How are PSNH’s coal plants like Mark Sanchez? (photo credit: flickr/TexKap)

Earlier this week, the Concord Monitor published a must-read editorial addressing PSNH’s future. Much like an earlier widely-printed op-ed on the subject, the editorial correctly describes the PSNH death spiral of escalating costs, fleeing customers, and dirty inefficient power plants kept alive by massive ratepayer subsidies.

The editorial also points out one key reason why PSNH’s argument that its plants are an insurance policy against high natural gas prices is increasingly off the mark: it ignores the damage that those plants do to the climate and to the environment. In 2012, despite not operating for much of the year, PSNH’s plants were nonetheless collectively the single largest source of greenhouse gas emissions in New Hampshire.

As time goes on, PSNH’s “insurance policy” argument only gets more specious. Relying on inflexible power plants that take many hours to start up and shut down is diametrically at odds with the dynamic and advanced electric grid that will help New England move toward a clean energy future and address concerns around the region’s increasing use of natural gas. We know what we need to do: the region needs to reduce energy demand through cost-effective energy efficiency investments, to deploy clean renewable technologies like wind that displace fossil fuel use, and to optimize the rules of the wholesale electric market to ensure smooth operation of the grid. Indeed, regional grid operator ISO New England’s recent market design efforts will almost certainly make poor-performing, inflexible power plants like PSNH’s less competitive, not more.

Propping up outdated physical assets – with high fixed maintenance costs – in the hopes that they will someday become competitive again is not “insurance.” It’s the kind of backward thinking that no competent manager or economist would endorse.

As a matter of policy, PSNH’s strategy enacts the classic economic mistake of “throwing good money after bad” by placing too much emphasis on “sunk costs,” an unfortunately common problem that James Surowiecki recently discussed in The New Yorker in describing the irrationality of sports teams’ commitments to ineffective players, like the Jets’ Mark Sanchez, after years of poor performance and bloated salaries.

At least sports teams suffer the consequences of their choices – they lose. With guaranteed profit and regulator-approved rates to recover its costs, PSNH and its parent Northeast Utilities have continued to win, even after a decade or more of terrible investment decisions. Unless of course PSNH can be made to pay for the mess it has created.

The key paragraph of the Concord Monitor’s editorial argues precisely this same point:

[L]awmakers must ensure that the lion’s share of the loss is incurred by investors in PSNH’s parent company, Northeast Utilities, not by New Hampshire ratepayers. That includes the huge cost of the mercury scrubber. It was investors, after all, who gambled that it made sense to spend hundreds of millions of dollars to keep an old coal plant running. They could have said no. So it’s investors who should lose if that gamble doesn’t pay off.

As PSNH looks for opportunities to spread its costs to the New Hampshire businesses and households that have escaped PSNH’s high rates, this is timely advice for New Hampshire policymakers. They should heed it.

The massive drag on New Hampshire’s economy caused by PSNH’s continued operation of the uneconomic and obsolete Merrimack Station and Schiller Station coal-fired units—extracting hundreds of millions per year in above market costs for its shareholders—is spiraling out of control, and several recent developments at the NH Public Utilities Commission raise troubling questions about what the agency empowered to protect ratepayers is doing about PSNH’s problems.

While competition among energy suppliers in New England is fostering efficiency, benefitting the environment and saving ratepayers money, PSNH’s energy service business, for which it collects its cost of service and a handsome profit, is increasingly looking like a dinosaur ready for extinction. Thousands of NH ratepayers are taking advantage of lower cost, more efficient electricity suppliers, but those remaining with PSNH are being dragged down into its death spiral.

One recent indicator is PSNH’s skyrocketing energy service rate. In early December, PSNH requested a 34% energy service rate increase (to 9.54 cents/kwh, equating to hundreds of dollars extra per household per year) beginning in 2013. At the end of December, the PUC approved the rate increase. CLF is challenging that increase at the PUC on the grounds that, even aside from the fact that it entirely consists of above market costs, NH law prevents the PUC from approving a utility’s requested rate increases when the utility has not submitted required planning documents demonstrating that it has a sound plan for serving its customers at the lowest cost. PSNH failed to submit long term least cost planning documents due last September; until they do so, the PUC is not authorized to approve their rate increases.

