Maine’s Look at Distributed Generation 6/29/2001 Maine’s Look at Distributed Generation 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Legislative Background Legislature required MPUC to report on DG issues, with recommendations, by Oct 2002 Regardless, the time is ripe 6/29/2001 Presented by the Maine Public Utilities Commission

Presented by the Maine Public Utilities Commission 6/29/2001 Maine Background Strong history of supporting local generation and co-generation Utility affiliate prohibited from owning DG Small hydros need help selling generation Some small generators want to sell their output to contiguous customers Also, no transmission or capacity constraint. Also, very little natural gas. Last 2 points – there are cases in Maine right now related to those issues. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Maine’s Issues - Interconnection 6/29/2001 Maine’s Issues - Interconnection Contract Procedures Costs Jurisdiction Issues in Maine. We’ve all read the white papers. Our reports cover all the usual topics. But some that are not emphasized in the literature are very important in Maine. Have a 5 MW IA, so progress has been made. Utilities are claiming the PUC has no jurisdiction to order interconnection requirements. We’re wondering why other states have done it. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Me’s Issues – Selling Generation 6/29/2001 Me’s Issues – Selling Generation Into the pool – Very difficult under ISO rules To other customers – When does DG owner become a competitive provider or a utility under the law? Net billing – can it be used for DG generation? One supplier in Maine was willing to buy small hydro output. No other easy market for DG output that we know of. Impossible to sell into ISO-NE right now. 4 cases in Maine regarding selling to a neighbor. If sold to “a tenant” and not to “the public,” a generator can sell power without being a T&D utility. We have allowed limited selling, to one other customer or to a few customer accounts all of whom lease from the same generator. Net billing – 100 kW; residential use; no payment just net from month to month. Goal was to accommodate people generating for their own use. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Maine’s Issues – Utility Pricing 6/29/2001 Maine’s Issues – Utility Pricing Price structure – high vs low fixed price (rate design proceeding soon) Standby rates Pricing flexibility to retain customers – can DG compete? Rates probably offer an artificial benefit to DG – per/kWh rates are higher than costs for a distribution-only company. I don’t believe changing rate design is a significant DG issue in Maine. Standby rate design likely to rate until after utility rate re-design – 2002-2003? Utility price discounts one of the largest inhibitors of DG. Utility can almost always undercut. But it’s the proper price signal. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Maine’s Issues – Stranded Costs 6/29/2001 Maine’s Issues – Stranded Costs of central plant generation (past) – big problem for ratepayers from DG (future) – how large is the problem? Stranded cost about 1/3 of utilities rates. Will be paid down in about 2010. “Thoughtful peole” have a very real fear of customers leaving the system thereby causing remaining customers to pick up their contribution to stranded costs (ie, pay higher rates). Utilities under a price cap plan so wouldn’t happen in the short run. But would if bypass was large enough. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Maine’s Issues – Ownership 6/29/2001 Maine’s Issues – Ownership Utilities prohibited from owning generation Should utilities be allowed to own DG? Should affiliates be allowed to own DG? Different models – own plant, not electricity? Own and lease plant? Maintain plant? Maine unique among states. In other states, the utilities can (and do) just buy back the output of DG. Not legal in Maine. Do generators have only one way to sell their output – into the pool either directly or to a NEPOOL member. Policy makers very very hesitant to let utilities back into the power business. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Overarching Principles 6/29/2001 Overarching Principles MPUC recommendations must be based on economics Should be an economically level playing field All customers must pay for stranded costs – DG should not be considered economic simply because it bypasses stranded costs Environmental benefits, fuel diversity, etc are not in the PUC arena. We’re economic regulators. Legislature can address. No artificial barriers. No artificial incentives. DG should not be a tool for stranded cost bypass. Obviously it would be for a customer. But as a policy matter we don’t support this use of DG. Simply hurts all other customers. 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission

Presented by the Maine Public Utilities Commission 6/29/2001 The MPUC Reports MPUC Interim Report & Resource Dynamics Technology Report published Final Report with recommendations due 10/1/2001 See web page www.state.me.us/mpuc Contact Marjorie.McLaughlin@state.me.us 6/29/2001 Presented by the Maine Public Utilities Commission Presented by the Maine Public Utilities Commission