This past Friday, staff from the New Hampshire Public Utilities Commission and The Liberty Consulting Group issued the results of their investigation (PDF) into the impacts of PSNH’s failing business model and “ever higher costs” to consumers. The Union Leader and NHPR were quick to quote the report’s damning conclusion:

In summary, the situation looks to worsen, as continuing migration from PSNH’s default service by customers causes an upward rate trend. We find no supportable basis for optimism that future market conditions will reverse this unsustainable trend, especially in the near term. To the contrary, the PSNH fossil units face uncertainties that combine to create a risk of further, potentially substantial increases in costs.

This underlines the benefits of abandoning PSNH’s residential energy service, noting that “PSNH’s default service rate has exceeded [competitive supplier] rates since mid-2009.” As PSNH itself stated in a filing before the NH Supreme Court in May, PSNH energy service ratepayers “have the legal right and ability to avoid payment of PSNH’s default energy service rate entirely by buying their electricity from a competitive electric power supplier.” The PUC staff’s report serves as a call to action for New Hampshire consumers to save money, protect their finances, and improve the environment by buying energy from lower cost and more efficient energy suppliers.

PSNH’s only public response to the report thus far has been to cite the dispatch of their coal units during extreme temperature events this year as evidence that the plants are necessary “insurance” against natural gas price increases. The report itself contradicts this, however, noting that even at this year’s levels of natural gas price spike frequency and severity in New England (due to a cold winter and a late spring heat wave two weeks ago), natural gas price fluctuations “have not served to give the PSNH fossil units enough of a boost to overcome their negative value,” and that PSNH has not offered any data or analysis to rebut this finding. That is, even with the extreme peaks of electric demand felt in the past year requiring their use more often than in the past few years, PSNH’s fossil fuel fired power units still lose ratepayer money.

The report assesses the real financial impacts of PSNH’s past and possible future decisions to invest in their coal units rather than shut them down, and demonstrates that the ratepayer money lost if PSNH’s electricity generation is sold off will be lower than many might fear. The key points raised by the report include:

• Even in a best case scenario, PSNH’s already above-market rates will continue to climb. The investigation calculated PSNH’s energy service rates with a myriad of possible variables, including high natural gas prices and lower coal prices (the scenario that PSNH claims will validate its economic decisions) and a migration rate lower than PSNH reported this April. In all cases, the report found that PSNH’s default energy service rate would climb still higher than their current well above market 9.54 cents per kilowatt hour rate, to 10 or 11 cents per kilowatt hour.
• Customers continue to flee PSNH’s energy service. CLF has been reporting the steep increase in residential customers rejecting PSNH’s high energy service rates for a while now. We’ve also noted that most large commercial customers had migrated away from PSNH years ago. The combination of these two trends led to the report this May that migration across all customers reached half of PSNH’s total load as of the end of April.
• The full cost of the Scrubber Project has yet to be felt by ratepayers. PSNH has started recovering the cost of the ill-founded scrubber installation at Merrimack Station to the tune of 0.98 cents per kilowatt hour on a temporary basis. The report estimates that full recovery of the scrubber’s cost would nearly double that amount, to 1.8 cents per kilowatt hour added to ratepayers’ bills. This, of course, is a cost that competitive energy service providers don’t have to deal with.
• Looming environmental compliance projects as Scrubber redux? PSNH is currently waiting for its new final permit from EPA for cooling water withdrawal and discharge at Merrimack Station. The final permit is likely to require cooling water intake structures (like those constructed at Brayton Point Station in MA), at a price tag of $111 million or more, in addition to other protections for water quality and wildlife. Costs associated with new or impending air quality requirements would require additional compliance at significant cost, and these estimates don’t even take into account the risk posed by CLF’s ongoing Clean Air Act citizen suit.
• Potential ratepayer costs from divestment of PSNH’s electricity generation would be minimal. If PSNH’s generating assets are sold, New Hampshire state law allows PSNH to recover from ratepayers costs that are not covered by sale proceeds (“stranded costs”). The report roughly estimates that potential energy service rate increases to cover stranded costs would be no more than 0.9 cents per kilowatt hour and possibly much less, given the high value of PSNH’s hydro generation units.