Fundamentally, the job of a utility commission dealing with a regulated utility like PSNH is to ensure that prices mimic the results of market competition while ensuring the best service for ratepayers. Thus far, the PUC has shielded PSNH from the consequences of its poor decisions, lack of meaningful planning, and insistence on retaining antiquated power plants that sit idly due to their high costs. It also is once again delaying the release of economic and environmental information that PSNH used when deciding to build the $422 million scrubber project at Merrimack Station. And days ago the PUC approved PSNH’s 2010 plan for its energy supply resources – a plan that utterly ignored lower natural gas market forecasts and impending environmental regulations when planning its future operations.  CLF is acting to protect ratepayers from PSNH’s dying business model; the extent to which the PUC is doing so is less than clear.

The PUC is engaged in dockets investigating both the costs of the scrubber project and PSNH’s increasing energy service costs. It remains to be seen whether these investigations will have any impact on the expensive mess PSNH has yoked to NH ratepayers, and whether PSNH will continue even farther down the path of  eroding New Hampshire’s advantage as a low cost state to grow a business and a family.

The data don’t lie. In line with the trends we’ve been warning about for years, PSNH’s coal-fired business model is in free fall:

Residential and small business customers continue to flee PSNH’s dirty, increasingly expensive energy service.

Source: NHPUC data

• Over the past year the number of residential energy customers in New Hampshire who purchased energy service from a supplier that is not PSNH jumped to around 30,000 households in December of 2012 (compared to around 2,000 households in December of 2011).
• That figure doesn’t include the veritable flood of customers who abandoned PSNH’s energy service at the end of 2012 when word got out about PSNH’s 34% rate increase (ENH reported signing up 1,700 customers on December 31 alone for service starting January 1). The stampede of residential and small business customers away from PSNH’s energy service shows no signs of slowing down.

PSNH’s coal plants are becoming even less competitive and will operate even less in 2013 than in 2012.

Source: ISO-NE, EPA, and PSNH data

• We noted before that PSNH’s coal unit capacity factors have taken a nosedive over the past five years, and they are projected to keep falling on an annual basis in 2013 (see chart below).
• A power plant’s capacity factor reflects the amount of power the plant generated compared to the amount of power it could have generated if used to its full potential; when that number is low, it means it was a better economic choice for the plant’s owner to keep the plant idle most of the time. While other coal plants throughout New England are also running at low capacity, PSNH is the only utility in the region that can force ratepayers to bear its fixed costs plus a hefty guaranteed profit, even when its plants don’t generate power.

The Bottom Line:

Even as many customers are taking advantage of cleaner, cheaper alternatives, PSNH’s dirty and costly power plants are a heavy – and growing – burden for the majority of New Hampshire ratepayers and for New Hampshire’s economy. In a future post, I’ll discuss how the state agency tasked with protecting ratepayers from unreasonable rates is handling PSNH’s implosion (spoiler: not well) and what CLF is doing about it (another spoiler: fighting to protect New Hampshire ratepayers and the environment).

photo credit: TimothyJ/flickr

Today, the New Hampshire Public Utilities Commission takes up PSNH’s request to charge its customers 9.54 cents per kilowatt hour for electric energy service in 2013. In a op-ed published this week, long-time CLF friends Ken Colburn and Rick Russman explain why New Hampshire’s crisis of escalating PSNH rates – and how New Hampshire policymakers resolve it – may be the defining economic issue for New Hampshire’s new class of leaders next year.

With PSNH’s rates to be by far the highest in the state and almost three cents higher than those of its sister utility NSTAR in Massachusetts, New Hampshire is dealing with an untenable situation: small businesses and residents are subsidizing PSNH’s above-market costs to operate and maintain dirty, inefficient, and uneconomic coal plants, to the tune of $128 million.* The average residential customer will pay $212 extra in 2013 for the dirtiest energy in the region.

To put $128 million in perspective, in 2011 New Hampshire invested less than a seventh of that amount, a mere $17.6 million, in electric energy efficiency programs – an energy solution that is lowering rates, reducing pollution, avoiding expensive new transmission projects, and creating jobs.

