In recent weeks, much debate has taken place over a planned cogeneration plant at Eastern Maine Medical Center. EMMC estimates that the project will save them $1 million a year in energy costs while Bangor Hydro asserts that the project will cost the hospital $500,000 a year while adding $800,000 a year to other utility customers’ annual bills. How can there be such disagreement?

The truth is that Bangor Hydro-Electric has a vested interest in understating the benefit that their customers realize from generating their own electricity. Like any business, it is in BHE’s interest to malign their competition. However, BHE is not just any business: They are a regulated monopoly, and their business environment is created not by market forces, but by the decisions of the Public Utility

Commission.

When Ford claims that their products are better than Toyota’s, individual customers are free to examine the data supporting the claim to make individual decisions. By contrast, BHE need only convince a few commissioners that they are the optimal supplier of all electricity consumed in their region to gain approval for anti-competitive rates and/or policies. It takes only one bad decision by one commissioner to effectively preclude the right of all electricity consumers to benefit from competition. Vigilance therefore demands that we pay close attention to utility claims of cost-causation.

On this basis, BHE’s assertions simply don’t add up. BHE claims that “the public savings are questionable” from the proposed plant. Let’s test this claim: The average central power station typically costs $500 to 1,000 per kilowatt of installed capacity to build, and operates at 33 percent efficiency, meaning that for every $1 of fuel purchased, it must earn at least $3 of revenue just to cover its operating costs. (To BHE’s credit, much of the generation they control is gas-fired combined cycle technology with an

efficiency closer to 50 percent.)

Energy that is not used to make electricity is simply thrown away. According to the Federal Energy Regulatory Commission, the transmission and distribution required to connect that power plant up to an electric consumer adds another $1,300 per installed kilowatt, and typically loses 10 percent of the power put in at the generating station before it gets to an end user. Thus, the overall central power grid produces just 3 units of useful electricity for every 10 units of fuel purchased, and costs $1,800 to $2,300 per delivered kilowatt of electricity.

By comparison, the EMMC project will add 4,600 kilowatts of power production with an 80 percent efficient cogeneration plant for a total cost $7 million, or $1,500 per installed kilowatt. They will recycle the energy that is not recovered as electricity into heat for the hospital, thereby squeezing as much value as possible out of every dollar of fuel they purchase. There is no incremental transmission and distribution investment required, nor associated losses since the electricity is generated at the point of use. Thus, EMMC will purchase less fuel to make power than BHE requires, and use less expensive capital equipment to do so. It should come as no surprise to anyone that this results in annual energy savings – $1 million/year by EMMC’s analysis.

This ought to be the end of the story. If I can make a product with lower capital and operating costs than you can, then it will be cheaper for me to make that product myself than to buy it from you. There is no question about the public savings that will be realized by this project outside of BHE’s public statements.

BHE also claims that the EMMC project will not enhance the hospital’s reliability because “the region already has excess electric capacity.” This is a gross misrepresentation of electric reliability. Ice storms don’t knock down generation plants, they knock down distribution wires.

Transmission bottlenecks played a critical role in last year’s Northeast blackout as well, in spite of ample generation. So long as BHE remains dependent on those wires to get their product to their customers, on-site generation will enhance local reliability.

Ultimately, there is more to this story than a particular Bangor hospital. Utilities nationwide are struggling to grow their revenue base now that it is possible for so many of their customers to produce power locally that is cleaner, cheaper and more reliable than that provided by their utility. Furthermore, the steady penetration of these technologies is providing hard data that directly contradicts the theories put forth by utilities like BHE about local power generation. Consider:

1. Maine currently has 810,000 kilowatts of known cogeneration facilities in operation, which generates approximately one-third of the power consumed in the state. Much of this total is owned and operated by electric users, including paper mills, colleges and hospitals. More than any other state, Maine depends on these non-utility power sources to keep the lights on throughout the region. One need only ask what would happen if these power plants shut down to realize the flaw in BHE’s apparent belief that blocking competitive power sources will benefit Maine’s electricity consumers.

2. Nationally, there have been 77 million kilowatts (enough power to serve approximately 25 million U.S. households) of cogeneration installed since 1982, or about 8 percent of total U.S. electric consumption. During that period, inflation-adjusted retail electric rates have fallen by 29 percent, calling into question BHE’s assertion that if cogeneration were to be installed in Bangor it would drive up rates by $800,000 a year. It is of course possible that the rest of the country is doing their math wrong and only BHE truly understands the economic impacts of local, efficient generation. But isn’t the alternative more likely?

If this project goes forward EMMC will save money, reduce emissions and boost local power reliability. It is tragically ironic that the utility – who has been entrusted by the public to maintain an affordable and reliable power system – is working so hard to prevent them from doing so. This speaks volumes about the nature of our electric regulatory system, and gives the decision on this issue significance well beyond EMMC.

Does Maine support clean power and competitive markets (even if it means that BHE might lose some money), or do they support the protection of BHE’s revenue base (even if it means that Maine’s consumers will pay more for dirtier and less reliable electricity)? We shall soon find out.

Sean Casten is policy chair of the Northeast Combined Heat and Power Initiative. Larry Ambs is NECHPI education chair. NECHPI encourages the implementation of CHP technologies and drives CHP roadmap actions items for the Northeast region in support of DOE’s and EPA’s goal of doubling CHP use by 2010. NECHPI provides for coordination and communications among the various stakeholder organizations in the region, including federal agencies, state agencies, utilities, project developers, equipment manufacturers, CHP users, universities, research institutions and public interest groups.