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Propping up outdated physical assets – with high fixed maintenance costs – in the hopes that they will someday become competitive again is not “insurance.”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.

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

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.

As the nation continues to move beyond coal as a fuel for electricity generation, PSNH continues to cling to its obsolete, uneconomic coal plants that need massive subsidies from ratepayers to operate. Conservation Law Foundation recently filed a brief with the New Hampshire Public Utilities Commission that blows the whistle on PSNH’s failure to meet its obligations under New Hampshire law to engage in responsible – or in some cases any — planning regarding the future operation of these plants.

New Hampshire requires that every electric utility file a biannual “least cost integrated resource plan,” which demonstrates that the utility has assessed its supply options and analyzed both the long and short term environmental, economic, and energy impacts it will have on the State. Instead, PSNH has filed a deficient plan that, by its own admission, has “very limited value” for decision-making purposes (Pg 115-116). CLF’s full brief in PDF format can be downloaded here. An excerpt:

PSNH’s business model is broken. PSNH’s energy supply cost structure is rapidly exceeding the ability and means of its ratepayers to pay, in what is now an intractable death spiral as customers migrate to competitive suppliers. The company over-relies on and has over invested in aging and uneconomic generating facilities at the expense of ratepayers and the environment. PSNH energy service customers are paying 40% or more above prevailing retail rates of other New Hampshire utility providers and the discrepancy is growing. The consequence is that hundreds of millions of dollars in above market payments are being extracted from New Hampshire ratepayers, while PSNH and its shareholders continue to benefit as if they are a low cost supplier, which the company clearly is not. The question before the Commission is whether the excessive costs being imposed by PSNH on its ratepayers and New Hampshire reflect, in some measure, the quality of PSNH’s 2010 least cost integrated resource plan (the “Plan”) and thus inform the adequacy of such planning as required by [New Hampshire law]. The Commission must decide whether lapses in PSNH’s planning materially contributed to adverse and avoidable ratepayer outcomes and the unsustainable rate spiral which will apparently require legislatively mandated cost shifting and/or lead to PSNH’s bankruptcy.

The evidence in this proceeding unequivocally demonstrates that PSNH’s planning failed to consider a multitude of material planning elements that are crucial to least cost planning. Without limitation, these include: 1) the Plan’s failure to include or consider forward price curves for natural gas which would dictate projected economic dispatch and margins; 2) the Plan’s failure to forecast customer migration which substantially informs the need for and cost-effectiveness of PSNH’s owned generation and entitlements; 3) the Plan’s failure to address or consider future environmental costs for PSNH’s generation fleet; and 4) the Plan’s failure to project forward energy service rates during the five year planning period. At the core of these planning lapses lies the question of whether and the extent to which it is in the ratepayers’ interests for PSNH to continue to own or operate its aging fossil fuel generation fleet, including the 1950’s vintage, small uneconomic coal units at Schiller Station. PSNH’s planning completely ignored the market trends which, beginning in 2008, reduced the capacity factors of Merrimack and Schiller Station to the point of being coal-fired peakers, notwithstanding the Plan’s assertion that they will remain baseload generators.

PSNH is continuing to ignore market realities, which is reflected by their failure to adequately plan for the future costs of continuing to operate its fleet of antiquated power plants. As we noted earlier this month, PSNH ratepayers are stuck subsidizing these uneconomic and dirty power plants through above-market energy costs.

