High energy | Depending on who you ask, quitting ISO New England will either save us plenty or cost us even more

There’s been lots of talk lately about the high cost of oil, but the burning energy issue facing Maine is electric. After years of increasing electricity rates, the Legislature last session directed the Maine Public Utilities Commission to decide by January whether the state’s largest utilities should withdraw from the regional nonprofit some say is to blame for all the hikes.

If Maine does opt out of ISO New England Inc., it will mimic southeastern states that direct their own energy consumption and expansion, or it could link with the Canadian Maritimes in what The Telegraph Journal of New Brunswick in 2006 said “might be the first test case of the Atlantica concept.” It would be a bold move that could either save Maine energy consumers hundreds of millions on their energy bills or tack billions on, depending on who you ask. Figuring out whose version of the future to trust will occupy Maine’s PUC through the fall.

A future as an alternative energy exporter must be foremost to the debate, says Art Holland, vice president of Pace Global Energy Services, an energy consultant based in Fairfax, Va. Maine has unique access to renewable energy sources like wind, hydro and biomass, and will be poised to market that energy supply as the country shifts away from relying on fossil fuels. But if Maine severs some or all of its ties with ISO, it may not have the means to send that energy out of the state to market.

“If you are not a member of ISO, it may be more difficult for independent power producers to raise the capital for power projects in general in Maine,” Holland says. Staying with ISO, all told, is “a more business-friendly environment.”

Maine’s two largest electric utilities, Central Maine Power Co. in Augusta and Bangor Hydro-Electric Co. in Bangor, are the Maine members of ISO New England. CMP already submitted testimony to the PUC asking the state to remain in the organization in part because staying put means the ISO members will likely pay the bulk of CMP’s ambitious $2 billion plan to upgrade transmission lines built in the 1970s. Bangor Hydro has not recommended withdrawing or staying, but has asked the PUC to study the cost of withdrawal and is concerned about saddling consumers with the full cost of upgrades should the state go solo.

How withdrawing from the ISO would impact infrastructure upgrades has emerged as a main point in the debate, and Tony Buxton, a lawyer for Preti Flaherty in Augusta, believes CMP’s urgent push for upgrades is a smokescreen to capitalize on ISO revenue. Buxton represents the Industrial Energy Consumers Group, a collection of several 24-hour industrial users, including Verso Paper, whose Maine mills are located in Jay and Bucksport, and the paper and plastics manufacturer Huhtamaki Co. in Waterville, that are pushing for Maine to break nearly all of its ties with the ISO and operate independently.

“What CMP is demonstrating is the cocaine factor of the ISO’s transmission policy,” explains Buxton of his belief that ISO’s price-sharing scheme encourages costly reliability upgrades. “What the ISO is doing is getting lots of people to build transmission they don’t need.”

Sharing the cost of necessary transmission infrastructure upgrades is one of the ISO’s main purposes, and since it was founded more than a decade ago, Maine received ISO funding for four projects, including 2007’s $144 million upgrade to the New Brunswick-to-Orrington transmission line. Under the sharing formula based on the amount of energy consumers in each state use, Maine is obligated to pay 8.4% of the cost of approved upgrades in the ISO member states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. Central Maine Power’s contribution to New England states’ upgrade costs rose from $3.2 million in 2006 to $11.3 million last year because of transmission upgrades made elsewhere in the region, according to the trade journal Electric Utility Week. Those projects include the $21 million upgrade to a 21-mile Connecticut power line completed in 2006.

But, even if opting out looks promising, whether alternatives to ISO make better sense for Maine consumers remains murky.

Out of the pool?

New England has relied on regional cooperation to secure and distribute energy since 1971, when the New England Power Pool was formed in part to ward off power outages like the Great Northeast Blackout, which left thousands of residents without power on a cold November night in 1965. NEPOOL created a regional power grid with more than 300 generating plants and 8,000 miles of transmission lines. In 1997, the Federal Energy Regulatory Commission created another energy body — the nonprofit independent system operator, or ISO, New England, based in Holyoke, Mass. — to ensure the reliability of the region’s energy supply and to make sure the wholesale electricity market in the region is competitive. More than 300 utilities, brokers and other market participants in the region are members of ISO, and the nonprofit oversees more than 350 generating facilities and obtains $10 billion worth of energy annually through wholesale purchasing.

Since costly natural gas and oil generate much of the electricity in New England, the wholesale price of electricity in the region runs higher than the national average, despite the fact that Maine has the capacity to generate much more power than it needs, according to Holland at Pace Global Energy Services. But ISO claims other victories — including a 34% increase in new power plants between 1999 and 2003, according to its website, increased efficiency and decreased pollution, and improved system reliability.

