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July 27th, 2012

Transmission Rates Increasing Across NEPOOL

by Andrew Price, President & COO

The two largest utilities in Maine significantly increased transmission rates for customers effectively July 1, 2012. Transmission rates for Central Maine Power (CMP) increased by almost 20% and for Bangor Hydro Electric (BHE) by 12%. Transmission costs make up a relatively small but rapidly growing portion of consumer’s electricity bills. The most recent rate hikes will certainly not be the last for CMP, BHE or other transmission and distribution utilities in New England.

The bulk transmission system is designed to meet peak demand levels. By definition this means that for most hours of the year the system is underutilized and operating far below its peak capacity. Think of a highway that is designed to allow traffic to always flow at 65 miles per hour – even during the heaviest travel times. The highway would have to be enormously wide to accommodate heavy traffic during peak travel times - such as I95 in southern Maine on Memorial Day weekend when motorists flood into vacationland - without any traffic jams or slow-downs below 65 mph. Most of the year, the highway would be utilized far below this peak capacity. The tolls and taxes collected to pay for our imaginary 100+ lane highway would have to be high enough to pay for maintaining this extra travel capacity year-round, even though it was only fully used during a few peak hours. The bulk power transmission system is designed to avoid all blackouts and brownouts, the power equivalent of traffic jams and slow-downs. 

New England is experiencing a huge wave of transmission line construction to accommodate future demand growth. Due to very long project planning and construction lead times, peak electric loads are forecasted far into the future, and the transmission system is upgraded to stay far ahead of projected peak demand. Even though we may not fully utilize the peak capacity of these lines until far into the future, the bills are now coming due.

The CMP rate increase is a down payment on the $1.4 billion in transmission expenditures that they have been approved to make as part of the Maine Power Reliability Project (MPRP). The bulk power transmission system in New England is operated as an integrated whole and many costs associated with upgrading the bulk transmission system are socialized across the region. About 92% of CMP’s MPRP will be paid for by ratepayers outside of Maine. Of course, CMP is only one of the dozens of utilities in New England, each of these other utilities are also looking to implement transmission line upgrades. Maine ratepayers will pick up about 8% of the tab for these out-of-state transmission line upgrades.

The incentives to build new lines are enormous. The utilities are allowed to earn attractive double digit rates of return on new investments. At the same time, if ratepayers in Maine are going to pay 8% of the cost for new transmission lines in Connecticut, Massachusetts, New Hampshire and Vermont, Maine is incentivized to build its own projects to be paid by ratepayers in these other New England states. The ratepayers of each utility are paying only a small portion of their own line improvement costs and so they are incentivized to maximize their investments. The utility that is able to get regulators to approve the most expensive new transmission lines would seem to be the winner.

Transmission costs have tripled over the past decade for many consumers in New England. This new investment has certainly brought many benefits: line construction jobs, improved access for certain renewable energy projects and improved reliability to name a few. Over the past couple of years transmission increases have been masked by lower electricity commodity rates which are closely linked to the price of natural gas in New England. Transmission costs are projected to continue upward, however, and if electricity commodity costs begin to increase, or even just flatten out, consumers will increasingly notice the price that is being paid for this reliability.

Chart by ISO – New England

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