PAYING FOR POWER

When you’re part of a cooperative, there are positives and negatives. Maine experienced a major negative last week when the Federal Energy Regulatory Commission approved a new pricing plan to fund the building of new electricity generating facilities in New England. Because growing demand for electricity is greatest in southern New England, Maine residents will pay higher rates to help pay for new facilities to serve other states. Maine has fought this outcome for more than a year, and while FERC acknowledged the objections, it ruled that the new system was the best approach for the region.

The state must now decide whether to appeal the ruling to federal court. It has a good argument that Mainers shouldn’t have to pay as much as Connecticut and Massachusetts residents to cover the cost of building new generation facilities – which are more likely to be built here because of the state’s energy resources and its open spaces – and the power lines needed to export the electricity to where it is needed.

The problem with this reasoning is that electricity readily flows across state borders. Maine currently produces more power than it needs. With its heavy reliance on natural gas and the uncertainty in that market, Maine could end up importing electricity from other states or Canada. That is why the state is part of the New England Power Pool, also called ISO New England. It is ISO New England’s job to ensure that is adequate electricity for the region and that it flows to where it is needed when it is needed. The Public Utilities Commission is currently researching the pros and cons of leaving ISO New England, a move that would come with a lot of costs and likely result in Maine partnering with other states or Canadian provinces, where its interests may again take a backseat.

In the current case, several southern New England power companies appealed to FERC in 2003 over contracts that require older, less cost-effective power plants to stay open because the power they produce is needed. FERC rejected this approach saying it interfered with the competitive market and sought a new pricing system. The result, after more than a year of negotiation, is the order issued Friday.

FERC Chairman Joseph T. Kelliher summarized the problem with these numbers: last year New England added a total of 11 megawatts to its regional electricity supply. At the same time, peak demand rose by 2,700 megawatts.

To close this gap, the commission’s pricing plan moves to an auction system whereby power generators will be able to bid for the right to build power plants. A big problem, according to Kurt Adams, chairman of the Maine Public Utilities Commission, is that the prices won’t be adjusted to accurately reflect surpluses or deficits in particular locations. If companies do not receive more money to build facilities in states with high demand and limited supply, they are likely to build in Maine because the state is more welcoming to such infrastructure. Maine residents will then be required to help build new transmission lines needed to get the electricity from Maine to Connecticut. Worse, Maine residents won’t get lower power rates because the electricity is generated nearby. The PUC estimates rates will increase 6 percent for residential customers and 10 percent for medium and large users over a four-year transition period.

The decision, while bad for Maine, at least for now, aims to ensure the region has enough electricity. That’s how the cooperative works.