But staff says Mainers shouldn’t pay $75M to secure delivery

Maine electricity customers shouldn’t be charged up to $75 million a year for contracts to secure new deliveries of natural gas through expanded pipelines, the staff of the Maine Public Utilities Commission said Wednesday, because the potential benefits won’t exceed the costs.

Despite its skepticism, the staff recommended that the agency accept project proposals anyway, so the PUC and its consultants can evaluate potential benefits to determine whether they would be “sufficient.”

The staff’s opinion comes after months of study and volumes of testimony. It’s meant to inform a pending vote by the PUC’s three commissioners on whether Maine should move ahead with an unprecedented plan to help underwrite natural gas pipeline expansion in New England. That vote hasn’t been scheduled yet, but there’s pressure on the agency to decide by year’s end.

Added capacity, supporters of the plan say, would help relieve bottlenecks in New England’s undersized pipeline system in the winter. Gas demand peaks during cold snaps, not only for heating but also for generating electricity. Today half the region’s power plants are fired by natural gas.

Supporters of the plan say it would pay for itself in reduced electric rates. Time is critical, they stress: A Maine study found that if natural gas prices in New England were closer to what other parts of the Northeast are paying, electric customers could save $1.5 billion a year, with $120 million of that savings in Maine.

That study was done before last winter’s extreme cold, when some Maine paper mills cut production as power costs shot up.

A lawyer representing some of the state’s mills linked Wednesday’s announcement that Verso Paper would close its Bucksport mill with high natural gas prices. He called the PUC staff report incorrect and flawed.

“This is also a day of tragic irony for Maine,” said Tony Buxton, speaking for the Industrial Energy Consumer Group. “The (Verso) closure announcement came on the very day the (PUC report) was issued in the one case where Maine could act to stop these mill closures, and the report recommends Maine do nothing. Doing nothing in the face of death is among the worst of human failures.”

But environmental groups haven’t focused on the immediate costs. They say the region would be better off in the long run by investing in efficiency and diversifying its energy supply with renewables, rather than becoming more dependent on natural gas, which is subject to price swings and contributes to climate change.

The PUC didn’t address those issues directly. In its report, it noted that, by law, the PUC can’t enter into the anticipated energy contracts if it determines that rule changes in the wholesale energy markets, or privately funded development, will achieve substantially the same cost reduction. The staff agreed that evidence collected in the case supported the finding of a “market failure” contributing to New England’s gas prices. But the report stated:

“Recently announced expansion projects suggest that market participants may be responding to the fundamentals, and it remains unclear at this point to what extent the market will by itself invest in sufficient levels of new capacity.

“The primary question to be addressed in this proceeding is whether a (contract) is an appropriate means to address any existing market failure, and if so, will the benefits be reasonably likely to outweigh the costs.” Notable parties to the case reacted briefly, following release of the report.

“The important thing from our perspective is that the (PUC staff) report recommends moving the process for the commission to consider proposals and provides a framework for that evaluation,” said Tim Schneider, Maine’s public advocate.

Schneider, who supports the energy contract, said the report omits a wide range of benefits, including more-reliable gas service, carbon emission reductions and potential revenue from reselling pipeline capacity.

“These are likely to be substantial,” Schneider said. “The report says that the commission should consider all of these in evaluating specific proposals, so I don’t view the staff’s overall conclusion as an indication of how they’ll respond to the proposals they’ve received.”

One of the environmental groups opposing the contracts said proposals from the private sector show the market is working, and Maine’s participation wouldn’t drive prices low enough to benefit ratepayers.

“It will simply cost the state and the parties resources with zero likelihood of a viable (energy contract),” said Greg Cunningham, a senior attorney at the Conservation Law Foundation. “The staff’s conclusions that Maine is not likely to benefit from a (contact) are dead on accurate. For this reason, the PUC should conclude this case now.”

A major energy company proposing a pipeline expansion project said it still was reviewing the report Monday evening.

“Spectra Energy appreciates the state of Maine’s efforts to bring competitively priced, domestically sourced natural gas into New England in order to lower the cost of energy for Maine families and businesses,” said Marylee Hanley, a Spectra spokeswoman.

With so much at stake, commissioners will have to determine to what extent pipeline developers would make sufficient investments on their own, or if it takes a slug of money from electricity customers. They’ll also have to consider elements of proposed deals that could protect ratepayer money, if market or investment conditions change unexpectedly.

Maine’s proceeding has taken on regional importance. A larger agreement by the six New England governors to pursue a sweeping gas expansion plan fell apart over the summer when Massachusetts pulled out of the deal. Pipeline companies and their allies have calculated that the political and regulatory environment in Maine is favorable now for the state to partly fill that vacuum.

Gov. Paul LePage is a champion of pipeline expansion and has made it an issue in his re-election campaign. He’s using it to draw a contrast with his major challenger, Mike Michaud, who supports investments in wind and solar.

Another dynamic is that the PUC’s chairman, Tom Welch, is retiring at the end of the year. He’s an influential advocate for natural gas in New England. Commissioner David Littell, a holdover appointee by former Gov. John Baldacci, is on record opposing major ratepayer investments for gas. The views of the third commissioner, Mark Vannoy, a LePage appointee, are less clear.

These factors have major energy companies jockeying for position, submitting proposals to the PUC meant to outline how their projects could solve the problems, if the agency gives the green light.