Businesses rail at Hydro rate proposal

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BANGOR – Bangor Hydro-Electric Co.’s proposed rate change for some of its commercial customers is stirring up heated debate from the businesses that would be affected.

The company proposes to charge medium and large companies based on their peak demand for electricity rather than on the overall amount of power they use.

But businesses such as Eastern Maine Medical Center in Bangor and Lincoln Paper and Tissue in Lincoln that rely on Bangor Hydro power as a backup for their own, self-generated power are outraged that they would have to pay year-round for services they might demand rarely.

“We view their rate design proposal as detrimental to us partly because it would punish us if for the short amount of time we had to buy some power,” said Keith Van Scotter, president and CEO of Lincoln Paper and Tissue.

Seasonal businesses such as restaurants, hotels and agricultural processing plants that some months use Bangor Hydro-supplied electricity in large amounts and some months use very little, are also upset.

“We have a lot of properties that are seasonal. Bangor Hydro is going to take our peak demand and make us pay for it when we’re not in that season,” said Dick Grotton, president and CEO of the Maine Restaurant Association.

Under the present rate structure, for instance, Bangor Hydro might charge about the same amount for delivering power to two very different companies that end up using the same amount of energy over a year. But one company might use a consistent amount of electricity, such as a range of 500 to 600 kilowatts of power daily, while the other might use less power most of the time, such as a range of 300 to 325 kilowatts daily, but require bursts of energy as high as 3,000 kilowatts at certain times of the year.

Bangor Hydro officials say that it needs less infrastructure – equipment such as power lines, transformers, substations and service vehicles – to provide power to the first company than the second.

With its rate request to the Maine Public Utilities Commission, Bangor Hydro proposes charging its medium and large commercial customers based on the infrastructure required to serve each business.

“Customers like EMMC and self-powered paper mills may not need our services for months, until their generation plant goes down. Then they’ll need 5 megawatts of electricity from us, and we have to be ready and constantly supply infrastructure for that,” said Jeff Jones, manager of rates and regulatory services at Bangor Hydro.

The public hearings on the rate change proposal, which was filed with the PUC in September 2005, concluded last week. The commission is expected to issue its decision by the end of the year.

The proposed rate change would affect only Bangor Hydro’s 1,500 medium and large commercial customers – about 1 percent of its 116,500 customers. But those relatively few customers use 40 percent of the power Bangor Hydro distributes.

The plan would not affect any residential customers or small businesses using less than 25 kilowatts of power at any given time. Jones said the intention is to shield small businesses and residential customers from paying for large commercial infrastructure demands.

Bangor Hydro categorizes its large commercial customers as those that demand more than 500 kilowatts at any given time. A medium commercial customer is one that uses more than 25 kilowatts at any given time, according to Bangor Hydro.

If passed, the rate structure changes would be phased in over the next six years and would not bring additional revenue to Bangor Hydro, the company said. The rate restructuring would simply redistribute the costs more fairly among its existing medium and large commercial customers, according to Bangor Hydro.

Bangor Hydro said more than 40 percent of its 1,500 large and medium commercial customers would see a decrease in their electricity bill. Another 42 percent would see an increase greater than 3 percent a year and greater than $25 a month, Jones said.

At the end of the six-year phase-in, the impact of the rate change on its medium-size business customers would range from a decrease of $42,099 in annual energy costs to an increase of $45,486, according to Bangor Hydro. Large business customers would see anywhere from a decrease of $165,375 in annual electric costs to an increase of $294,789.

Affected customers predictably are lining up on either side of the issue. If approved, the rate change also could undermine a state policy aimed at encouraging alternative energy facilities.