New Hampshire energy users are in effect giving this money away to keep alive New Hampshire’s biggest sources of toxic and greenhouse gas pollution (even though PSNH projects they will only operate at around 25% of their capacity in 2013) and to pay dividends to PSNH’s owner, New England mega-utility Northeast Utilities. And the situation will only get worse with time as PSNH customers join the thousands who have already picked an alternative energy supplier, leaving a shrinking base of customers to bear the heavy costs of PSNH’s coal fleet. (If you’re still a PSNH customer, you should definitely make the switch before the new year begins and PSNH’s new rates kick in.)

The blame for this economic and environmental travesty lies squarely with PSNH’s self-serving failure to plan for the future.

Yet PSNH is already trying to make the case that it needs a “fix” from the New Hampshire legislature to protect its coal plants, its 10% profit margin guarantee, and its protection from cleaner, cheaper competition. What’s even more bizarre – and indicative of its refusal to approach these issues honestly – is that PSNH is pinning its skyrocketing rates on the very factors that have reduced electric rates for everyone else in New England – namely, investments in energy efficiency and environmental protection and the increasing use of natural gas and competitive renewable energy sources. PSNH’s foolhardy but lucrative investments in its outdated power plants – for which it fought tooth and nail over the last decade – are the culprit, not environmental requirements that apply to all power plants in New Hampshire and across the region.

Please take a moment to read the op-ed and share widely with friends, neighbors, and especially your new representatives in Concord. For the good of the state’s economic and environmental health, they need to hear from you!

*  The math: PSNH customers will pay a 2.85 cent “premium” for every kilowatt hour over and above PSNH affiliate NSTAR’s market-based rates, and PSNH is projecting that it will sell more than 4 billion kilowatt hours of power to its remaining customers in 2013. The average household in New Hampshire uses 7,428 kilowatt hours per year.

PSNH's Merrimack Station

Frank C. Grace, www.trigphotography.com

Coal-fired power is dying, not only across the nation, but across New England as well.  The region’s coal-fired power plant fleet has started to succumb to the costs of operating a coal-fired dinosaur in the age of energy efficiency, growing renewable electricity generation, and–for now–low natural gas prices.

Predominantly coal-fired Brayton Point Station in Somerset, Massachusetts, is the state’s largest single source of carbon emissions (producing over 6 million tons in 2010). Another harmful pollutant emitted by Brayton Point is particulate matter, which is measured daily by monitors that continuously check the opacity of the soot coming out of the plant’s smokestack. Brayton has been violating their limits for emitting that soot, and failing to monitor their emissions of several other harmful pollutants. Yesterday, CLF filed a notice of intent to sue Brayton’s current owners, Dominion Resources, for those violations. CLF’s upcoming lawsuit is just the latest in a growing list of bad news for Dominion and Brayton Point.

As New England’s other coal plants started to close or teeter on the edge of closure, Brayton Point Station was expected to be the last coal plant standing in the region. It is New England’s largest coal-fired power plant, and in the past decade its current owners, Dominion Resources, sank over $1 billion in pollution control upgrades into the behemoth. While Brayton Point does not have the kind of legal protection from market realities that PSNH exploits to prop up its dirty old coal generation in New Hampshire, many had assumed that Brayton Point was well-positioned to survive in the changing power generation landscape.

source: EPA and ISO-NE data

But the relentless pressure of low natural gas prices and the costs of starting up and operating an enormous coal-fired power plant have begun to affect every corner of the coal generation market in New England, and Brayton Point has not been spared. The plant’s “capacity factor,” which reflects the amount of power the plant generated compared to the amount of power it could have generated if used to its full potential, has taken a nosedive over the past three years. A plummeting capacity factor means that it is a better economic choice for a plant’s owners to keep it idle most of the time than to operate.

Dominion Resources, clearly, has seen the writing on the wall for coal in New England. After signing a binding agreement to cease coal operations at Salem Harbor Station as a result of CLF’s lawsuit against that plant, Dominion sold the Salem plant earlier this year. Following closely on the heels of the Salem sale, the company put Brayton Point on the market in September. While Dominion is marketing Brayton as a modern coal-fired power plant due to its recent billion-dollar pollution control investments, UBS recently assessed [PDF] the value of those investments (and the plant itself) at zero.

Brayton Point’s plummeting capacity factor and bleak sale prospects reflect both the current power of low natural gas prices and the weakness of these old, out-dated coal plants.  That trend will continue as the New England energy market continues to move forward with better integration of efficiency, conservation and renewable generation. Dark clouds are rising over Brayton Point. In the meantime, CLF and our partners will work diligently to hold the Brayton Point power plant accountable for producing its own dark clouds of pollution in violation of the law.

