NECHPI Bangor Hydro FINAL by R0p7u6K



October 3, 2006

Karen Geraghty
Administrative Director
Maine Public Utilities Commission
242 State Street
Augusta, ME 04333

RE:      Maine Public Utilities Commission Investigation Into Rate Design for Bangor
         Hydro Electric Company’s Demand Class
         MPUC Docket No.: 2005-554

Ms. Geraghty:

On behalf of the Northeast Combined Heat and Power Initiative (NECHPI) and a coalition of
manufacturers, project developers, and environmental advocates,1 we are writing to comment
on the proposed electric rate design modifications that would adversely impact current and
potential combined heat and power (CHP) installations in Maine.

The rate design changes proposed by the Bangor Hydro Electric Company (BHE) in MPUC
Docket No. 2005-554 would unfairly penalize utility customers who have made investments
in energy efficiency and environmentally responsible on-site energy production, and would
discourage other customers from making similar investments that provide broad benefits for
customers, the environment, and the economy of Maine. Considering the Commission’s
comment that this case may serve as precedent throughout the state,2 we address the issue on a
statewide basis. We urge the Commission to reject the proposed changes and to avoid
shortsighted thinking that may impose serious long term costs on all Maine rate payers. Please
accept these brief comments as a submission to the case file and the hearing record.

The NECHPI is a regional organization, active in Maine, that is dedicated to the greater
deployment of combined heat and power to enhance the economy and environment of our
Northeast region. We are committed to doubling the use of CHP in the Northeast by 2010, a
goal shared at a national level by the U.S. Department of Energy and the U.S. Environmental

  In addition to the Northeast CHP Initiative, signatories to this comment include: Allied Frozen Storage, Inc.,
Center for Energy Efficiency and Renewable Energy, University of Massachusetts, Conservation Law
Foundation, Energy Spectrum, Symbiotic Strategies, LLC, Pace Law School Energy Project, PowerHouse
Energy, LLC, The E Cubed Company, LLC, and Turbosteam Corporation.
  The Commission has made it clear in two separate proceedings (see Re Central Maine Power Company,
Request for Approval of Special Rate Contract with University of Southern Maine, No. 2005-231, Order at 2
(Me. P.U.C. May 1, 2006) and Central Maine Power Company, Docket No. 2005-451, Request for Approval of
Special Rate Contract with Newpage Corporation, formerly Mead Oxford) that the Commission may apply its
reasoning in this case to CMP’s rates.
Protection Agency. NECHPI is an alliance of more than 40 regionally-based organizations,
including CHP project developers and equipment manufacturers, electric and gas utilities,
consultants, air regulators, state government agency representatives, universities and other
organizations involved in the energy and environmental field. Through our regional activity
we have gained the perspective necessary to apply lessons learned across various
jurisdictions, and to foster best practices that maximize the societal benefits of CHP

The NECHPI has long been involved in Maine, and one of our priorities is to support CHP
here. Maine has a positive and enviable history of industrial CHP utilization, which has
provided economic opportunities and jobs, and it is part of our mission to see that Maine’s
existing CHP facilities can continue to operate. To underline our involvement with Maine, in
May of this year we held our annual meeting in the Abromson Community Education Center
at the University of Southern Maine. The theme of that two-day meeting was “Combined Heat
& Power: Reducing Energy Costs Through Recycled Energy.” It was attended by 120 people,
including Governor Baldacci, who gave a highly supportive address.

Governor Baldacci’s thoughtful comments included this useful advice: "If you want to know
how efficient a business is, check their trash. Strong companies learn not to throw things
away." His comment was made in reference to the fact that US electricity producers today
throw away as wasted heat the majority of the fuel they consume. Maine and the nation
cannot afford to throw away half the oil, natural gas and other fuels we pay so dearly for. In
the current period of rising energy costs, growing dependency on imported fuel and global
warming concerns, it is ever-more foolish to needlessly throw away our fuel. This is why
CHP is so important to both our national and regional future: by extracting the maximum
possible value from energy resources, customers can do more with less. Less waste helps
maintain a cleaner environment, and also means that businesses can control their costs and
stay in business.