Schiller Station, in Portsmouth, NH (photo credit: flickr/Jim Richmond)

If you’re looking for the most egregious example of PSNH’s poor planning, look no further than the continued operation of the two coal units at Schiller Station in Portsmouth. These two 1950’s era units operated at a loss of over $40 million between 2009 and 2010. An analysis conducted by the consulting firm Synapse Energy Economics predicted that this grim trend will only continue, and likely worsen, in the foreseeable future. These units are operating less each year, yet the cost to PSNH customers for the limited power they do produce is increasing. The report concluded that the continued operation of these units will result in future net losses and PSNH ratepayers should not be forced to pay for these shortfalls. PSNH needs to engage in a rigorous review of continuing to operate the coal-fired units at Schiller Station, as “given their age, operating costs, low reliability, and high heat rates, there is not likely to be any economic future for these units” (Pg 14).  Similarly, Connecticut’s integrated resource plan has predicted that the Schiller coal units should retire by 2015 for economic reasons (Pg B-21). Furthermore ISO-NE, the regional energy overseer, is also planning for the retirement of antiquated coal power plants, noting that these resources are facing economic challenges (Pg 9-10).

The operation of uneconomic units, coupled with PSNH’s ongoing attempt to recoup the cost of installing a $422 million scrubber at its half-century-old coal-fired Merrimack Station, boils down to increasing the energy rates for PSNH customers – already the highest in New Hampshire. This cost recovery charge, along with charges for above-market supply contracts, has led PSNH to propose a rate structure that will exceed 10 cents per kWh! As other companies enter New Hampshire to provide lower cost alternatives, the migration away from PSNH’s above-market rates has continued, worsening PSNH’s economic “death spiral.”

Why is PSNH acting this way? It’s pretty clear – like other dinosaur fossil fuel companies that have failed to anticipate the contours of a clean energy future, PSNH wants to preserve its subsidies to boost near-term corporate profits, virtually all of which are the above-market costs of PSNH power plants (including the 10% rate of return that New Hampshire guarantees). The New Hampshire Public Utilities Commission is taking note.  On June 27 it ordered PSNH “to undertake a systematic review of operation, materials and capital costs, including personnel costs, associated with the operations of its fossil fuel plants given the low capacity factors of these units.”

CLF is calling for PSNH to conduct a rigorous planning analysis to investigate whether continued operation of its antiquated coal units is in the best interests of New Hampshire. All the evidence suggests that, if credible, any such analysis would show, unequivocally, that it is (long past) time for PSNH to stop asking ratepayers to subsidize uneconomic and dirty coal power.

We are in the midst of a massive, historic retreat in the nation’s use of coal to produce electricity, which began in 2008. This ongoing shift away from our dirtiest fuel has made news around the country. The primary reason: coal-fired power plants – expensive new facilities and decades-old dinosaurs alike – can’t compete in today’s marketplace. Investors and customers are moving toward cleaner, cheaper alternatives, principally natural gas but also renewables (especially wind) and high-tech ways of reducing energy use.

The national trend is occurring here in New Hampshire and throughout New England. This week, New Hampshire learned that PSNH is not operating its flagship coal plant, Merrimack Station in Bow, and that its economic prospects are not good. In fact, the plant will sit completely idle for six months of 2012, prompting the Manchester Union Leader to run the headline, “PSNH’s Bow power plant shuts down.” (The word “temporarily” was later added to the online story.) The two coal boilers at PSNH’s Schiller Station in Portsmouth will operate even less. (The Nashua Telegraph also took note.) This is welcome and long overdue relief for New Hampshire from New England’s top toxic polluter, and it would not have happened without legal pressure from CLF and others. More on our work in a moment.

Across the region, coal use has been collapsing for some time — and this was not unpredicted, as PSNH is claiming. PSNH’s claims to the contrary convey its willfully myopic planning perspective – a direct result of its expectation that ratepayers will cover its costs with a handsome profit irrespective of how utterly unsuccessful its investment decisions have been.

Coal-fired power plants’ “capacity factors” – their actual power output as a percentage of their theoretical maximum output at full power, running 24/7 – are intended to be very high; these plants were designed to run at close to full power day and night as “baseload” power for the electric grid. Not anymore:

In 2012, the trend is accelerating. Nationally, the U.S. Energy Information Administration reports that, in the first quarter, coal power accounted for only 36% of total generation – the smallest role for coal in a generation and down almost 9% from the first quarter of 2011. Regionally, a new milestone came in April, when the regional electric grid announced that, during the previous month, it didn’t dispatch any power from New England coal plants to meet the region’s electric demand.

