A HOLD ON POWER

Federal electricity regulators made two smart moves this week when they delayed a new rate plan to pay for power-plant capacity in New England and scheduled a hearing on the plan for September. Maine’s interest is in making sure that capacity remains reliably available while avoiding the kind of price increases envisioned by the regulators.

The Federal Energy Regulatory Commission said the rate changes in ISO-New England’s “Locational Installed Capacity Proposal” would not begin before October 2006 if they occur at all. The plan is designed to chop New England into zones – Maine would be its own zone – and set rates within those zones that encourage electricity generators to build enough power plants to meet expected peak demands. But while committing more ratepayer dollars to generators, the plan contains few obligations for those generators to actually build more power capacity or have that capacity ready when supplies tighten. It also does nothing to encourage investments in energy efficiency, which is much less expensive than building new plants.

Maine, because of several natural-gas plants built in the 1990s, has more than enough capacity for now but its generators may not be receiving enough through rates to pay for the infrastructure. That’s a problem that should be solved, but not through LICAP, which would raise rates 24 percent regionwide and cost Maine $900 million over five years. As Rep. Tom Allen, a member of the House Energy and Commerce Committee, pointed out, that “would be disastrous for Maine families already trying to pay utility bills and for Maine businesses in competition with companies in other states where electricity is cheaper.”

The New England Conference of Public Utility Commissioners yesterday submitted an alternative to ISO New England’s plan. Without actually endorsing the idea, the commissioners suggest regulators consider an approach that stresses competition in the market over setting prices administratively. That would require, for instance, annual auctions in which multi-year contracts cumulatively meet energy demands but blend prices from over three years. The proposal would require that sufficient energy sources be developed and energy efficiency be promoted.

Such a plan is worth a detailed analysis – one that ISO New England has just consented to do – before regulators decide on any new system for meeting capacity costs. FERC was correct to recognize that the high existing costs for power here and rising fuel costs demand the region move carefully in adopting any new energy strategy, especially of the sort LICAP represents. The hearing next month should provide regional utility commissioners with a chance to find a better solution.