Electricity Plan Meets Opposition

Electricity Plan Meets Opposition

Jun 09 - Providence Journal

An association of New England utility regulators says it opposes a plan by the region's power grid operator that is designed to bolster supplies of electricity over the next few years.

The plan, proposed by ISO New England, would provide payments to power generators to induce them to build power plants in areas where they are most needed.

ISO New England is the Holyoke, Mass.-based operator of the region's power grid.

The New England Conference of Public Utilities Commissioners agree that something needs to be done to ensure that the supply of electricity will meet growing demand and make sure the grid remains reliable.

But they say ISO New England's plan is too expensive and will end up pushing up electricity bills of New Englanders as much as $13 billion over five years. And the regulators say the plan won't necessarily ensure that enough electricity will be available to meet future needs.

"Obviously, we fully support measures that ensure reliability in New England," said Thomas B. Getz, chairman of the New Hampshire Public Utilities Commission, and president of the regulators' association.

". . . But this proposal is unlikely to achieve that objective," he said.

Elia Germani, chairman of the Rhode Island Public Utilities Commission, concurs. "There's been no demonstration, no empirical evidence that all this money being turned over to generators is going to result in incenting generators to build," he said. "They're still getting the money whether or not they'll build."

Rhode Island Attorney General Patrick C. Lynch and Massachusetts Attorney General Tom Reilly announced their opposition to the proposal last fall.

The proposal is now before an administrative law judge at the Federal Energy Regulatory Commission. That judge is expected to issue a recommendation on the proposal on Wednesday. The FERC would then take up the matter for a vote, probably by early September.

ISO New England's proposal arose from a regional problem that appears to be lurking in three to five years: New England's electricity demand will outstrip supplies.

That situation could drive up electricity rates and make the grid less reliable, especially on peak-demand periods, such the hot days of August.

Right now, there is more electricity than what's needed, thanks to several new gas-fired power plants that have gone online over the past six years. However, today's excess capacity has made it difficult for power generators to make a profit.

Some, such as USGen New England, the former owner of the Manchester Street Station power plant in Providence, have filed for bankruptcy protection.

There is little incentive for power generators to invest in new power plants right now, said Paul Afonso, chairman of the Massachusetts Department of Telecommunications and Energy.

And he agrees, in concept, that something should be done to stimulate new power generation.

"Having the appropriate incentives is absolutely key to bringing more online," he said. The question is how much money will it cost ratepayers and how the incentive program is designed.

The proposal, which ISO New England terms "Locational Installed Capacity," or LICAP, would pay generators a certain amount of money each month, based on a power plant's generating capacity and where in New England it is located. The payment would be in addition to the money paid for the electricity itself.

Such payments already go to power generators, Foley said, though they amount to almost nothing.

Because the electricity market in New England is so competitive, the amount of money that generators get for selling electricity isn't enough to cover all of the costs of operating their facilities, she said. And in that kind of environment, investors are leery of building new power plants in the region.

New England would be carved into five zones under the proposal: Maine; northeast Massachusetts; southwest Connecticut; the remainder of Connecticut; and Rhode Island, Vermont, New Hampshire and the remainder of Massachusetts.

Power plants that operate, or are built where they are needed most, would get the largest capacity-related payments, such as southwest Connecticut. Those that operate or are built in areas where there is less of a need, such as Maine, would receive smaller capacity-related payments.

The cost of those payments would be passed on to electricity customers.

How much the LICAP proposal would cost is also a matter of disagreement. The regulators association estimate of $13 billion would add an extra $16 a month, or $190 per year, for the average residential customer in New England over the next five years.

ISO New England said these figures are overstated. Its own estimates put the cost over a five-year period at $2.3 billion, said Erin O'Brien, a spokeswoman for the grid operator.

The five-year cost for the region that includes Rhode Island will be $345 million, she said. The cumulative cost to the typical electricity customer would be $5.04 per month over the five-year period, she said.

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