Collaboration with Canada Explored

AUGUSTA - The high cost of electricity has the Maine Public Utilities Commission rethinking the state's participation in the New England "power pool." Maine is one of six New England states that make up a regional electricity market administered by Independent System Operator New England Inc. (ISO-NE).

Along with Connecticut, Massachusetts, New Hampshire, Rhode Island and Vermont, Maine's access to the electrical power delivered to residential, commercial and industrial customers by Bangor Hydro-Electric, Central Maine Power and most other utilities statewide is determined by ISO-NE.

As an independent system operator, ISO-NE serves as a regional transmission organization (RTO). Since February 2005, ISO-NE has overseen the day-to-day operation of New England's power generation and transmission systems. ISO-NE assesses demand, allocates bulk electricity and administers the region's wholesale electric markets.

ISO-NE also determines Maine's costs for participating in the six-state system, costs that are passed on to utility customers. Those costs include subsidies for upgrades of transmission infrastructure throughout New England.

A Maine Public Utilities Commission (MPUC) report presented in January to the Legislature's Utilities and Energy Committee contends that Maine inequitably subsidizes an ISO-NE system that unfairly benefits other New England states at the expense of Maine consumers.

"The RTO's current transmission cost allocation methodology is inequitable and results in the transfer of payments from Maine consumers to consumers in southern New England," the report's cost analysis claims. "This inequity is likely to grow substantially over the coming years as significant transmission investments are made in Connecticut and Massachusetts in order to address increased demand in those areas."

The report estimates the cost of new transmission projects under way or now being planned in other New England states at $4.4 billion. Maine's share of that investment would be $75 million a year for the next 20 to 30 years.

Of that amount, customers of Bangor Hydro-Electric, including 43,060 in Hancock and Washington counties, would pay between $8 million and $10 million a year.

"Even though some suggest that these projects are a benefit to Maine because Maine is connected to the rest of the New England system, the benefits accruing to Maine ratepayers from transmission projects in southern New England are minimal, at best," the report contends.

The report notes that, between 2001 and 2004, Maine generated at least 50 percent more electricity than it consumed, with nearly all the surplus being exported to other New England states.

"Since Maine has historically been a net exporter of energy, one could argue that much of the existing transmission in Maine is for the benefit of those to our south," the report says.

"Many of the costs of the [regional] transmission system are ‘socialized' by the RTO. Maine pays into a transmission fund based on the average cost of all New England transmission, but receives revenue from the fund based on the cost of transmission in Maine. As a result, there is proportionately more transmission investment outside or in Maine, to benefit customers to our south. Maine's net cost will increase because the New England-wide costs would be growing faster than the costs necessary to serve Maine customers."

MPUC Chairman Kurt Adams estimates consumers in Maine could pay as much as $616 million over the next five years to continue affiliation with ISO-NE.

Adams also notes that Maine has other options.

"Our analysis finds that there are no insurmountable legal, economic or technical barriers to withdrawing from ISO-NE," he said. "Viable alternatives to ISO-NE now exist, such as the formation of a Maine independent transmission company or the creation of a Maine-Canadian Maritimes market."

Adams said the MPUC continues to study both options and will make its recommendations in a final report to the Legislature in January 2008. The preliminary report indicates that the final report will focus on "opportunities" with Canada's Maritime provinces.

Looking North for Solutions

Adams sees great promise in Maine linking up with the Canadian energy market via New Brunswick. The New Brunswick Power Group, Nova Scotia Power and Maritime Electric Co. on Prince Edward Island are eager to export more electricity into New England, he said. Those exports would flow through Maine on high-voltage transmission lines that are already in place or under construction.

Jack Keir, New Brunswick's energy minister, includes among his priorities making St. John "the energy hub for Atlantic Canada." The province's Department of Energy is eager to add electric generating capacity to increase its exports to New England.

Jean Finn, New Brunswick's deputy minister of energy, envisions what he terms an "energy corridor" that would funnel electricity and other forms of energy into New England.

"Both New Brunswick and Maine can benefit from being in the middle of potential energy production and large energy markets," Finn said. "They've found gas off Nova Scotia, and Boston needs it. Maine could play a vital role in distribution. Both Maine and New Brunswick need to determine what their opportunities are as an energy corridor.

"New Brunswick's work with Maine is not meant to counter anything that ISO-NE is trying to achieve. But, at the same time, it is going to allow Maine to further its understanding of what's possible with New Brunswick and Atlantic Canada."

Adams seems convinced that Atlantic Canada's mix of hydro-electric, nuclear and coal-fired generating facilities can provide electricity at a lower cost than New England generators that rely heavily on natural gas and oil to fuel turbines. He notes, too, that Atlantic Canada is now developing new generating capacity involving renewable fuel sources, including wind and tidal generation.

"This is one of the most exciting times in Maine's energy history," Adams said. "We're very concerned about the impact of pricing on consumers, and that motivates us to think outside the box in terms of finding long-term and short-term solutions.

"Maine is between the market and the resources, which gives us an opportunity. It's not going to happen overnight, but we have an opportunity to be both a pathway and a generating source. That's what's exciting. Nowhere else in New England is there another state situated quite like us, between these non-carbon producing resources and a market that is crying out for non-carbon producing resources.

"Our challenge right now is to get the regulatory structure right so that Maine consumers can benefit from this strategic positioning."

Among those studying the "legal potholes" of a Canadian collaboration is MPUC consultant Tom Welch of Hancock, an attorney and Adams' predecessor as MPUC chairman.

"A lot of issues have emerged that are under discussion," Welch said. "There are issues over who would resolve disputes and issues involving tariff structure differences that would impact whether the economics would make sense. It's also not clear if Maine, New Brunswick or the other Maritimes have their own legal authority to allow participation in a cross-border arrangement. It's fair to say we are exploring what the options are."

The MPUC preliminary report also notes that any decision to withdraw from the existing New England power grid and to pursue some alternative arrangement rests with the utilities affected, not with the Maine PUC.

Both Bangor Hydro-Electric and Central Maine Power participate in ISO-NE under a transmission operating agreement that expires in February 2010. The report notes, too, that any new approach would require approval of the Federal Energy Regulatory Commission.

"The issue with withdrawal is that you really have to know that either going it alone or teaming up with New Brunswick is going to be more advantageous than your current circumstance," Adams said. "This is not a circumstance where you should leap before you look very carefully, because of the risks involved."