The report ultimately recommends that the PUC initiate a proceeding to solicit formal feedback on the report and its conclusions. This proceeding would likely result in firmer value estimates for PSNH’s assets, interim steps that could be accomplished through the PUC’s existing authority, and more detailed recommendations for legislation.

As CLF and the Empower NH coalition have repeatedly noted, promoting and advancing competition in New Hampshire’s energy service markets yields only benefits for the state’s electricity ratepayers in the face of PSNH’s “ever higher costs” to ratepayers. While the PUC and the Legislature decide how to implement the recommendations of this report, ratepayers should continue to vote with their feet and leave PSNH’s energy service.

Source: HAM Guy, Flickr.
New Hampshire’s state flower, and my favorite sign of spring.

It’s another spring in New Hampshire, and the slow death of Public Service Company of New Hampshire’s (PSNH) coal-fired business model continues, as do PSNH’s efforts to hold back reality and hold on to its regulatory protection from competition. More and more PSNH customers are choosing cleaner, cheaper energy options, the company is again getting special treatment as it initiates a strange new program to lure those fleeing customers back, and its dirty and inefficient coal plants are once again sitting idle, with PSNH customers still paying for their upkeep.

Increasing Choices for PSNH Customers

PSNH (and shareholders of PSNH’s parent company, Northeast Utilities) must be wondering when the rate of residential customers abandoning PSNH’s energy service will slow. It certainly wasn’t during the first three months of 2013, when the number of households purchasing power from PSNH’s competitors topped 49,000. By comparison, that number was 2,704 at the end of March 2012.

The number of small businesses migrating away from PSNH has steadily increased, from 11,194 in March 2012 to 16,919 this March. Of course, PSNH’s medium and large commercial customers have been taking advantage of competitive suppliers since long before it was a practical option for residents, and they move back and forth from PSNH and the competitors much more frequently; in any given month, between 75% and 90%+ of medium and large businesses purchase their power from PSNH’s competitors.

Source: PSNH data

We last checked in on PSNH’s accelerating death spiral in January, highlighting the historically low use of its coal plants to produce power and the flight of customers away from PSNH’s ballooning rates. The utility’s ancient, filthy coal plants are sitting idle for large stretches of time during the year, at substantial cost to ratepayers, because PSNH is able to recover its costs and a guaranteed profit from its customers even when it isn’t economic to put the plants online. Despite a winter when the spot market price of natural gas was very volatile, PSNH’s coal plants provided no economic relief to its customers, as its energy rates remained almost 40% higher than those offered by other New Hampshire utilities and energy suppliers.

In response to the huge disadvantage posed by PSNH’s coal plants, the competitive atmosphere has continued to flourish in New Hampshire’s energy market in 2013. We’ve previously highlighted the residential energy services offered by companies like ENH Power and North American Power, and still more companies are hurrying to take advantage of PSNH’s above-market rates by siphoning off customers.  As the Union Leader recently reported, four new competitive suppliers have applied for licensing with the NH Public Utilities Commission already this year.

The “Alternative Default Rate”

Looking to secure a special deal to protect itself from its new competitors, PSNH applied for and received [PDF] regulator approval to pilot an “alternative default rate” to lure back customers who had switched to other suppliers. The alternative rate will only be available to large commercial customers at first, with small businesses and residential customers to be added to the program within nine months.

After the increased public awareness of competitive electricity supply in NH around the end of 2012 rate hike, the press and public were quick to take note of this plan, and customers who stayed with PSNH through the January rate hike feel doubly burned.

Saving by Switching

After PSNH’s astronomical rate hike in January, the energy rates offered competitive suppliers like ENH Power and North American Power should be even more attractive to PSNH customers who were previously cautious about making the switch. And switching online is easy, free, and safe: it takes a matter of minutes if you have a copy of your latest PSNH bill handy.

As spring turns to summer, and PSNH’s troubles grow, the ongoing challenge remains: to ensure that clean energy competition continues to flourish in the Granite State and that PSNH does not secure a legislative or regulatory bailout that subsidizes its dying business model. Although PSNH doesn’t seem willing to change its terrible economic decision to keep operating its coal plants, New Hampshire residents and businesses are taking matters into their own hands and deciding to do something about 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).

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