For the past 25 years, Toxics Action Center has been “awarding” New England’s worst polluters with the dubious Dirty Dozen award. This year’s winners were no surprise: PSNH, New Hampshire’s largest electric utility, was on the list once again.

In this year’s annual spotlight on twelve of New England’s worst polluters, PSNH’s largely coal-firing Merrimack Station and Schiller Station power plants earned the award for the millions of pounds of toxic air pollution and greenhouse gases released by the plants. The Dirty Dozen awards are getting lots of press coverage around New Hampshire, and highlight the massive problems PSNH’s coal plants cause New Hampshire residents.

There is good news. Three of New England’s eight coal plants have closed in the past three years, and the rest (including Merrimack and Schiller) should be well on their way thanks to the massive economic inefficiencies of burning coal in the age of cheap natural gas. While these giant, ancient plants were built to run all day, all year round, the reduced demand for coal energy means that plants like Merrimack and Schiller are being used at historically low rates.

While the current cost of energy production at coal plants is staggering, nothing represents the exorbitant costs of coal better than Merrimack Station’s $422 million scrubber project. PSNH is already recovering the cost of that “investment” from its customers with a temporary rate increase, and has requested an even higher permanent rate increase to recover scrubber costs. Installing massively expensive pollution controls on an obsolete coal-fired power plant was recently shown to be a valueless endeavor when the investment firm UBS valued Dominion Energy’s Brayton Point coal plant (currently for sale) as a worthless asset, due to its poor prospects in the New England wholesale electricity market. Dominion has essentially written off its almost $1 billion pollution control investment at Brayton Point, which has little utility to a plant that does not operate due to its high cost to produce electricity in comparison to cleaner sources.  Merrimack Station’s scrubber investment is faring even worse in the market, because the plant is older and less efficient than Brayton Point.  In this regard, Dominion’s write down at Brayton Point foreshadows the future for Merrimack’s “investment.”

As we documented earlier this month, PSNH’s residential and small business energy service customers are abandoning the utility in favor of its competitors at a breakneck pace, following the lead of its medium and large commercial customers and creating an economic “death spiral” as costs climb and customers disappear. And since PSNH is guaranteed a profit by NH law for maintaining and operating its coal plants, the repercussions of the “death spiral” are felt by residential customers, rather than the company’s shareholders.

The residential customers who have not switched to a different energy service provider are projected to subsidize PSNH’s dirty power plants by an estimated $70 million above market rates in 2013. The above-market residential rate payments are then turned into dividends for the shareholders of Northeast Utilities, PSNH’s Connecticut-based parent company.

Northeast Utilities’ dividends are increasing steadily on the backs of New Hampshire ratepayers, and Merrimack and Schiller continue to produce pollution more efficiently than they generate electricity. How long will PSNH be allowed to fleece New Hampshire’s citizens?

Co-written with N. Jonathan Peress

This week, the developer of the Northern Pass transmission project, Northeast Utilities (NU), sunk to a new low. In a presentation at a utility industry conference, NU CEO Tom May stated that:

• “[T]his project has the support of every environmental group in New England basically.”

This is unequivocally untrue. In fact, CLF is not aware of a single New England environmental group that supports the Northern Pass project as proposed. You don’t have to take our word for it: literally dozens of New England’s environmental organizations – regional, state, and local – have registered significant concerns with, or outright opposition to, the proposed project in public comments to the U.S. Department of Energy. May’s statement is all the more puzzling given the energy that NU has devoted to attacking the efforts of groups like CLF (e.g., here and here), the Appalachian Mountain Club (e.g., here), and the Society for the Protection of New Hampshire Forests (e.g., here).

• The regional electric grid operator, ISO-NE, has been a “big proponent of this project.”

This is also inaccurate. Northern Pass is an “elective” transmission project that is not intended to address any electric grid needs identified by ISO-NE. As a result, ISO-NE is obligated to consider the project objectively alongside competing elective projects (of which there are several), and Northern Pass is not specifically endorsed in any of ISO-NE’s planning documents, such as ISO-NE’s recently released 10-year Regional System Plan for the New England electric grid. Because it is an elective project that ISO-NE didn’t ask for and doesn’t plan to rely on, ISO-NE’s primary role in reviewing Northern Pass will be to assure that it won’t have an adverse impact on the reliability of the grid, not to advocate for the project.

