference in the efficiency of these plants and in the cost of the power produced would, according to a projection done by the two systems, benefit New York consumers by $282 million in 2005 and harm New England’s by $62 million. The disparity evens out by 2010, according to the projection, because it is assumed additional base-load plants would be built in New York by then. Given the uncertain economy and the increasing difficulty of siting power plants in densely populated areas, that is a whale of an assumption to make.

The New England governors should pursue this cooperative venture with Canada, not as a defense against the New York merger but as an addition to it. In fact, the melding of one region – New England-Eastern Canada – where electricity demand peaks in the winter, with one – New York – where the demand is insatiable in the summer, would be a model of efficient power sharing.

The governors must not, however, let this Canadian project, with all of its potential for long, drawn-out fruitlessness, distract them from their larger issues with FERC. The projected harm to New England, even if just for a few years, is entirely unacceptable and the assumed remedy of additional power plants in the future may be little more than wishful thinking.

Since FERC is unalterably committed to mergers and since the projected benefit to New York is nearly five times greater than the projected harm to their region, the New England governors must insist that the federal agency restructure this merger to prevent any harm whatsoever. That 5-to-1 ratio of benefit to harm provides plenty of room for an adjustment – say, a temporary tariff on New England power exports to New York with the proceeds rebated to consumers and ending when those new plants are built – that would protect New England while still allowing New York considerable benefit. FERC no doubt would object that such an adjustment is government intrusion into the marketplace. Much like the government forcing a merger one partner does not want, the governors should reply.