Gov. Paul LePage does not often call groups of reporters to the Blaine House to chat, but I’m told (by our State House bureau) that it’s not unprecedented when an issue strikes him.
Well, I wasn’t aware of that Thursday morning and, so, was surprised at the impromptu invitation for a morning audience with LePage, his energy chief Patrick Woodcock and spokespeople Adrienne Bennett and Peter Steele. Bennett said questions from a reporter — not me — about energy policy prompted the governor’s idea for the meeting. It was confusing partly because the governor dropped out of a forum on energy policy and home heating in September over a last-minute dispute about the format.
During the 90-minute conversation two weeks from Election Day that veered from energy policy to the topics of honesty in the gubernatorial debates and Medicaid expansion, I was most surprised to hear LePage say that he considers the deregulation, or restructuring, of Maine’s electricity market signed into law during Angus King’s administration to be a “major major major mistake.”
The law required utilities like CMP and what’s now Emera Maine to get rid of their power generation assets, creating a competitive market where power generators bid for the ability to fill the next day’s regional power demand. (More on this later.)
LePage touted the drop in the percentage of homes using heating oil — from 74 percent in 2010 to 63 percent this year — and echoed his plea for greater attention and action to address what he called a looming energy crisis driven by a shortage of natural gas pipeline capacity in the state and a need to boost hydropower purchases from Quebec. In that regard, he sought to lay out, for an audience of me and two TV cameras (I don’t think that all invitations were accepted), why that’s happening across the region.
It’s a big, broad problem for New England, and one utilities regulators are grappling with now.
Maine can order ratepayers to spend up to $1.5 billion (collectively) for 20 years to buy natural gas capacity and three companies want such a deal. But it’s unclear whether Maine’s influence on a world of billions (dollars and cubic feet of natural gas) could make a worthwhile dent in reducing the price of natural gas here. PUC staff issued a report Oct. 1 saying that it’s unlikely the benefits would outweigh the costs for ratepayers, unless the cost of new pipeline capacity “is very low.”
LePage echoed that skepticism Thursday, saying he thinks Maine shouldn’t go it alone in helping finance new gas capacity to the region. But he modified that stance to single out Houston-based Spectra Energy as his favorite of the three companies vying for some of that ratepayer money with a plan to make incremental expansions of their existing pipelines into the state.
“What we can do with that $75 million is Spectra Energy — Spectra Energy is looking for someone to commit so they’ll spend the money but they need someone to commit to buy gas,” LePage said. “I think the state should take $17 million of that $75 million and use that and put that money aside and say ‘Spectra go ahead and do your job’ and in two years it will be online, but we could do a lot more in the next two years.”
(As of filings through Oct. 1, Spectra Energy had maxed out its donation to LePage’s campaign, giving $3,000. The company gave Mike Michaud $3,000 for his 2012 congressional race. The latest batch of detailed campaign finance reports for state candidates and political action committees is due tonight at midnight.)
But any of those plans won’t do anything in the short term and some question whether they’ll keep pace with the loss of generators like Vermont Yankee, coming offline this year.
Small businesses to get hit
The gas capacity issue leaves Maine with a severe short-term problem (see below).
What’s clear is that power prices will be significantly higher for those customers, such as a grocery store or small sawmill, this winter.
That could mean seasonal or longer-term cutbacks at employers like Hancock Lumber and tomato grower Backyard Farms in Madison, according to letters and emails LePage’s spokespeople provided Thursday. Kevin Hynes, Hancock Lumber’s COO, wrote the company’s electricity supply contract for 2015 is up $365,000 from this year and up $765,000 from 2013.
“I will have no choice in 2015 to spend less on capital projects to improve our operations and most likely we will have to cut jobs,” Hynes wrote in a Sept. 25, 2014 email to the governor’s office.
Why those power prices are going up is a complicated mess of economics, politics, geography and more. How to solve the problem and who should solve the problem depends on who you ask.
For policymakers and the region’s grid operator, the immediate focus is winter-time spikes in natural gas demand for heat that sap the region’s pipeline capacity and leave gas-fired power generators to compete for what’s left, driving up the price of gas to them and driving up their bids to supply the next day’s power.
An important feature of that market is that the price all power generators receive is set by the last bid to fulfill the next day’s demand.
And when gas-fired generators — which produce more than half of the region’s power — are strapped for supply, it means backup resources like the oil-fired Weymouth Station plant in Yarmouth are called up and can set the day’s price.
Woodcock and LePage have said that solar and wind power can be a part of the solution but that the technologies are not ready for primetime. LePage illustrated that, as he has in recent debates, by pointing out that it would take an enormous amount of solar panels over a large area to provide enough power for a manufacturer like Verso’s Bucksport mill.
(An aside: LePage said during an Oct. 8 debate that the mill’s power generation assets were due to be sold by Oct. 11, criticizing Eliot Cutler’s proposal that the state buy the power generators there as unrealistic. Thursday, LePage agreed with Cutler that splitting the mill’s power generation assets from the paper mill would be “a massive mistake.”)
While true, the numbers game isn’t really that useful in thinking about where energy policy is headed. That is, thinking about markets where power is priced dynamically, based on factors like the time of day, which large industrial customers often use. The overall megawatt-hour comparison calculation also neglects the reliability value of each energy source to the grid.
That is: wind and solar power are fickle, but the power they add to the grid’s base load could displace what’s needed on a regular basis from the quick-to-fire-up natural gas. Reducing the amount of natural gas generation when the sun is shining or wind is blowing could play a part of reducing peak demand for the fuel.
Those topics raise questions about energy markets that policymakers will have to deal with in the near future.
A broken market?
And this is where we get back to deregulation (whew).
Behind all of this discussion is the question of whether New England’s competitive electricity market has failed, in that power generators are not putting down the money for capacity that pipeline companies need to get approval for new pipelines or expansions from the Federal Energy Regulatory Commission.
Each of the three companies proposing expansion in the state — the Portland Natural Gas Transmission System, Kinder Morgan-owned Tennessee Gas and Spectra — have said they are lining up private-sector commitments for their pipeline expansions and plan to move ahead with or without state support.
Woodcock, head of the Governor’s Energy Office, said during a forum earlier in the month that he’s skeptical any of the companies can provide a significant amount of new capacity without intervention from the states.
Both he and LePage reiterated their frustration Thursday that Massachusetts Gov. Deval Patrick backed out of a plan to propose a region-wide tariff on electricity customers that would support natural gas expansion at a larger scale.
Greg Cunningham, with the Conservation Law Foundation, is an opponent of that approach, saying that the partnership of Spectra with power company Northeast Utilities and the other projects for incremental increases in natural gas capacity “are going to affect [electricity] price.”
It will be a long discussion about power in the region and whoever’s in the Blaine House in January — and will nominate two of three commissioners to the PUC — will be well advised to make more use of the dining room table for that purpose.