For public health, air quality, the environment, the climate, and the communities where these plants are located, these trend lines are all in the right direction. For years, CLF’s Coal-Free New England 2020 campaign has fought to speed this progress and to make it permanent, by holding plant operators accountable for violating environmental laws (including at Merrimack Station), securing final and binding agreements to guarantee closure, and working in coalition with local residents to plan for responsible redevelopment and reuse of the plants’ sites.

In New Hampshire, with the complicity of state regulators, PSNH made big bets that the market for its coal-fired power will exist for years to come. One such spectacularly bad gamble was PSNH’s investment – over vigorous opposition from CLF, ratepayer advocates, and others – in a life extension project for Merrimack Station, including air pollution controls that address only some of the plant’s toxic and harmful emissions, to the tune of $422 million, plus a 10% guaranteed profit, money it now wants back from New Hampshire residents and small businesses through the regulator-approved rates it charges. Given coal’s collapse, which CLF and ratepayer advocates predicted at the time, this investment looks absurd and unwise, except of course to PSNH and its parent company Northeast Utilities, which has repeatedly reassured shareholders it is entitled to get back the full value of the upgrade, even if the plant barely runs.

Why has PSNH been so richly rewarded for such terrible economic decisions? Put simply, New Hampshire’s backward relic of a regulatory system is still protecting PSNH and its coal plants from the market. Remarkably, ratepayers continue to pay for upkeep and staffing at PSNH’s power plants, even when they sit idle, and also pay that same 10% profit on the value of all PSNH assets, including its quiet coal piles – and that’s whatever book value PSNH assigns, not market value.

PSNH has fought tooth and nail to protect its special treatment. Earlier this year, PSNH pulled out all the stops to kill a bill that would have directed state regulators to investigate whether PSNH’s ownership of power plants, including Merrimack and Schiller Stations, is in the best interest of ratepayers. After PSNH’s full-court press of lobbying, editorial board visits, and pressure from PSNH employees as well as PSNH-allied unions, politicians, and chambers of commerce, the House tabled the bill.

In the meantime, PSNH remains in an economic “death spiral” with very few large business customers to cover its costs. As a result, its remaining customers – homeowners and small businesses – are now paying as much as 50% more for power (8.75 cents per kilowatt-hour) than are customers of other utilities – which do not own power plants and get all their power from the competitive market (around 6 cents per kilowatt-hour). And the Legislature continues to seek the rollback of New Hampshire clean energy laws under the guise of easing ratepayer burdens, mistaking small trees for the forest of PSNH’s above-market rates, which include the costs of both PSNH’s idle fleet and buying power from more efficient plants.

What is CLF doing about it? Against the odds, we’re succeeding at forcing New Hampshire regulators to scrutinize PSNH’s costs, and the fact that PSNH’s coal plants are now sitting idle and the corresponding benefits to public health and the climate are a product of that scrutiny and a testament to CLF’s advocacy. And we’re pushing for regulators to do much more to hold PSNH accountable for its abysmal planning and force PSNH’s shareholder Northeast Utilities – and not suffering PSNH ratepayers, who are paying among the nation’s highest electric rates – to bear the downside of PSNH’s bad bets on coal. The last thing we should be doing with our energy dollars is subsidizing dirty power that can’t compete.

The market is providing an unprecedented opportunity to make that Union Leader headline from this week – and headlines like it for every other coal plant in the region – an enduring reality as New England transitions to a clean energy future. New Hampshire and the rest of New England should seize it.

