Maine mills at center of regional power struggle

By Matt Wickenheiser, BDN Staff
Posted July 15, 2011, at 5:56 p.m.

Some Maine paper mills are paying attention as a heat wave is expected to settle over the eastern United States.

Energy experts at the mills will watch as the mercury rises in Connecticut and Massachusetts, the population centers of New England. They’ll keep tabs on electricity use in those states as broiling residents switch on more fans and air conditioners kick on more frequently.

And if regional grid operator ISO New England makes the call, those mills will give the burdened power system a break by lowering their power use and, in some cases, sending electricity they generate on their own into the grid to help out.

Cutting back on power use in these energy-intensive mills is called “demand response.” ISO New England has a demand response program with participants such as Verso Paper’s mills in Bucksport and Jay — when ISO asks them to drop their demand for power, they do so.

For about a half-dozen years, a number of Maine mills have been part of the program. They would get paid for interrupting their work, compensated for removing a good portion of their electrical demand. In the case of Verso’s mills, that generally means stopping the pulp operations, sometimes from late morning to early evening, maybe five or six times a year, said company spokesman Bill Cohen.

Mills such as Verso’s that have their own power-generation facilities also get paid for any electrons they send onto the grid while they drop their demand for power.

But that may change — and proposed ISO New England policies making the change are setting the stage for a fight between the state and the grid operator, likely to be hashed out at the federal level.

Cohen said it’s an abrupt policy change in a program that Verso has worked hard at.

“I think we’ve become pretty good at it. Now all of a sudden, ISO is starting to say, ‘wait a minute, time out,’” said Cohen. “What’s confusing to us is all the costs and benefits that our folks continue to work on say this is the right way to bring the cost down to all consumers — at home, as well as other commercial customers — when there’s extremely high demand.”

“Maine has clearly done its part to help the high-demand areas of Connecticut and Massachusetts. Now ISO wants to penalize us.”

Responding to a new Federal Energy Regulatory Commission rule, ISO New England is putting together its formal plan to use demand response in the grid. It still will compensate companies for dropping power use on demand. It will pay for power that companies put onto the grid. But it won’t pay for companies that do both, considering the practice to be getting paid twice for the same power.

“Our proposal is that it’s one or the other,” said Henry Yoshimura, director of demand resource strategy for ISO New England.

Yoshimura said there are thousands of companies in New England that participate in the demand response program. Only 15 to 20 have co-generation capabilities, allowing them to both cut back on power use and feed electrons into the grid.

In those cases, Yoshimura said ISO wants to only take into consideration what they see at the meter — not what’s happening behind the meter, in the mill.

“Someone who delivers a megawatt should be paid for that megawatt. You shouldn’t be paid twice for that megawatt,” said Yoshimura.

That’s at odds with how Maine officials and energy experts think the businesses should be compensated.

“You really should be compensating both the demand reduction and the generation that goes into the market,” said Thomas Welch, chairman of the Maine Public Utilities Commission. “Mathematically, it’s not a double payment.”

The Maine argument is basically that the way to deal with electricity demand across the whole system is to work on both the amount of power supplied and the amount of power being drawn. If companies provide benefits to the system in both areas, why not compensate them?

There are relatively more such companies in Maine than in other states that are both in the demand response program and have their own generation capabilities, said Welch. Tony Buxton, a prominent energy policy attorney with Preti Flaherty in Portland who’s working on the issue, said other mills that fall into the category include Sappi’s Somerset mill, Lincoln Paper & Tissue and, from time to time, Newpage’s operations in Rumford.

Welch was recently in Connecticut, making the case to his counterparts from the other New England states. Several New England Power Pool committees will take advisory votes on ISO New England’s plans, and Maine officials expect the plan will go on to the federal government.

Welch said the Maine PUC, the LePage administration and mills in the state likely will challenge that one aspect of the ISO New England plan if it doesn’t change.

“I think it’s very likely we and others will be telling FERC that, at least in this one respect, what ISO submits doesn’t really correctly reflect what should happen in the market, and indeed, what FERC intended them to do,” said Welch.

Buxton said the FERC rule came out in March and was the direct result of the work by one of his colleagues, Donald Sipe. Sipe wrote up a proposal for codifying demand response and how it should be used in a grid system and compensated, said Buxton. Sipe presented the plan to the FERC commissioners, who began working it into a new rule. Some Maine mills helped to fund the national effort behind the push for codifying and compensating demand response, Buxton added.

Buxton said ISO New England’s leaders would rather deal with grid issues by adding generation capacity.

“They dislike demand response — they’re thinking up anything they can think of to oppose it,” said Buxton. “A reasonable person might perceive what the ISO is doing as retaliatory.”

Yoshimura, however, said the grid operator has commitment to demand response. In the near future, 11 percent of the grid’s capacity will come from demand response — cutting back on demand as needed, he said. That percentage surpasses all other regions in the country, he said.

“We’re pretty proud of that,” said Yoshimura.

Proponents of paying for both demand response and generation say most mills can’t send power into the grid without first cutting back on the power demands — the system is balanced. And it’s not economical for mills to provide power without compensation for demand response, said Buxton.

Yoshimura suggested that companies that want to sell power into the grid work in the costs of dropping demand into their bids — how much they want to sell the power for.

Buxton said the amount of power use dropped by the mills is significant. At one point, he said, Verso’s mills supplied 238 megawatts of grid demand within a half-hour’s notice.

“That equates to doing a wheelie with an aircraft carrier,” said Buxton.

Buxton also noted the value of demand response to ratepayers. Simply speaking, when demand is high, power generators get paid more per kilowatt-hour. When demand response kicks in, demand drops, and the price paid for a kilowatt-hour also drops.

He noted a period in June 2010 when the market clearing price was 94 cents a kilowatt-hour. Demand response kicked in, and the price plunged to 5.8 cents a kilowatt-hour. That sort of thing doesn’t make power generators happy, he noted.

There also are environmental benefits to supporting demand response, said Buxton. He said that cogeneration is, on average, three times as clean as the regular generation available on the grid. Buxton said he viewed this one fight as a sign of future battles over development of a smart grid — a highly computerized, sophisticated power system that adjusts demand and supply as needed throughout the region.

Cohen said if the system changes, it will have a “significant financial impact” on the mills.

Overall, he said, this issue points to a need for a sound energy policy throughout the region.

“We need to keep thinking about broader kinds of generation — we need to look at a bigger, broader picture,” Cohen said.

http://bangordailynews.com/2011/07/15/business/maine-mills-at-center-of-regional-power-struggle/ printed on July 23, 2014