PRICE OF POWER

Maine is among the few protesters of more than a hundred entities that earlier this year agreed to a plan designed to ensure New England would have adequate, well-sited power plants for the coming decades. Though the framework of the deal is complicated, the state’s complaint is straightforward and reasonable: It doesn’t want Maine ratepayers to be forced to provide an ineffective and overly generous windfall to power companies.

The new rate design, called “forward capacity market,” is supposed to build, over several years, a more market-based system through an auctioned price for capacity. What hurts Maine particularly is the transition to that market, in which during the next four years power generators in New England would be paid a total of $2.8 billion to maintain or expand generation. Maine’s portion of that bill is estimated at $300 million.

If the public power companies still held Maine’s generation, the cost wouldn’t matter nearly as much. But because the state followed the Federal Energy Regulatory Commission’s urgings in the 1990s to restructure by selling off that generation, the $300 million goes everywhere but to the Maine public. FERC led Maine to this point by encouraging restructuring, then penalized it for having listened, while states that ignored FERC got off easier.

That’s not the reason to oppose the deal, but it should have at least persuaded FERC to reconsider whether this substantial tax was reasonable. For instance, the payment goes to all generators, whether they are in financial trouble or not, and many are doing just fine. The payment also doesn’t distinguish between locating a new plant in a high-cost region and in a less-expensive one. By failing to do that, it lacks an incentive to promote new power in the most congested areas in New England.

More, the current price per kilowatt-month is around 50 cents, according to the Public Utilities Commission. The transition would move it to $3.05 kWm and then to $4.50 kWm. Energy prices may be overly depressed right now because of surplus capacity, but a six- or nine-fold increase handed out no matter a company’s financial condition looks more like a payoff than an incentive.

Maine is appealing the FERC decision but it could well lose – courts usually respect the decisions of federal agencies. If it does, lawmakers will look again at leaving the regional organization. The decision should be made with a view of the long-term benefits and costs. If it works as designed, the forward capacity market would smooth out price volatility, a benefit to both producers and consumers.

Whether that is worth $300 million is doubtful.