Equally importantly, CHP is historically deployed by unregulated market participants; less
than 5% of the installed 84 gigawatts of combined heat and power in the country has been
installed by regulated utilities. As such, its deployment inevitably places competitive pressure
on regulated utilities such as BHE and encourages them to file rates like this one which will
dull the economic competitiveness of CHP. This will undermine the significant public
benefits of these energy efficient CHP power plants precisely at the time when they are most
needed by Maine’s citizens.

With this overview in mind, please consider the following points in opposition to BHE’s

CHP’s Contribution to Maine is Significant
According to the national Combined Heat and Power Installation Database, 29 functioning
CHP installations in Maine provide some 1,125 MW of electrical capacity, 3 and there may be
even more installations not yet captured by the database. These plants produce approximately
33% of the total power consumed by Maine citizens, making them absolutely critical to the

    Available at; accessed 9/30/2006.

on-going economic and environmental viability of the Maine power grid. These existing CHP
operations provide clean, efficient and reliable power to a wide variety of end users, including
industry, hospitals, universities and private households. Other public benefits from installed
CHP include lower energy, capacity and fuel prices in the broader market. Furthermore, as
combined heat and power operations, they offset a momentous quantity of gas purchases and
boiler emissions, multiplying their value to the people of Maine. Each and every one of these
users in Maine is threatened by the BHE proposal, because the BHE proposal bears no
relation to the actual cost of service for CHP or, for that matter, for any other BHE customers.
The last BHE cost of service study on which rates were based occurred in the 1980’s.

CHP Helps Keep Maine Businesses Competitive
One of the many societal benefits that CHP provides is valuable help in keeping existing
companies operating and competitive through efficiency gains. These gains translate into
overall reduction of energy consumption and therefore lower costs. Energy cost savings are a
valuable benefit, and can make the difference between a viable firm and bankruptcy. The risk
is grave that industrial CHP users affected by this proposed punitive delivery rate change
would be forced to close their functioning CHP facilities, stranding important investments,
increasing energy commodity and delivery costs, and creating the prospect that previously
viable production processes become too expensive to maintain. The impact of increased costs
on existing jobs and businesses is significant and should be considered carefully as the
Commission hears this case and establishes any precedents regarding rate structures.

However, energy cost savings is not the only benefit to industrial CHP users. Other
advantages can include reliability and power quality, avoided carting expense of wood waste,
and environmental improvements.

CHP Helps Control Pollution and Greenhouse Gas Emissions
Efficiency is the only truly economically beneficial method of pollution control, since
reductions in fuel combustion reduce power plant operating costs, while end-of-pipe controls
universally impose higher capital and operating costs on power generation. In this way, CHP
augments other pollution control and greenhouse gas (GHG) reduction measures. It is a
thermodynamic fact that any electricity grid that does not depend on CHP is destined to throw
the majority of its energy away as waste heat. 4 Therefore, even if only half of this waste heat
is recovered, the efficiency of energy use in most power plants can–and should–be increased
by 50% or more, displacing fuel that would have otherwise been burned in a boiler or furnace.
These benefits are public, and can provide a significant boost to Maine’s compliance with the
new RGGI mandate, as the Maine Climate Action Plan recognizes.5

  We note that combined cycle gas turbine plants have achieved power-only efficiencies in the neighborhood of
50% (higher heating value basis). However, these systems can only operate on a narrow range of fuels and
cannot operate on coal or nuclear energy, which comprise approximately 75% of our national power supply.
Thus, fuel diversity considerations compel the majority of our fuel use in much less efficient power cycles, as
evidenced by the fact that our national power generation efficiency has been fixed at 33% since the mid 1950s,
in spite of gas turbine technological advances.
  “A Report to the Joint Standing Committee on Natural Resources of the Maine Legislature Pursuant to PL 2003
Chapter 237,” Department of Environmental Protection December 1, 2004.
Available at; accessed 10/2/2006.

Indeed, it is critical to note that of the three major sources of greenhouse gas emissions–
electric power generation, transportation and heating–only electric power generation has
shown no efficiency gain over the past century. (The electric power industry is only half as
efficient at converting fuel into useful energy today as it was in 1920, largely because early
power production tended to use CHP technologies.) Thus, any RGGI compliance approach
that does not rely on CHP is destined to require economically costly GHG reduction
approaches. This win/win is made possible by the historic inefficiency of the electric power
industry, which has created a tremendous volume of low-hanging fruit that it is in society’s
interest to “pluck” as soon as possible.