A dispatch from the future? Manchester Union Leader headline, May 8, 2012

Outlook with your head in the sand? Pretty dark, even when the future around you is bright. (photo credit: flickr/tropical.pete)

In a public hearing tomorrow, a legislative committee of the New Hampshire House will take up a proposal – House Bill 1238 – to force Public Service of New Hampshire’s dirty, costly power plants to confront the realities of the electric marketplace. The bill would require PSNH to sell (“divest”) its plants by the end of next year. Tomorrow’s hearing on House Bill 1238 is scheduled for 8:30 am in Representatives Hall under the dome of the New Hampshire State House, on North Main Street in Concord.

The debate is long overdue and comes at a critical time. Over the last several years, New England’s restructured electric market has overwhelmingly turned away from uneconomic facilities like PSNH’s coal and oil-fired power plants and toward less-polluting alternatives, especially natural gas. For most New England customers, this technology transition has resulted in lower electric bills, and we have all benefited from cleaner air. In the next few years, well-managed competitive markets are positioned to help us move to a real clean energy future that increases our use of energy efficiency, renewable resources, demand response, and innovative storage technologies.

CLF has played a key role in this process by, among other things, ensuring that coal plants are held accountable for their disastrous impacts on public health and the environment. As highlighted in an excellent op-ed in the Concord Monitor this week, CLF’s work includes our federal court case against PSNH’s Merrimack Station, New Hampshire’s biggest source of toxic and greenhouse gas emissions, which has repeatedly violated the Clean Air Act by failing to get permits for major changes to the plant.

Meanwhile, like the proverbial ostrich, PSNH gets to ignore what the market is saying. PSNH’s state-protected business model is a relic that has become a major drag on the pocketbooks of New Hampshire ratepayers and New Hampshire’s economy. Current law protects PSNH from market forces because it guarantees PSNH and its Connecticut-based corporate parent Northeast Utilities a profit on investments in PSNH’s power plants, whether or not they operate and whether or not they actually make enough money to cover their operating costs – an astounding rule for the small-government Granite State, to be sure.

The costs of this guarantee fall on the backs of New Hampshire residents and small business people, who effectively have no choice but to pay for PSNH’s expensive power. For their part, larger businesses have fled PSNH in droves, for cheaper, better managed suppliers. This has shrunk the group of ratepayers who are responsible for the burden of PSNH’s high costs, translating into even higher rates for residents and small businesses.

PSNH customers face the worst of both worlds – electric rates that are among the highest in the nation and a fleet of aging, inefficient, and dirty power plants that would never survive in the competitive market.

It is by now beyond dispute that these plants are abysmal performers. Last year, CLF and Synapse Energy Economics presented an analysis to New Hampshire regulators showing that the coal-fired units at PSNH’s Schiller Station in Portsmouth will lose at least $10 million per year over the next ten years, for a total negative cash flow of $147 million. The analysis did not depend on natural gas prices remaining as low as they are now or any new environmental costs; because it is old and inefficient, Schiller will lose money even if gas prices go up and it doesn’t need any upgrades. According to information provided by PSNH to regulators last week, PSNH’s supposed workhorse Merrimack Station will not even operate for five months this year because it would be uneconomic compared to power available in the New England market. Nonetheless, PSNH ratepayers will be paying for the plant even when it does not run.

It will only get worse: PSNH’s rates could skyrocket later this year if New Hampshire regulators pass on the bill for PSNH’s $422 million investment in a scrubber for Merrimack Station to ratepayers, and other costly upgrades of PSNH’s fleet may be necessary to comply with environmental and operational requirements in the future. And the PSNH-favored Northern Pass project, if it ever gets built, would only exacerbate the situation for PSNH ratepayers by making PSNH power even less competitive and reducing the value of PSNH power plants.

PSNH is hitting back against House Bill 1238 with its typical full-court press of lobbying and PR, and we can expect a packed house of PSNH apologists at tomorrow’s hearing. PSNH has even resorted to starting a Facebook page – “Save PSNH Plants” – where you can see PSNH’s tired arguments for preserving the current system plants as a “safety net” that protects PSNH employee jobs and a hedge against unforeseen changes in the energy market. The pitch is a little like saying that we should pay Ford and its workers to make Edsels half a century later, just in case the price of Prius batteries goes through the roof. Make no mistake: PSNH is asking for the continuation of what amounts to a massive ratepayer subsidy for as far as the eye can see.

