Renewable energy. Smart planning. Efficient appliances. Biodiesel. LICAP. “Negawatts.”
These are some of the key elements of Gov. Baldacci’s important energy plan that is now before the Legislature. Baldacci’s aim is to make Maine less dependent on fossil fuels and to reduce energy prices and volatility through demand reduction. His bill, sponsored by state Rep. Kenneth Fletcher, R-Winslow, also takes important steps to help to lower electricity costs for business customers hurt by current high prices.
The provisions of the bill would have the added benefit of reducing Maine’s contribution to rising greenhouse gases that may destabilize the climate.
One of the most important aspects of Fletcher’s bill to emerge this week during negotiations in the Utilities and Energy Committee has to do with offsetting potentially debilitating price hikes that would hit Maine consumers under a regional energy initiative called LICAP.
LICAP, or Locational Installed Capacity, is a plan proposed by regional electricity grid operator ISO New England that would encourage generating firms to increase capacity through hefty incentive payments borne by consumers. Under the plan, which must be approved by the Federal Energy Regulatory Commission, industrial rates could jump by 10 percent by 2010, while residential rates are projected to increase by 6 percent. That hurts.
The bill directs the Maine Public Utilities Commission to focus on increasing generating capacity to reduce the cost exposure that customers have to these LICAP payments.
A good way to view the link between capacity and energy is to think of a garden hose. The water in the hose is analogous to energy. Capacity is like the hose itself: Its diameter and reliability determine how much water can be delivered.
The original bill called for the Public Utilities Commission to establish contracts for capacity or just the electricity itself. But ISO New England and the Federal Energy Regulatory Commission are increasingly preoccupied with assigning rate hikes based on which portions of the region have adequate capacity and which don’t.
All of a sudden, minimizing exposure to these capacity penalties is an urgent matter.
So the new version focuses on ways to increase the available capacity to handle the expected peak demand and reduce the pain of LICAP penalties.
This is good for a number of reasons.
It establishes that energy management, interruptible supply contracts and demand reduction are the first and best things to pursue.
Energy experts say the cheapest kilowatt is the one you don’t use. That’s the premise behind conservation and demand-reduction programs.
This bill puts megawatts and saved energy, or “negawatts,” on a level playing field and tells the PUC to select the least-cost option.
In addition, by lowering energy use, demand side programs can reduce consumption peaks, which are often met by using the most expensive and dirtiest generating capacity out there.
Demand reduction might also help reduce rate hikes envisioned under LICAP.
Under the proprosal, which Maine is contesting, every generator of capacity will receive payments, whether they are generating capacity by building new power plants or reducing demand. If the PUC can identify demand reduction programs that are as reliable as a power plant, they will qualify for those payments which, theoretically, can be redistributed among ratepayers.
No one expects these reductions to equal the cost of the LICAP program, but it might take some of the sting out of rate hikes.
Another reason this is a smart approach is that it puts the PUC back in the business of developing procurement plans. Up until now, plans for meeting future demand have been established in an ad hoc way by the market. Under the bill, the PUC would reclaim its role in the planning process by selecting capacity resources and coming up with capacity initiatives.
A third reason is more ominous. While Maine currently generates more power than it uses, about 40 percent of our capacity comes from five natural-gas-fired power plants. With natural gas prices so high, these plants are in an ever-more-precarious financial position. Two are rumored to be close to shutting down operations. Two others are in bankruptcy because they’re not making any money with natural gas at the top of the price stack.
All of a sudden, the state has a burning interest in obtaining new capacity through new suppliers or conservation.
However, the Legislature should ensure that rigorous accounting standards are implemented to be certain the state gets what it’s paying for.
Although 60 percent of energy generated in Maine relies on gas and oil, our state is windy and has vast reserves of wood, a long coast with impressive tidal differential and abundant streams and rivers. An overreliance on fossil fuel has made the state vulnerable to rapidly rising prices. Burning fossil fuels releases carbon dioxide, a greenhouse gas whose levels are now 27 percent higher than at any point in the last 650,000 years.
The bill seeks to increase competitive renewable power resources, like wind farms, by 10 percent over the previous goal, using long term contracts with wind, tidal, biomass, certain kinds of hydropower and solar.
But the state needs to be wary of entering into too many long-term contracts, even for renewable energy. That’s the mistake regulators made in the 1970s and 1980s, when Maine signed contracts during a period of high prices and then paid for it when the bottom fell out of the energy market. That may not happen this time, but it would be foolish to forget the lessons of history.
A cost-effective way to increase conservation is to provide incentives for people to buy more efficient electric appliances. This has been proposed and rejected before, but the new bill puts restraints on any new regulations by making sure they are cost-efficient and doable.
The PUC will establish minimum efficiency standards for appliances only if such products are currently on the market, are competitively priced and if at least three other New England states have similar standards.
One feel-good element is a tax incentive for biodiesel, which is a fuel made from vegetable products that can be blended with regular diesel and run in most commercial and automotive diesel engines.
Both the governor’s Office of Energy Independence and Security and the Maine Department of Economic Development are working with biodiesel developers to make the fossil-fuel alternative here in Maine. Under the bill, diesel that contains at least 2 percent biodiesel would be taxed at just 20 cents a gallon, almost 8 cents less than regular diesel.
In the final analysis, this bill won’t get Maine all the way to a stable energy future. However, our reliance on fossil fuels, which got us into this mess, developed over decades. The provisions of LD 2041 represent a needed step in the other direction.