Potential Efficiency Gains Drive CHP Installation Decisions
Customers choose to install CHP for a wide variety of reasons, and a number of factors
contribute to any installation’s economic viability. These factors are customer-specific, and
primarily relate to the availability of coincident thermal and electrical loads. Because
electricity cannot be stored easily, CHP units are designed based on engineering criteria
relating to the potential for simultaneous use of heat and power. An optimized CHP system is
inherently sized and configured to maximize total efficiency. The ability of CHP to
simultaneously provide both types of energy, without wasting useful heat through a
smokestack and without the transmission and distribution losses associated with central
station power production, fundamentally drives a customer’s decision to install CHP.

BHE’s proposed rate change would arbitrarily reduce the effective savings realized by any
customer-sited efficiency measure, including CHP. The reduction is arbitrary because it is not
based on costs that are recent or accurate, or which have any material resemblance to the
actual BHE costs of serving customers in 2006. As such, it will lead directly to a slowing of
the rate of CHP deployment, threats to the viability of existing efficient facilities, and reduced
societal benefits. BHE’s rate request must be understood solely as an attempt to subsidize
inefficiency at the expense of customer benefit.

As CHP Becomes Commonly Accepted as Essential to Efficient Operation, Jurisdictions
that Discourage it May Suffer Disproportionately
Due to international cost pressure, environmental regulations, concern about global warming
and the potential impact of carbon emissions regulations, and facilitated by greater awareness
about CHP and ongoing improvements in CHP equipment, CHP is becoming more important
in industrial and commercial design. As CHP becomes an increasingly common and
competitively necessary measure for industry to increase energy efficiency, ensure electrical
reliability, and control costs, the ability to install it will become ever more important in
industrial siting decisions. Thus, jurisdictions that are known as hostile to CHP will face
corresponding difficulties in attracting businesses that are interested in efficiency and
environmental responsibility.

See table on p. 15 comparing the cost effectiveness of CHP to other potential measures, and the discussion of
CHP (Option #36) p. 75.

   BHE’s proposed rate would seriously undermine the economic viability of the 29 (or more)
   currently operating CHP installations in Maine, potentially depriving the people of the State
   of Maine of significant economic and environmental benefits. The BHE petition is
   fundamentally flawed because the BHE rate design change is not based on a cost of service
   study performed within the last two decades, and therefore does not reflect in any way the
   actual cost of serving either CHP or other BHE customers. A departure from the central
   principle of ratemaking—that rates must be based on costs—is not in the public interest, and
   inconsistent with the history of the Maine Commission.

   We urge you to reject the BHE petition.

   Thank you for your consideration of these comments.


                   Chris Young
                   Chair, Government Affairs Committee
                   Northeast Combined Heat and Power Initiative

   And on behalf of:
Jim Mills
Allied Frozen Storage, Inc.                               Tom Bourgeois
                                                          Pace Law School Energy Project
Lawrence Ambs
Center for Energy Efficiency and Renewable                James Pfeiffer
Energy, University of Massachusetts                       PowerHouse Energy, LLC

Steve Hinchman                                            Ruben S. Brown
Conservation Law Foundation                               The E Cubed Company, LLC

Dave Ahrens                                               Sean Casten
Energy Spectrum                                           Turbosteam Corporation

Ken Colburn
Symbiotic Strategies, LLC

   About the Northeast Combined Heat and Power Initiative: The NECHPI is an ad hoc
   organization dedicated to accelerating the deployment of clean, efficient combined heat and power in
   the Northeastern United States. We are committed to doubling the use of CHP in the Northeast by
   2010, a goal shared at a national level by the U.S. Department of Energy and the U.S. Environmental
   Protection Agency. NECHPI is an alliance of more than 40 organizations which includes CHP project
   developers and equipment manufacturers, electric and gas utilities, consultants, air regulators, state
   government agency representatives, universities and other organizations involved in the energy and
   environmental field. Given the nature of our organization, the views expressed herein do not
   necessarily represent the views of all of our members.


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