“Maine derives considerable benefit from being a part of a regional grid, including economies of scale, access to a larger, more diverse pool of regional resources and expert planning and operations services,” ISO New England’s spokeswoman, Marcia Blomberg, wrote in an e-mail to Mainebiz. Blomberg adds that Maine is “well represented” by regulators and other stakeholders in ISO decisions.

Richard Davies, Maine’s Public Advocate, has opted not to testify in the PUC hearings on ISO New England in part because he doesn’t want to compromise a separate, behind-the-scenes mediation effort that would keep Maine in the coalition. Instead, the Office of the Public Advocate will cross-examine witnesses in the hearing, and continue its involvement in ongoing mediation discussions between stakeholders in Maine — including utilities officials, policy leaders and regulators — and ISO and stakeholders from other states in the power pool. Maine’s goal is to alter its involvement with the ISO to resolve its biggest complaints. The results of that effort will be considered by the PUC in mid-September.

“We have relatively little experience with this,” says Davies of the difficulty in gauging the impact on Maine consumers should the state leave ISO. “We’re in relatively virgin territory.”

Davies points to two utilities — Louisville Gas & Electric Co. and Kentucky Utilities — that in September 2006 withdrew from the Midwest Independent Transmission System Operator for a combined exit fee of $33.2 million, the prorated value of their contribution to their independent system operator’s projects. FERC’s examination of the withdrawal and its decision to allow the split could inform Maine’s debate, though even this precedent is hard to draw wisdom from, since each ISO is structured differently.

“It’s a little too early” to say which plan makes the most sense for Maine, Davies says. “This case moved from an issue — and I use the phrase cautiously — that was small-pea political to an environment where you have a legislative body issuing an order at the end of the session saying it is not in our best interest to be in the ISO. The advantage [of the PUC hearing] is, rather than saying, ‘My idea is better than yours,’ it requires them all to be tested.”

The next step

Timing is driving the debate over withdrawal. Bangor Hydro and CMP signed five-year contracts to be members of ISO, and those contracts expire in 2010. If they want to withdraw, 2010 would be the year to do it to avoid a legal battle should the state decide to withdraw mid-contract. The Maine Legislature gave the PUC until January to make a recommendation, which would allow lawmakers to pass legislation directing the utilities to withdraw from ISO in time for the 2010 deadline.

But John Carroll, manager of public affairs for CMP, counters that the timing for withdrawal couldn’t be worse. If Maine withdraws now, consumers would have to shoulder all of the cost of CMP’s proposed transmission upgrades in Maine. The company in May announced plans for a 10-year project to upgrade its bulk power transmission lines linking New Brunswick to New Hampshire and southern New England, as well as building power lines in northern Maine that Carroll says will improve rates there and allow wind projects planned for Aroostook County to transmit energy to market. It also that month filed testimony with the PUC asking to stay in ISO. Carroll worries prices for consumers also would spike because CMP will have to continue to fulfill its obligation to pay for ISO projects already completed or underway even if it ends its agreement with the organization in 2010. Together, the total cost to consumers would be between $120 million and $230 million annually over the next 20 years, Carroll estimates.

“Maine hasn’t benefitted [from ISO upgrade cost-sharing] because we haven’t made the major investments other states are seeing,” says Carroll. “But now that we’re proposing it, the timing would be particularly bad. Now that we’re seeking upgrades on our system, to leave ISO without the funding to replace ISO doesn’t make any sense.”

But Buxton, of the Industrial Energy Consumer Group, disagrees. He argues staying in ISO will mean electricity rates for consumers will double every two years for the foreseeable future because of the ISO’s penchant for approving transmission upgrades he says usually aren’t necessary. That includes the CMP proposals, which he says stand to make the company’s primary stakeholder billions. Iberdrola, the Spanish firm that is expected to complete its purchase of CMP’s parent company, Energy East, this year, will be allowed to shelter the $2 billion in cost of the upgrades from taxes according to a tax loophole related to out-of-state construction, Buxton says.

“I don’t blame CMP for being excited,” he says. “It’s not illegal, it’s not immoral, but it’s not logical to have this financial scheme to invest in lines we don’t need.”

Buxton says Maine lines likely need upgrades, but those shouldn’t run us more than $100 million, not billions. Carroll, however, insists CMP studies prove the upgrades are critical for reliability.

The debate between Buxton and Carroll is thick with opinion-laden assertions, and typical of the labyrinthine riddle facing the PUC. How much would withdrawal cost? Can the relationship with ISO be salvaged, and by whom? Would a power-sharing arrangement with Canada be more of a headache than it’s worth? Can Maine, with all of its economic stressors, actually flourish on its own?

Until the PUC comes up with answers to these questions, Maine consumers will have to make do with these agreed-upon facts: The status quo of Maine’s power market is at risk, and what to do about it means examining one of the biggest energy overhauls the state has ever faced.

Sara Donnelly, Mainebiz managing editor, can be reached at sdonnelly@mainebiz.biz.