Maine firms face surge in electric rates

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Tuesday, December 19, 2000

Maine firms face surge in electric rates

By TUX TURKEL, Portland Press Herald Writer

Copyright © 2000 Blethen Maine Newspapers Inc. E-mail this story to a friend

Commercial and industrial businesses that use a lot of electricity are expected to see their average bills rise between 17 percent and 25 percent during each of the next two months because of a ruling by federal energy regulators.

Businesses are expressing shock over the ruling and possible price increases. Maine's congressional delegation is asking for explanations.

Last week's ruling has prompted Central Maine Power Co. to ask for an emergency rate increase that would affect roughly 10,000 businesses. CMP said it needs to collect $11.6 million in January and February from those customers.

The request will be heard Friday morning in Augusta by the Maine Public Utilities Commission.

"Our state offices have just begun hearing about this," said Dave Lackey, spokesman for Sen. Olympia Snowe. "We'd like to at least hear the rationale for it from FERC," the Federal Energy Regulatory Commission.

Someone from Snowe's office will attend an informational meeting today in Augusta convened by a group of concerned businesses.

"We're going to be in close communication with the PUC and representatives of the generators," said Mark Sullivan from Rep. Tom Allen's office. "We'll see what is the best action we can take to advance the interests of consumers in Maine."

The ruling doesn't affect residential or small-business customers, which make up 98 percent of CMP's accounts. They should be shielded from the increases for now because they are covered by a different standard-offer contract that expires in 2002. Standard offer is the default service for customers that didn't choose a provider following restructuring of the industry last year.

A spokesman for one major paper mill said the rate increase would cost several million dollars and could lead to reductions in operations.

"Once this becomes clearer," said Ronald Guay, manager of energy affairs at Mead Paper Co. in Rumford, "we have to look at the cost impact and our ability to produce products in Maine."

Mead has 1,500 workers and makes coated paper. Some of its products have thin profit margins, Guay said, and the rate increase could put the mill at a price disadvantage with competitors in the South, where power is cheaper.

"You add several million dollars of costs and there's the potential not to produce those products," Guay said.

CMP's spokesman, Mark Ishkanian, said: "We're not happy about this, and we're not profiting from it."

Interest groups that represent large businesses are gearing up to oppose or limit the rate increases, but it's not clear what they can do on the state level.

"This is a huge rate increase, more than anything we've seen in the regulated world," said Donald Sipe, a lawyer representing the Industrial Energy Consumer Group. "If a utility had filed for even a 10 percent rate hike prior to restructuring, people would march in the streets."

Wholesale electricity prices in New England have been rising for months, partly as a result of high oil and natural-gas costs. Last week's ruling by the Federal Energy Regulatory Commission will contribute to even larger increases in the region as they filter down to customers.

Behind the proposed rate increase is a controversial new market structure to make sure New England has enough power capacity.

In years past, individual utilities were responsible for making sure they generated enough power to meet peak customer demand, typically on the coldest or hottest days of the year. Today, most utilities have sold their power plants. Like CMP, they only distribute electricity.

To ensure an adequate supply, a competitive wholesale market has been set up by ISO New England, the region's power grid operator. Called the Installed Capacity or ICAP market, it depends on traders who sell power to utilities like CMP.

But after ICAP prices jumped last spring, CMP and other utilities complained to state officials, who asked ISO New England to investigate the possibility of price fixing. The probe has gone all the way to the U.S. Department of Justice and is still under review.

ISO New England has been exploring the possibility of new arrangements between power producers and power suppliers to eliminate a need for the ICAP market. At the same time, ISO proposed a ceiling of 17 cents per kilowatt hour on ICAP rates.

That ceiling was rejected last week by the federal commission, which reinstated a much higher rate and made it retroactive to August. Specifically, FERC ordered the cap set at $8.75 per kilowatt hour – roughly 50 times higher than that proposed by ISO.

In its ruling, FERC said the charge was needed as an incentive to spur new power-plant construction. That decision, combined with the retroactive charges, is responsible for the request CMP and other utilities are now making before state officials.

FERC's action could be related to the crisis in California. Inadequate capacity in the West has led to brownouts and emergency price-setting action by FERC to keep the lights on. New England, by contrast, has seen a wave of new power-plant construction and doesn't have the capacity shortages that are plaguing California.

"I think it's an overreaction by FERC," Sipe said, "but FERC doesn't want another California in New England. They're setting charges high to avoid that."

For now, large energy consumers in Maine are turning their attention to the Maine PUC and Friday's hearing.

The increase would raise rates on the generation part of a bill from roughly 5.5 cents per kilowatt hour to 8 cents. When broken down for specific customer classes, that translates into a 36 percent increase for medium-size businesses, and a 50 percent increase for the largest companies.

Companies would see their total electric bill rise by 17 percent to 25 percent. That's because power accounts for only a portion of a company's total bill. Transmission charges are the other portion. PUC rules allow utilities such as CMP to recover the costs of standard-offer service.

It remains to be seen if the PUC will allow CMP to recover the $11.6 million in January and February, as the utility requested, or spread out the payments over time. What's certain, however, is that the new installed capacity charges will push up bills in the months ahead, even after the retroactive part of the FERC ruling is recovered.

