Energy policy hurts economy

Maine politicians seem to work incessantly to try to outdo their counterparts in other states to be at the leading edge of politics du jour, which has resulted in the implementation of policies of little real value. The list is quite long – a tax burden among the highest in the nation, an abysmal business climate, health care costs relative to income greater than 90 percent of other states, environmental policies that smother development, comparatively low incomes and a state budget that cuts services to our needy citizens first. It is no more evident than in the state’s 25-year venture shaping Maine’s energy policy.

Recently, Gov. Baldacci outlined in this newspaper his policy and plans to achieve a goal of energy independence for Maine. In summary, he indicated that the policy would be to promote the use of more conservation, energy efficiency and renewable resources – the sun, wind, water and wood. He indicated that state government was already leading the way by using these means for the provision of energy at state-owned buildings and by promoting legislation which includes requiring similar measures for the rest of Maine citizens and businesses. Unfortunately, while seemingly harmless and laudable, this is merely the extension of an existing policy of governmental mandates and subsidies that have been disastrous for the Maine economy.

Consider the state energy policy over the past 25 years. In 1980 the Maine Legislature enacted laws that mandated subsidized electricity conservation and purchases of the output of nonutility generators (“NUGS”), like biomass, hydro and waste-to-energy power plants. Mandated electric conservation subsidies soon amounted to tens of millions of dollars annually and to high-cost purchases of renewable energy supplies comprising about 40 percent of the electricity supply in Maine by the late 1980s, compared with the average in the rest of the United States of less than 5 percent.

As a direct consequence, Maine’s electricity rates increased relative to the United States by 50 percent. This amounted to about a several hundred million-dollar annual increase in electricity cost for Maine people.

As a consequence, in the early 1990s there was a great outcry among Maine’s electricity consumers. Many energy-intensive industries struggled or shut down (in eastern Maine – LCP Chemicals, Great Northern Paper, Eastern Paper and others). Maine’s residential and commercial customers revolted and complained to the Public Utilities Commission. To try to stem the tide of discontent, electric rate caps were implemented and nonutility generator and conservation contracts were bought out (requiring hundreds of millions of additional dollars, some backed by state credit). While this stabilized electricity prices, costs remained very high due to the damage that had already been done.

In 1997 the Legislature, in a further attempt to reverse this disastrous venture, and particularly, at the urging of large consumers of electricity and unregulated suppliers – notably Enron, enacted new legislation (passed unanimously) that provided that Maine’s electric utilities would no longer be involved in providing electricity supplies – that consumers would be allowed to choose from competitive electricity providers. It was predicted that there would be many new low-cost suppliers from which to choose; the new law even prevented electricity marketers from calling at suppertime.

But the new law mandated that 30 percent of each supplier’s energy mix be composed of renewables and that utilities bill customers and give to the PUC millions of dollars annually so they could continue to provided subsidies for conservation programs. Maine utilities were required to sell their generation assets, including many valuable hydro power plants, Maine Yankee was shut down, and new natural gas-fueled generators were built by new nonutility generators. Alas, natural gas prices rose and set the electricity price benchmark in the new era of competitively priced electricity.

Competitively priced energy, particularly electricity, is a key to developing a prosperous, growing economy. Electricity provides the means to facilitate the automation of factories, service industries and learning institutions and to enhance productivity, all means to create income. To the extent that we adopt energy policies, however well intentioned, which increases its cost and therefore makes Maine’s economy less competitive, we restrict economic growth. Given the impact on electricity prices of past energy policies, as described above, is it any wonder that our economy is hurting in many ways? Or that governmental budget cuts are required, which puts a disproportionate portion of the burden on our most needy citizens?

Prior to leaving Bangor Hydro in 2002, I attended the governor’s conference on the Maine economy at the Blaine House, hosted by then Gov. Angus King. Interestingly, I sat with the new president of Great Northern Paper, Eldon Doody, a high school and college classmate and friend, who was in the process of selling Great Northern’s hydro assets to a Canadian firm in order to maintain liquidity for Great Northern. The thrust of the discussion at the conference was the poor business climate in Maine, caused by the tax burden, energy costs, health care costs and other adverse factors.

It was acknowledged that Maine could not fix these problems overnight but it was important to send a signal to the outside world that we were intent by taking visible actions now. I suggested getting rid of the 30 percent renewable energy mandate (which few at the conference were even aware of). Although many supported this and other ideas, nothing was done. Great Northern went into bankruptcy, my company was sold and the Maine economy continued to get worse. All of the hydro generation owned by the utilities and Great Northern is now being sold back to all of us at the same prices as natural gas generation (you’ll see it in your March electric bills). And, Maine politicians continue to blather on about the benefits of having a Maine energy policy.

Maine is a poor state. It cannot afford energy policies out of line with the mainstream. It cannot solve the world’s environmental problems on its own. Trying to do so has harmed the economy and the people of Maine enormously. More of the same, as suggested by Gov. Baldacci, will just dig a bigger hole. Augusta politicians should stick to their jobs of reducing the tax burden, increasing government efficiency and eliminating barriers (including energy subsidies and mandates) to business expansion in Maine. And, use some of the savings to assure vital services to citizens.

Carroll Lee of Brewer is the former president and chief operating officer of Bangor Hydro.