Out of the pool? | Maine Public Utilities Commissioner Sharon Reishus talks about the search for an alternative to membership in the New England Power Pool

When the Great Northeast Blackout plunged this portion of the United States into darkness in 1965, the event forever changed the electric power industry in the region. Afterwards, New England's power companies, which up until that point had generated, provided and delivered electricity to customers independent of each other, decided a more cooperative power-sharing arrangement was needed to ensure a large-scale blackout would never happen again.

The result was the New England Power Pool, which was formed in 1971 and is administered by Independent System Operator New England. Since then, the power pool has grown to include 350 separate generating plants and more than 8,000 miles of transmission lines, according to ISO New England. These generation facilities and transmission lines are interconnected to ensure the reliability of the larger system.

Maine, like the rest of the Northeastern states, has benefited from the cooperative arrangement over the years by sharing the costs of building and maintaining infrastructure and mitigating the risk of potential hiccups in the grid. However, a June decision by the Federal Energy Regulatory Commission to allow ISO New England to establish a new pricing plan ˆ— known as the Locational Installed Capacity proposal, or LICAP ˆ— that aims to meet the growing electricity demands of southern New England, has many in Maine questioning the benefits of remaining in the regional power pool.

The proposal would create by 2010 a forward-looking auction, in which electricity generators compete to provide the cheapest power in New England. However, until that time states would need to make transitional payments to power generators essentially to encourage them to build new power plants to meet the demands of consumers in southern New England. But Maine already generates more electricity than it needs, leaving many in the state to question why ratepayers here should subsidize power plant construction in Connecticut and Massachusetts. "We don't actually object to the long-term mechanism that was proposed, an auction for capacity that will start around 2010," says Sharon Reishus, a commissioner of the Maine Public Utilities Commission. "What Maine opposed was the transition to that point."

The Maine Public Utilities Commission estimates the transitional period of the plan will cost Maine ratepayers more than $300 million ˆ— a bill that the state is now hoping to avoid. In June, the PUC launched an investigation to explore alternatives to remaining in the New England Power Pool, following a resolve passed during the last legislative session to seek alternatives to the 35-year-old arrangement, such as joining a power pool made up of maritime Canadian provinces or creating a stand-alone grid for Maine. "It's not clear that there are better alternatives," Reishus says. "But we are going to be as diligent as we can to look at them."

To understand the issue better, Mainebiz spoke with Reishus about the status of the investigation and the possible alternatives to remaining in the New England Power Pool. An edited transcript follows.

Mainebiz: There have been rate hikes in the past. Why has there been such an uproar this time?

Reishus: Well, I think there's been growing frustration with the ISO process. We've certainly seen the industrial customers come out in force against this. It was actually a case before this that caught the larger customers' attention. Before the whole LICAP and forward capacity market brouhaha there was a transmission allocation case that also went through the ISO to FERC that again Maine lost on. Southwest Connecticut needs desperately some new transmission lines and Maine had argued that a large part of that [construction] should be paid for by southwest Connecticut. [But as a result of the ruling], Maine pays what we feel is an unfair portion of other transmission lines. That was the impetus for some customers to get quite upset about these sort of regionally imposed costs.

Now it's a question of who's going to pay for new capacity. And again, if capacity is needed most in other parts of New England, how much is it really fair for Maine to have to pay? Precisely how you measure that is very difficult, but we have our own staff economists and our own consultants helping us try to understand what is a fair share. We are certainly willing to pay our fair share, but we didn't feel the outcome that the ISO agreed to, and that FERC has accepted, was the right one; we just thought it was too much money.

How has the PUC approached the question of whether the state still benefits from being part of the New England Power Pool?

Well, the Legislature passed a resolve that had a number of very specific questions directed to us, like, "Determine what the costs and benefits of staying in the New England [Regional Transmission Organization] are versus other regional options that provide the same set of services that the ISO provides."

Here are the three options we see: Do we have a standalone RTO? Do we connect with Canada? Or is there some other option? We are a quasi-judicial agency, so we deliberated on how to proceed as a commission and issued a notice of inquiry, NOI, and we have a docket with a number and so anyone can now participate in this docket if they chose to. I think we issued the NOI back in the end of June, and we had an initial round of comments where we asked people ˆ— because every utility has lawyers ˆ— specific questions. We asked: "Give us your sense of the legal situation. Who has the actual legal authority to order, for example, Central Maine Power to leave the ISO? Can we do that?"

What are the perceived benefits of pulling out of the New England Power Pool?

I don't think anyone has come up with a very precise analysis yet, and I think it's going to take us months to really look at the issues and break them out. I mean, people point out, in terms of the legal issues, that Central Maine Power and Bangor Hydro-Electric Co. have signed contracts with the ISO that run until 2010. And so there are issues about whether you can even force them to break the contract if they didn't want to. And FERC has jurisdiction over transmission, so they're clearly a part of this process. Under FERC orders, utility owners or transmission owners can't leave an RTO unless they join another one.

But from the perspective of the legislators that passed the resolve, what benefits were they expecting by pulling out?

