May 27, 2020

New power hearing

Newly imposed federal charges against Maine electric utilities could cost consumers approximately $22 million monthly and achieve exactly nothing, according to the Maine Public Utilities Commission. The commission, along with Central Maine Power, Maine’s public advocate and the trade organization, the Industrial Energy Consumers Group, has asked federal regulators for a stay and a rehearing on the charges. Maine political leaders should loudly support them.

The issue is how well the utilities are prepared for spikes in demand. The utilities are required to buy, in addition to the power they will be distributing, something called installed capacity (ICAP), which amounts to the ability of power generators to quickly produce more power because of normal variations in peak demands or in the event a source of energy shuts down or unusual weather – extreme heat or cold – result in an increase in the use of cooling or heating equipment. Given that New England has more power than it needs, ICAP has not been worth very much. The average rate for 1999 was 17 cents per kilowatt month, although for nine of the 12 months it stood at zero because the utilities had all the capacity they expected to need for the coming month.

The Federal Energy Regulatory Commission looked at that rate a few weeks ago and decided it was 50 times too low, that the ICAP charge should be $8.75 instead of 17 cents. And it made the rate retroactive to Aug. 1. FERC said this “charge represents an approximation of the cost to install a peaking unit and represents a reasonable basis for setting a level to incent the construction of new generation.” It doesn’t mention that new units won’t be necessary if this charge is put in place and drives users off the electric grid.

The requests for a stay argue against the new charge in several areas. For instance, they say FERC cannot set rates retroactively; that the peaking-unit cost used by FERC is a decade old and much too high; that the region suffers from no shortage of electric capacity even if the ICAP charge did act as an incentive; that the charge will not act as an incentive because it is understood to be an interim measure, not something generators of power could count on; that FERC itself allowed the ICAP auction market to end last summer because the market “was not useful and that it could produce inflated prices unrelated to the actual harm created by ICAP deficiencies,” according to FERC, exactly what its new order already is doing.

These are all excellent reasons for FERC commissioners to change their minds about taking some of the highest electric rates in the nation and shoving them higher to chase phantom problems or problems that exist thousands of miles away in California, which does have capacity shortages. But the best reason for reversing this decision is the 5-year-long, state-by-state retreat by government from regulating power generation. States broke up their utilities with the specific understanding that the market would provide needed incentives for new generation, without the heavy hand of government. It was a huge and prolonged gamble that has yet to conclude.

To have FERC step in with an order to demand generation incentives through penalties is to have the federal government announce that deregulation never occurred. FERC’s decision will cause, if it has not already caused, substantial, long-term harm to ratepayers. New England deserves another hearing from FERC on the issue and a chance to show that the commission’s decision was an extreme over-reaction to a nonexistent problem.

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