Chris O’Brien, communications specialist at Eastern Maine Health Care Systems, the parent company of EMMC, said the hospital has not yet calculated the increased electric bill it might see if the proposal is approved. But O’Brien said if Bangor Hydro’s rate structure changes, EMMC would face a “significant reduction” in the energy savings it hoped to create when it built its $8.4 million combined heat and power plant to run its State Street hospital. The 4.6-megawatt facility power plant, which went on line in September, was supposed to save $1 million annually by reducing the hospital’s dependence on Bangor Hydro. Jeff Mylen, director of special projects for EMMC, said the hospital paid $2.8 million in Bangor Hydro electric bills in the past year.

Combined heat and power, or CHP, plants also are known as cogeneration systems. They make use of heat that would be wasted in conventional electric generating plants.

EMMC and other customer opponents of the rate change say the proposal is a reaction to, or punishment for, EMMC’s decision to build the plant and rely less on Bangor Hydro.

Jones said Bangor Hydro has considered restructuring its rates since electric deregulation took effect in 2000, but the need to restructure became more urgent when EMMC built its plant.

He acknowledged that the proposed rate structure would make it harder for companies to justify self-generation, but he said that was not the intent.

“We have no problem with cogeneration,” Jones said. “We just need people to pay for what they are demanding of us.”

But Glenn Poole, energy manager for Verso Paper in Bucksport, believes, “What they’re proposing is for the sole purpose of preventing customers from installing their own generation.”

Though Verso is a customer of Central Maine Power Co., Poole said the mill is contesting the change for fear CMP and other utilities will follow suit.

Janet Waldron, vice president for administration and finance at the University of Maine, said the university has been considering building its own CHP facility.

“If [the proposed rate change] passes, it would have a dampening effect should the campus in the future want to convert to cogeneration,” Waldron said.

Bill Beardsley, president of Husson College in Bangor, said he is in favor of the new rate structure, both because Husson likely would see a decrease in its energy bill and because, he said, “it’s what’s right.”

“Somebody has to pay the bill [for infrastructure]. And the residential people are held harmless on this. If the large companies are benefiting from the present bill, then other companies are not,” Beardsley said.

When asked, Beardsley said Husson College is not large enough to consider building a CHP plant.

EMMC received a $3 million federal grant to build its plant, and the state Department of Environmental Protection encouraged companies to consider building CHP systems in its Maine Climate Action Plan of 2004.

Beth Nagusky, the governor’s director of energy independence and security, said Bangor Hydro’s proposed rate change is in conflict with the action plan.

Nagusky said utility regulations may need to be changed to encourage CHP plants but costs might have to be transferred to other customers, which is what she understood Bangor Hydro wants to avoid.

“That’s the tension that’s been playing out in this case,” Nagusky said.

Maine public advocate Steven Ward said he thinks Bangor Hydro is overreacting to the current loss of revenue from EMMC.

“We have a federal policy that encourages self-generation, but I don’t think we’re going to see $3 million grants handed out again soon in Bangor. I don’t see the urgency that Bangor Hydro sees,” Ward said.

Peter Daigle of Lafayette Hotels and Grotton of the Maine Restaurant Association said if the rate change is approved by the PUC, hotels and restaurants statewide likely will see higher bills.

But Suzanne Goucher, president and CEO of the Maine Association of Broadcasters, said the rate change would be welcome statewide. The association represents more than 100 licensed television and radio stations across the state that use power consistently year-round.

“This is the first thing we’ve seen on the transmission and distribution side that would indicate a lowering of costs,” Goucher said of Bangor Hydro’s proposal.

Rob Reeves, CEO of Bangor YMCA, said his facility may see lower bills but the seasonal summer camps it owns might not benefit. Still, he remains a proponent of the proposed change.

“We are a heavy user of electricity like anyone else,” Reeves said. “This would be a motivation for us to monitor our usage and try to maintain it at a fairly consistent level. We certainly would welcome that change.”

The PUC describes its criteria for judging the case to be “whether or not the rate change is just and reasonable.” It is expected to make a decision by the end of December, and could accept or reject the proposal outright or recommend amendments.

All documents filed with the PUC in regard to the case can be found at: www.maine.gov/mpuc/