• New Hampshire’s new governor-elect, Maggie Hassan, is “supportive of the project.”

Governor-elect Hassan’s website contains this statement to the contrary:

Maggie opposes the first Northern Pass proposal.  As a state senator, Maggie worked to pass a constitutional amendment to prohibit the use of eminent domain for private gain, and she opposes the use of eminent domain for this project.

Maggie believes that we must protect the scenic views of the North Country, which are vital to our tourism industry.  As Governor, she will ensure that, in accordance with the law, New Hampshire undertakes a rigorous review process of any proposal and provide significant opportunities for public voices to be heard.

Maggie hopes that the next proposal will address the concerns of the communities involved.  She believes that burying the lines would be a more appropriate approach, and also supports looking into home-grown energy sources, such as the new biomass plant under construction in Berlin.

Governor-elect Hassan has also expressed her support for Governor Lynch’s approach to the project: namely, that the directly affected communities must support the project before it moves forward. With almost all the communities on the record opposing the project (and no willingness on the part of Northern Pass’s developer to consider burial as an alternative to overhead lines), it’s impossible to characterize Governor-elect Hassan’s position as support for the project.

(May’s remarks on Northern Pass are at 21:00 – 25:30 in the webcast linked here.)

Since the Northern Pass project was announced more than two years ago, CLF has identified significant problems with the proposal, including the developer’s egregiously misleading marketing of the project’s environmental attributes and other supposed benefits. CLF has repeatedly emphasized, in the words of our President John Kassel, that “long-term supplies of hydro, wind and other sources of power – that respect and significantly benefit the landscape through which they are transmitted, support rather than undermine the development of New England’s own renewable energy resources, replace coal and other dirty fuels, keep the lights on at reasonable cost, and accurately account for their impacts – are what New England needs.” Thus far, the Northern Pass project, as proposed, meets none of these criteria, and therefore is not a project CLF can support.

Beyond our specific concerns, we’ve been fighting for some basic principles that should not be controversial, such as transparency, fairness, and especially honesty. Again and again, NU has unfortunately refused to abide by these principles, repeating discredited claims about the project’s emissions reductions and outdated accounts of other benefits, marginalizing the many stakeholders raising legitimate questions about the project, and employing bullying tactics against project opponents (for the most recent example, see here).

As we explained more than two months ago, Northern Pass still has no clear path forward. In concocting a story of broad-based political and stakeholder support, NU is – deliberately or recklessly – misleading its investors with plainly false information: an unacceptable breach of NU’s legal obligations as a public company and of investors’ trust. It is incumbent upon NU to correct the record immediately and to jettison its aggressively deceptive approach to securing approval of the Northern Pass project. The public deserves far, far better.

It’s not news that New Hampshire’s ratepayers are paying too much money to support PSNH’s ancient, massively inefficient, and heavily polluting coal-fired power plants. CLF has repeatedly called out PSNH’s calamitous insistence on continuing to operate coal-fired units at Merrimack Station in Bow and Schiller Station in Portsmouth and the resulting exorbitant electric rates that PSNH customers pay.

It’s still possible to be shocked, however, by the magnitude of PSNH’s growing problems and the environmental and economic harm that PSNH’s collapse is causing in New Hampshire. And the situation is worsening: new data are confirming the futility and waste of operating coal plants, and New Hampshire ratepayers are, in what is now a full-scale stampede, abandoning PSNH to meet their electric needs with cleaner, cheaper energy from competitors.

Here is an update on PSNH’s so-called “death spiral”:

Unprecedented Idling of Power Plants

A power plant’s “capacity factor” is a ratio between the amount of electricity the plant actually produced over a given period and the amount that it would have produced had it been running at full capacity during that time. Because coal plants – like nuclear plants – take some time to ramp up and take offline, they are built to operate with a very high capacity factor, on a 24-7 basis. In 2007, PSNH operated Merrimack Station’s coal boilers at 91% capacity and Schiller Station’s coal boilers at 84%.