CMP's standard-offer contract for medium and large customers expires in March, and the PUC has solicited new bids to supply that power.

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

http://www.portland.com/news/local/001219power.shtml

-- Martin Thompson (mthom1927@aol.com), December 19, 2000

Answers

Wednesday, December 20, 2000

Big power users protest federal ruling

By TUX TURKEL, Portland Press Herald Writer

Copyright © 2000 Blethen Maine Newspapers Inc. E-mail this story to a friend

An assortment of utilities, state agencies and major electricity users in Maine will ask the Federal Energy Regulatory Commission to reconsider a ruling that would push up power bills between 17 percent and 25 percent this winter for Central Maine Power's largest customers.

"My hope is that when the impact of this is brought to FERC's attention, they will take a fresh look very quickly," said Tom Welch, chairman of the Maine Public Utilities Commission.

Welch's comments came Tuesday following an informal meeting he helped organize at the PUC, during which representatives of state government, utilities and large businesses discussed strategies for opposing FERC's order. Other interested parties, including state utility regulators in Massachusetts, participated by telephone. Staff from Maine's congressional offices also attended.

"A majority of people indicated they would file for redress at FERC," said Eric Bryant, a lawyer at the Maine Office of Public Advocate, which represents consumers in utility matters.

It's unclear how many parties would file separate requests for reconsideration or whether some would join to make common legal arguments. But five parties – CMP, three large customer organizations, including the Industrial Energy Consumer Group, and ISO New England, the regional power grid operator – confirmed late Tuesday they would file for a rehearing or other action at FERC.

"We will be filing for a stay of the FERC decision on behalf of our customers," said CMP spokesman Mark Ishkanian.

FERC is the federal agency that regulates wholesale electric prices. It issued an order last week raising the charges paid by utilities to help pay for new generating capacity.

That prompted CMP to ask for an emergency rate increase. The increase would affect roughly 10,000 businesses that get their power through standard-offer service. CMP said it needs to collect $11.6 million in January and February from those customers.

CMP's request will be heard Friday morning in Augusta by the Maine PUC. The panel is expected to make a decision by the end of the day.

A spokeswoman for FERC said Tuesday she wasn't aware of the controversy in New England.

Barbara Connors said parties have 30 days from the date of the order (Dec. 15) to file for a rehearing, asking FERC to take another look at the issues. The commission then has 30 days to respond. Beyond that, Connors said, parties can pursue a case in federal appeals court.

The ruling doesn't affect residential or small-business customers, which make up 98 percent of CMP's accounts. They should be shielded from the increases for now because they are covered by a different standard-offer contract, which expires in 2002. Standard offer is the service given customers that didn't choose a power provider following restructuring of the industry last year.

But businesses have been caught off guard. They have begun expressing shock over the ruling and possible price increases that could total millions of dollars for industrial customers such as paper mills.

Other participants in Tuesday's meeting at the PUC, in person and by telephone, included Bangor Hydro-Electric, the Maine Electric Consumer Cooperative, and out-of-state interests including the Massachusetts Department of Energy Resources and the Massachusetts Attorney General.

Welch, the Maine PUC chairman, had made a list of legal arguments that he thought could help reverse FERC's order. Participants shared their suggestions and tactics.

At the root of the turmoil is a controversial new market structure intended to make sure New England has enough power-generating capacity.

To ensure an adequate supply under deregulation, a competitive wholesale market has been set up by ISO New England called the Installed Capacity, or ICAP market. But after ICAP prices jumped last spring, CMP and other utilities complained to state officials and the ISO. Charges of price fixing have been under investigation.

ISO New England has been exploring the possibility of new arrangements between power producers and power suppliers to eliminate a need for the ICAP market. At the same time, ISO proposed a ceiling of 17 cents per kilowatt hour on ICAP rates.

That ceiling was rejected last week by the federal commission, which reinstated a much higher rate and made it retroactive to August. Specifically, FERC ordered the cap set at $8.75 per kilowatt hour – roughly 50 times higher than that proposed by ISO.

In its order, FERC said the charge was needed as an incentive to spur new power-plant construction. That decision, combined with the retroactive charges, is responsible for the request CMP and other utilities are now making before state officials.

The increase would raise rates on the power part of a bill from roughly 5.5 cents per kilowatt hour to 8 cents. When broken down for specific customer classes, that translates into a 36 percent increase for medium-size businesses, and a 50 percent increase for the largest companies.

Wholesale electricity prices in New England have been rising for months, partly as a result of high oil and natural-gas costs. But while prices are rising, supply doesn't appear to be a problem in New England, which has seen a wave of new power-plant construction spurred by the expansion of natural-gas lines.

Some observers speculate that FERC's action could be related to the crisis in California. Inadequate capacity in the West has led to brownouts and emergency price-setting action by FERC to keep the lights on.

Welch said FERC was "transferring anxiety from California." He stressed that the situations in California and New England are very different.

At FERC, Connors declined to comment on those views. "The commission looks at the facts of each case," she said. "I would be hesitant to draw broad brush strokes."

Staff Writer Tux Turkel can be contacted at 791-6462 or at: tturkel@pressherald.com

http://www.portland.com/news/state/001220power.shtml

-- Martin Thompson (mthom1927@aol.com), December 20, 2000.


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