Public investments have gotten a bad name lately, but it is at least clear that sound commitments of public dollars to energy should be targeted, strategic, and forward-thinking. They should help move us, in concert with the much larger capital decisions of the private sector, toward a cleaner energy future. Instead, PSNH is fighting for New Hampshire to keep pouring its citizens’ hard-earned money, year after year, into dinosaur power plants. That’s a terrible deal for New Hampshire, and CLF welcomes the House’s effort to open a discussion on how to get us out of it.

photo credit: l . e . o/flickr

With each passing day, the dire reality of PSNH’s coal-fired business model is becoming clearer in New Hampshire.  The cost of operating PSNH’s obsolete power plants continues to grow, accelerating the Company’s death spiral where fewer captive ratepayers are saddled with unsustainable above-market rates as more PSNH customers choose to buy power from better managed competitive suppliers.  We are also learning that Northern Pass will make the situation worse for ratepayers, not better, and that PSNH and its Northern Pass partners are poised to pull in huge profits.  In just the last few days:

• PSNH revealed that, as it has begun bringing online its $450 million scrubber project at PSNH’s 50 year old coal-fired Merrimack Station, the bill is now coming due. If state regulators at the New Hampshire Public Utilities Commission (PUC) approve passing the cost on to ratepayers, the energy rates for PSNH customers – already the highest in New Hampshire by a wide margin – will go up by at least 1.2 cents per kilowatt hour, or almost 15%.  CLF is seeking to intervene in the PUC proceeding on the rate increase.  PSNH, unsurprisingly, wants to keep CLF out, in addition to any other party seeking to intervene on behalf of ratepayers.  There is no better illustration of the folly – for ratepayers and the environment alike – of major new investments in coal-fired power plants than PSNH’s flawed effort to extend the life of Merrimack Station.  These investments are a disaster for ratepayers, and don’t even ensure compliance with the plant’s environmental requirements – a case CLF is making right now in federal court with regard to other modifications to Merrimack Station.
• Large commercial and industrial customers with the buying power to avoid the high rates for PSNH’s fossil power continue to do so in dramatic numbers.  PSNH announced that, in September, about 82% of these customers were buying power elsewhere in the market (accounting for 93% of the power delivered to these customers) – a phemonenon known as “migration.”  Meanwhile, more than 99% of New Hampshire residents in PSNH territory were left behind to pay PSNH’s already exorbitant rates.  The scrubber rate increase is going to make this situation even worse for residents – additional businesses will find other suppliers and PSNH will need to jack up its rates even more.  More cost-effective competitive suppliers are cleaning PSNH’s clock among large customers.  Given the company’s excessive and increasing rates, residential ratepayers are starting to vote with their pocketbooks for more sustainable energy supplies.
• It is becoming increasingly clear that the current Northern Pass proposal is designed around PSNH’s bottom line, not the interests of New Hampshire ratepayers.  As we’ve mentioned before, the large customer “migration” problem and its upward pressure on homeowners’ electric bills are likely to get worse with Northern Pass, which would further depress regional wholesale electric rates and encourage more customers to leave PSNH.   Adding in the cost of the scrubber will only widen the divide between the businesses that can choose other suppliers and potentially benefit from Northern Pass, and the residential customers who are currently  stuck with PSNH. A new wrinkle emerged last week – testimony from PUC staff showing that PSNH’s consultants estimated a year ago that Northern Pass will cannibalize PSNH’s already meager revenues from Newington Station, PSNH’s little-used power plant in Newington, New Hampshire, that can operate with either oil or natural gas.  Northern Pass would mean it would almost never run and that the investments ratepayers have made over the years to keep Newington Station operating will essentially be lost.  This same dynamic will apply to the rest of PSNH’s power plants:  Northern Pass will diminish their market value further exposing New Hampshire businesses and residents to the risk of excessive costs.  Once again, a series of poor decisions and self-interested advocacy by PSNH (at the expense of ratepayers) is forcing the legislature to intervene.