I think the resolve was sort of a reaction to things that have gone on at ISO New England and not necessarily a view of knowing that there is a better alternative. What it simply does is raise the question, should we be looking at alternatives? And I think the answer is yes. I think it's fair and even our obligation, as well as the Legislature's obligation, to look periodically to see if there's an alternative that would cost less.

I think the problem is some parties just presuppose there must be a better option ˆ— that all these costs are just unfair and there must be a better solution. And I guess we're just going to look to see if there is a better solution.

Is the idea of a stand-alone Maine RTO feasible? Do you have any sense of what the logistics and the cost would be for doing that?

Well, again, we're going to look at that. And as a commissioner I'm not going to prejudge the outcome. There are a number of power pools across the United States. We can sort of look generically at the administration of power pools and see what characteristics they have, what you have to pay for and if it is possible to do it on a very small scale. If we were just a Maine stand-alone entity what would we have to do physically and legally? What kind of staff do you need? Do you have to build a new physical building somewhere? We'll be looking at all that.

Being part of a power pool is generally a good thing because it offers security and spreads around the cost of transmission and generation. So there must be some resistance to the idea of leaving the New England Power Pool.

Yeah. There's a reason there are large power pools across the United States. It's safer to be part of a larger group and it's more cost effective. That's why most utilities and states have formed these clusters, with some notable exceptions. But they're large states that have much bigger loads than Maine does. New York has its own power pool. California has its own power pool ˆ— but it hasn't worked out so well for them. Texas has its own power pool.

Maine is a small part of the New England pool. It's going to be very interesting to see what the analysis might suggest for a Maine RTO, but I think more likely ˆ— and I'm not going to prejudge it ˆ— looking at the Canadian option in some ways makes more sense because if you're not going to belong to a large pool like New England maybe we should join a large pool like the Canadian Maritimes. But that creates its own set of problems, I'm sure.

What would be the benefits of joining maritime Canada's power pool?

That's not clear. Certain parties have made the representation to the Legislature that surely we'd be better off with the Canadians, but that's not necessarily true and that's again why we're trying to look at this as objectively as we can.

Northern Maine is tied electrically to Canada ˆ— Maine Public Service and the Eastern Maine Electric Cooperative are both tied to the New Brunswick system ˆ— so we already have a relationship with Canada. So we're actually somewhat familiar with the Canadians and how they approach reliability issues. But it's not necessarily any easier to deal with a large entity on the Canadian side than it is with New England. Many of the same issues are going to come into play. We'll be a small part of a much larger pool and we'd have to work within their system and try to influence their decisions.

Is there a precedent for states pulling out of a power pool and creating a stand-alone entity or trying to join another?

I think it's pretty rare. I don't know of another instance where a state has done this. I mean, certainly there have been states in which utilities are trying to decide to join one RTO or another because they're on a border of two different power pools. But I think we're a bit on our own when it comes to this idea of leaving the power pool.

Maine produces more power than it needs, but the other New England states don't. Why is that?

Well, I think there are probably a variety of factors. It's just cheaper to build anything in Maine, not just power plants. Land is cheaper here than it is in southwest Connecticut, which is essentially a suburb of New York. So there's a difference in the siting. I think Maine has benefited from the natural gas pipeline that came through from Canada. We do have good natural resources in terms of wind resources, so there are proposals and there are communities that are willing and quite happy to participate in the development of those wind resources.

Considering Maine is a cheaper and easier place to site power plants, ISO New England probably doesn't like the idea of Maine pulling out of the power pool.

I would suspect not. They're certainly willing to help us do the analysis and I do believe they'll be fair about it. But yeah, I think they have an inherent interest in keeping Maine as part of the pool.

Let's say Maine did pull out of the New England Power Pool. Would there be an effect on the energy development proposals in the state?

It's possible. I couldn't say for sure one way or the other, but certainly some of the renewable projects in Maine are responding to southern New England's renewable portfolio standard requirements, so there's a financial benefit to those developers to get their projects into the ISO queue and be paid for by other New England rate payers.

Within a power pool these sort of transactions are much more seamless than when you try to cross two different pools. Do we want to necessarily create a new seam that would make it more difficult for developers to sell their power south? That's a fair question and one we're looking at, as well. So it has a lot of ramifications beyond just the payment of direct ISO-related costs.

The problem with electricity is it's so interrelated. Transmission is somewhat distinct, which is why we can look at these RTO-related issues, but on the other hand everything kind of impacts everything. There are other entities that are very concerned that if you raise these issues what else could be open and on the table? The more uncertainty you create causes ripples, as well. Businesses tend not to like changes to regulatory frameworks and so if you start to question it, that has implications.

Are there any other options proposed that would achieve similar goals?

I think one other option that I haven't mentioned is if Maine is too small to be a stand-alone RTO, what about a northern New England RTO? Essentially, try to break up ISO New England into two parts and take New Hampshire and Vermont with us. We'll look at that issue as well, although I haven't actually seen an expression of interest from Vermont or New Hampshire.

So what happens next?

The preliminary report will go back to the Legislature at the beginning of next year, and then I'm sure they're going to have some reaction to it and I suspect they may direct us to look further.

This is going to be a long process. I think people who are looking for immediate relief from the costs that are driving these concerns are probably not going to be very happy, but I think it's only reasonable to take this a step at a time.