The new reality for PSNH: these numbers have fallen precipitously since then; over the first nine months of 2012, Merrimack’s coal units had a capacity factor of 31%, and Schiller’s coal units 9.7%.

* 2012 data through September (source: EPA and ISO-NE data)

With dirty coal being trounced in the marketplace by cheaper power sources, especially natural gas, it is a disproportionately expensive undertaking to operate a coal unit – and a veritable folly at these levels of output.

Energy Service Rate Hike in 2013

The problem for PSNH’s customers is that even though the writing is on the wall for coal power plants around the country and here in New England, PSNH is still guaranteed a ratepayer-funded profit for owning Merrimack and Schiller, which is handed over to PSNH whether or not the plants produce power. Add it all together – PSNH’s operating costs for Merrimack, Schiller, and its other power plants, PSNH’s guaranteed profit, and the cost of the “replacement” power PSNH buys from the regional market to provide electricity to its customers while its plants sit idle – and PSNH customers are paying a huge and increasing premium over rates in the competitive market.

While there are many separate charges on an electricity bill, the “energy service” rate reflects the costs of generating the electricity. At the end of September, PSNH filed a projection (PDF) with the New Hampshire Public Utilities Commission warning of a residential energy service rate increase to take effect on January 1, 2013. The utility requested a 26% increase in the amount customers pay for electricity supplied by PSNH, bringing the overall default energy service rate to 8.97 cents per kilowatt hour. PSNH has also separately requested a permanent rate increase to recover the costs of the $422 million mercury scrubber that, if passed, would bring the default energy service rate to 9.27 cents per kilowatt hour.

By contrast, just over the border in Massachusetts, PSNH affiliate NStar’s residential customers will be paying a mere 6.69 cents per kilowatt hour for power that NStar almost wholly buys from the regional market. NStar’s rates are, like virtually all New England utilities other than PSNH, reflective of the historically low electricity prices available in that market, which have steadily fallen since 2008.

What this means is that, come January, the average PSNH-served New Hampshire home will be subsidizing PSNH and its power plants to the tune of $169 per year, or more than $190 per year with the addition of the extra charge for the scrubber.

Residential and Small Business Customers Increasingly Abandoning PSNH

As CLF documented recently, PSNH’s increasing rates represent an enormous market opportunity for competitive energy suppliers in New Hampshire.

They are seizing it. September 2012 data show 17,507 residential PSNH customers (about 5%) purchasing power from non-PSNH suppliers, an increase of more than 6,000 customers over the month before and a whopping 16,000 more than September of 2011. The number of small businesses fleeing PSNH’s electricity supply has grown at a steady rate: 14,617 purchased power from non-PSNH suppliers in September 2012, compared to 9,351 in September 2011.

(source: PSNH filings with N.H. Public Utilities Commmission)

Meanwhile, the most recent data show that there are now virtually no large or medium-sized businesses that buy power from PSNH.

While retail choice in suppliers for New Hampshire’s residential and small business customers was slow in coming, the available options have expanded considerably in the past year. Resident Power, Electricity NH, and Glacial Energy all quote lower rates than PSNH, and they are increasingly offering additional choices of electricity supply from coal-free, renewable, and sustainable sources at fixed rates lower than PSNH. We can expect an even faster exodus to these suppliers and new ones like them after PSNH’s rate increase in January.

Despite the rapidly increasing number of customers choosing alternative electricity suppliers, the vast majority of New Hampshire’s residential customers still purchase their electricity from PSNH. Many customers are unable or too busy to research comparative rates and make the change. And energy supply choice alone will neither affect the astounding subsidies that PSNH is getting to prop up its failing business nor force PSNH to make the economically rational decision to retire its dirty, outdated coal plants.

We need to correct this massive public policy failure and bring to an end the severe economic, environmental, and public health damage that PSNH’s ancient coal plants are causing in the Granite State. There is now reason to believe that we are turning a corner. Maggie Hassan, New Hampshire’s new governor-elect, has been outspoken about the importance of reducing pollution from electricity generation, especially from PSNH’s coal fleet. CLF is ready to work with the new administration and Legislature to develop a comprehensive climate and energy plan that transitions the state out of the grip of PSNH’s coal-fired business model and moves New Hampshire toward a cleaner and affordable energy future.

Fellowship Attorney Caitlin Peale co-authored this post.