The costs of PSNH’s coal-fired power plants are becoming untenable, and a radically redesigned Northern Pass proposal and other alternatives could help PSNH meet its customers’ power needs more cheaply and with less damage to public health and the environment.  Instead of planning for a cleaner energy future, PSNH is working only to preserve its regulator-approved profits.  CLF will be using every tool at our disposal to force a rethinking of PSNH’s approach.

PSNH: In a death spiral? (photo credit: CC/Nick Seibert)

In every possible way – on television, in mailings, and on the web – New Hampshire has heard again and again that the proposed Northern Pass transmission project will reduce electric rates for New Hampshire customers. The claim is at the core of PSNH’s case that the project is a good deal for New Hampshire. If only it were true…

As I mentioned in a post last month, the very design of the project as it stands is for reduced electric rates to benefit only those ratepayers that get their power from the regional electric markets. In New Hampshire, homes and small businesses in PSNH territory would see very little benefit because their energy rates are overwhelmingly tied to propping up PSNH’s old, inefficient fleet of coal-fired and oil-fired power plants.  These plants would not be able to compete with other cleaner power sources if forced to compete in the marketplace, something New Hampshire law does not currently allow and PSNH has fought to avoid. (Supposedly, an agreement between PSNH and Hydro-Québec for some power for PSNH customers is in the works, but, if it ever materializes, Northern Pass has said it would only be for a small amount of power, which would not do much to change PSNH’s overall portfolio. Northeast Utilities admitted as much in testimony before the Massachusetts DPU this week and also noted that there is “really little activity” around securing any such agreement.)

As explained in a piece on NHPR featuring our own Jonathan Peress, the above-market costs of PSNH’s aging fleet are causing large customers to buy power from (or “migrate” to) cheaper suppliers. Regulators this week turned back PSNH’s attempt to saddle those customers with its fleet’s escalating costs. But this situation is creating a so-called “death spiral,” because PSNH is forced to raise its rates again and again on a shrinking group of customers – homeowners and small businesses who do not have the purchasing power to contract with another supplier.

What does this all have to do with Northern Pass? The truth is that Northern Pass will – indeed, is intended to – make the “death spiral” worse.  If Northern Pass lowers the regional price of power as all those ads proclaim, it will make PSNH power even less competitive, causing even more customers with choices to leave PSNH behind.  PSNH spokesman Martin Murray so much as promises that result when he says in the NHPR piece that Northern Pass power will not displace PSNH generation. As Jonathan explained on NHPR, that means that the same homeowners and small businesses that will have to deal with 180 miles of new transmission lines will have higher, not lower, electric rates. This is not the Northern Pass story PSNH has been telling.

None of this makes sense. PSNH’s coal- and oil-fired power plants are bad for ratepayers and disasters for public health and the environment. As our lawsuit filed last week makes clear, PSNH’s efforts to prop up its largest plant failed to comply with even basic emissions permitting requirements and have increased that plant’s emissions. Any plan to import Canadian power with PSNH’s name on it should provide real benefits to its own customers and focus on responsibly freeing New Hampshire (and the lungs of millions of New Englanders) from PSNH’s dirty, uncompetitive dinosaurs.

ADDED: I should also point out, in the same Massachusetts DPU proceeding mentioned above, that counsel for NSTAR (the junior partner in Northern Pass) asserted that “[i]t’s entirely speculative as to what the impact of Northern Pass will be on rates in New Hampshire, and then [migration].”  Quite a statement given Northern Pass’s public relations campaign asserting that rates will go down. And we disagree with NSTAR’s counsel wholeheartedly. It is reasonable – not speculative – to expect the current proposal will lead to higher rates for PSNH ratepayers.