For more information contact:
Donald Sipe
dsipe@preti.com

Anthony Buxton
abuxton@preti.com

Power Generators to Reap Huge Windfall at the Expense of New England Residential, Business and Industrial Customers, Energy Attorney Warns

AUGUSTA - The Federal Energy Regulatory Commission (FERC) late Tuesday put its stamp of approval on a huge increase in the fee charged to electricity users throughout New England that is dedicated to producers of electricity, a decision lawyers defending consumers in Maine and other New England States said will raise electric bills.  FERC agreed to raise what is called an ICAP (Installed Capacity) charge from 17 cents per kilowatt per month to $8.75 per kilowatt per month, as requested last year by electricity generators who either sell power to the New England Power Pool (NEPOOL) or stand by to make electricity available to NEPOOL. Some customers of power distributors and suppliers in Maine could see the results of the new rate within a few weeks or a few months or longer, depending upon the life span of their power-supply contracts.
"We are very disappointed with the FERC's decision because we believe it will inflict real harm on all consumers," said energy attorney Donald Sipe of the Augusta offices of Preti, Flaherty, Beliveau, Pachios & Haley, LLC. "The FERC's rejection of a lower deficiency charge, which had been supported by ISO-NE, state public utilities commissions, state public advocates and an overwhelming majority of NEPOOL participants themselves, is a step in the wrong direction for the northeast economy.  As we all know, that economy is already slowing and the value of goods and services produced is declining. To burden the already struggling businesses and consumers of New England with a potential $3.25 billion additional tax on power consumption is the wrong thing to do.  "This is really going to hurt small businesses," Sipe said. "Everyone is impacted unfavorably."
Sipe calculates that, at $8.75, the charge would amount to an additional 2 cents per kilowatt hour for industrial customers, 3 cents per kilowatt hour for residential, and, hardest hit of all, potentially 5.2 cents per kilowatt hour for small businesses and commercial customers.  The differences, according to Sipe, are due to the lower load factor of smaller customers.

Many of Central Maine Power Co.'s residential customers may not see bills rise until March of next year, according to Sipe, because they may have purchased long-term contracts under CMP's Standard Offer rate offering. Customers in Bangor Hydro service territory and commercial and industrial customers in CMP's territory, however, may be looking at higher costs immediately. Sipe represents Industrial Energy Consumer Group ("IECG"), a Maine-based trade association that led a consumer effort to stay FERC's original decision Dec. 15 to raise the ICAP charge by 50 times the 17 cents rate sought by electricity consumers. Other parties opposed to the FERC order included the Maine Public Advocate's Office, state commissions and other groups representing residential, business and industrial users of electricity in New England.  Sipe said that the rate of  $8.75 could transfer hundreds of millions of dollars from consumers to generators for a product that is valueless in every commercial sense of that term. In view of the opposition to the proposed new rate of $8.75 per kilowatt per month, FERC agreed to stay the Dec. 15 order for purposes of considering whether to rehear the issue. The March 6, order, however, lifts the stay and re-imposes the original $8.75 per kilowatt per month charge.  Sipe described the ICAP charge as an antiquated holdover fee from the days before deregulation. It was originally designed to assure power producers a fair return for their product under regulated rates, but today, with unregulated power rates, such payments make little sense, he said. ICAP is an administrative charge that entitles generators to receive money from consumers simply for existing.
A person receiving ICAP payments does not need to make energy or any other related electricity product available to a consumer, who must pay the power generator an ICAP payment. In addition, consumers making ICAP payments cannot rely upon generators to deliver them either energy or capacity in the market, he said.  For that reason, consumers, ISO-NE and NEPOOL had all suggested that a very low charge for electricity should be established at 17 cents.

Sipe acknowledged that ICAP might not trade at the $8.75 level if suppliers can cover their ICAP obligations under long-term contracts.  But he said, "The level of market concentration in New England for this product has already been demonstrated to be unacceptable. Experiences with this market under the previously prevailing auction led to abuses, which were so severe that the Justice Department opened an investigation into potential criminal conduct. Those abuses were based upon the ability of generators to withhold product form the market driving up the price.
"Yet even at its worst, such market manipulation resulted in charges only in the $10 kilowatt/month range," he said. "FERC's decision establishes a price for ICAP  ($8.75) which rivals a level that triggered criminal investigations by the DOJ.  Nothing has occurred since these previous abuses to lessen the market concentration for this product.  Therefore, if reforms are not made to this market soon, we would expect that the abuses of the past will be quickly revisited upon consumers who are already struggling with power costs which are at unprecedented highs."
Sipe noted that, "with the expiration of the current standard offer for residentials in CMP's territory, these customers will also pay for this requirement in any new standard offer.  Considering the current standard offer rate for CMP customers is approximately 4 cents per kilowatt-hour, adding an additional 3 cents for ICAP would almost double the rate currently paid by these customers.
"With the cost of gas increasing, and other factors rolled in, the honeymoon for CMP's residential customers may end rather abruptly in March of next year if this is not corrected," Sipe said.  Sipe estimated that every $1 increase in the price of ICAP costs the consumers of New England $370 million annually.

"Looking at the difference between 17 cents (the previous ICAP rate) and $8.75, even if ICAP eventually trades lower than the $8.75 cap, the numbers get pretty insupportable, pretty fast," he said.

Sipe said the IECG and the other consumers who joined in requesting a stay of the FERC initial order are still considering their options in responding to FERC's Order.  "There is a possibility of an appeal to federal court.  There is also some chance that FERC might approve a lower charge if the ISO or NEPOOL were to make an additional filing on the issue.  But at this point, our main concern is with the businesses and the jobs that have been put at risk by this unfortunate ruling."