Can Lower Energy Rates Boost Economic Development

Can Lower Energy Rates Boost Economic Development?

Oct 25 - New Hampshire Business Review

The state of Maine has taken steps to promote economic development in areas with high unemployment and low wages by offering incentives that include lower taxes and lower energy costs. With recent concerns in New Hampshire over the loss of manufacturing jobs, is New Hampshire doing anything comparable and, if not, should it?

In 2003 the Maine Legislature, prompted by the loss of some 14,400 manufacturing jobs in the previous four years, created Pine Tree Economic Development Zones. They involve various incentives to attract and retain businesses. Eight zones are currently eligible for incentives, including sales- and use-tax exemptions and a full refund of corporate income tax, and discounts on utility rates.

Businesses in the zones will soon be eligible for discount electricity transmission rates, as long as they show that they are growing through new jobs or increased orders.

For some businesses, such as manufacturers, the discounts can amount to a 40 percent reduction in overall transmission rates, according to Central Maine Power.

Many businesses in Maine currently negotiate special rate contracts with the state's three utilities based on the amount of power they use annually, but the Pine

Tree Zone plans are different because of the business-expansion clauses in them.

CMP's Pine Tree Zone rate plan recently went into effect, following the Maine Public Utilities Commission's April approval of a plan offered by Maine Public Service. A Pine Tree Zone rate plan for businesses in Bangor Hydro-Electric Co.'s service territory will be submitted to the PUC later this year.

Measuring business growth

MPS and CW have different economic-growth factors in their special rate contacts. For businesses located in MPS territory, the discount contract says the company must prove it has added at least 15 new employees before the reduced rate is applied to monthly bills.

Existing businesses located in CMPs service territory will have to give the utility a document from the state Department of Economic and Community Development that shows it is certified as a Pine Tree Zone business. The business will then have to increase its power usage by at least 10 percent - an indicator of business growth. For manufacturers, the discounts are 1.5 cents per kilowatt-hour transmission rate during the first year, 1 cent off the second year and a half-cent off in the third and fourth years. Residential and business users not located in Pine Tree Zones will not see an increase in their rates to cover expenses from the Pine Tree Zone rate contracts.

Blethen Maine Newspapers Inc. reported recently that more than 90 companies have applied to join the state's Pine Tree Zones since the tax-incentive program's inception in February, including eight so far approved in central Maine. So far, up to 45 applications have been approved statewide, according to Jack Cashman, commissioner of the Maine Department of Economic and Community Development.

Cashman said a key piece of the Pine Tree program is that approved firms must create at least one net new job each.

According to Cashman, "a great many" of the applicants for Pine Tree status so far have been manufacturing companies. About 20 of them have been formally announced as Pine Tree Zone companies. Some planned announcements won't take place until next year, because companies have asked to delay expansion plans.

In the last three months, three new companies have joined the Kennebec Valley Pine Tree Development Zone, which stretches from Wiscasset to Moose River These are the foam products manufacturer Rynel Inc. in Wiscasset, AM Wood Design in Bingham and SteriLogic Waste Systems in Pittsfield. The three additions may yield about 24 new jobs, in addition to about 220 from previous approvals. Statewide, more than 1,000 new jobs can be credited to the program.

N.H. incentives

Although New Hampshire has a state law requiring the Public Utilities Commission to establish procedures for the review and approval of tariffs for electric service rates that foster economic development and of tariffs for retention of existing load within the state, there is no formal state-approved coordinated effort of incentives like that in Maine.

New Hampshire electric utilities also can enter into special contracts with customers for

economic development purposes, giving them lower rates, though state law requires that the commission determine that the contract is in the public interest and equitable to other ratepayers.

In addition, new special contracts designed to retain load are available to an electric utility customer only if the utility shows that the load would otherwise have left the utility and the commission determines that no tarrifed rate is sufficient to retain the load.

In any electric utility rate proceeding subsequent to approval of special contracts, the PUC cannot impute to the utility's test year revenues or revenue requirement the difference between the regular tariffed rate and the special contract rate.

The state Department of Resources and Economic Development has a program called the Community Reinvestment Opportunity Program or CROP, an incentive designed to encourage revitalization and job creation. Under the CROP Zone Business Tax Credit Program, a company may be eligible for tax credits to be used against the business profits tax and business enterprise tax in a qualifying CROP zone project This program does not include incentives on electric rates.

In 2003, the New Hampshire Legislature passed Senate Bill 73, which established a committee to study establishing enterprise zones in economically deprived or challenged communities. This committee was to study funding and incentive options for creating enterprise zones.

The panel has not yet filed a report, but some recommendations may be forthcoming.