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Propping up outdated physical assets – with high fixed maintenance costs – in the hopes that they will someday become competitive again is not “insurance.”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

The front page of the Boston Globe last week presented a powerful, timely and cautionary tale about  two liquefied natural gas terminals  that sit off the coast of Gloucester and Salem. Those terminals are the tangible reminder of a massive push undertaken by energy industry insiders to build such terminals.  The intensity of that push, which began to build around 2002, becoming most intense during the 2004  to 2007 period and then petering out in the years since, contrasts sharply with the reality described in the Globe article: that those two offshore terminals have sat idle for the last two years.

That push to build LNG import facilities, which was such a mania in energy industry circles circa 2005, yielded some crazy ideas, like the proposal to hollow out a Boston Harbor Island and the infamous Weavers Cove project in Fall River. The offshore terminals, while the least bad of those proposals, reflected short sighted thinking detached from careful regional planning.  Both in terms of the need for these facilities and design decisions like regulators not forcing the projects to share one pipeline to shore instead of (as they did) twice disturbing the marine environment to build two duplicative pieces of infrastructure.

Today, the hue and cry is no longer about LNG, instead we are bombarded with impassioned demands for more natural gas pipelines as well as more measured discussions of the need for “smart expansions”. Will we have the collective intelligence to be smarter and more careful this time? Will the permitting process force consideration, as the law requires, of alternatives that make better use of existing infrastructure and pose less risk to the environment and the wallets of customers? Fixing natural gas leaks and becoming much more efficient in our use of gas is a key “supply strategy” that needs to be on the table and fully examined before committing to new pipelines.

And as it so often is, the overarching issue here is protecting future generations by addressing the climate issue. Science and prudent energy analysis, makes it clear that we need to put ourselves on a trajectory to end the burning of fossil fuels, including natural gas by the middle of this century. Given this reality every proposal to build massive and long-lived facilities to import more of those fuels must be viewed with great skepticism.

A few weeks ago, Springfield, MA, was rocked by a natural gas explosion that destroyed a building, ruined a city block, and was hailed as a miracle because no lives were lost.

The pipelines that lie below our communities, always out of sight, came suddenly came into focus. The explosion reminded us of the sobering reality that our streets are not always safe. Despite smart investments in energy efficiency and new energy technologies in New England, when it comes to natural gas, whose infrastructure is among the oldest in the nation, we have been reluctant to prioritize investment in replacing and repairing the pipes and valves that we rely upon not only to heat and power our homes, but to keep us safe.  When it comes to natural gas efficiency and investment, there is much more we can do – so much more.

We need to improve safety, increase efficiency, and reduce the risk to communities and to our planet. It is my belief, as well as that of my colleagues here at CLF, that we can and should make our communities healthy and safe from the unnecessary risk of explosions from old and leaky pipelines. This is vital, for two reasons.

It’s vital because methane, the major component of natural gas, is 25 times more potent as a global-warming causing gas than CO2. In a year that has broken so many temperature records, and in an age when climate is showing the signs of human distortion, we are constantly reminded of the strain we are placing on our global ecosystem. It is a strain we need to urgently reduce.

It is also vital to replace and fix pipes leaking natural gas because it is so combustible. Springfield reminded us of this fact. So too did the explosions that that rocked San Bruno, California in 2010, Allentown, Pennsylvania, in 2011, and Gloucester, MA in 2009, and most recently, Sissonville, West Virginia, to name only a few. These explosions are reminders of the serious care and attention that our natural gas infrastructure needs. If we fail to provide them with that care, we gamble with our safety, and with our lives, as this image from the San Bruno explosion vividly shows.

As my colleague Shanna Cleveland recently said, “The need for action is particularly acute in Massachusetts where over one-third of the system is considered ‘leak-prone’—made up of cast iron or unprotected steel pipe.” The leaks in Massachusetts are so significant that the gains by efficiency programs put in place by Massachusetts regulators are disappearing into thin air. A report released by CLF by that name (Into Thin Air, available to download for free here) documents how these leaks, known as “fugitive emissions,” are being borne not by the utilities, or by the regulators, but by consumers. Utilities pass the cost of lost gas onto ratepayers to the tune of $38.8 million a year. Here’s an infographic from that report:

Another report by Nathan Phillips of Boston University combines Google Earth and research into a compelling visualization of just how prevalent these leaks are.

Like the explosion in Springfield, Nathan’s map documenting the 3,356 separate natural gas leaks under the streets of Boston reminds us that, as we walk or drive down the street, we are often driving through an invisible cloud of natural gas leaking from aging pipes. If you are like me, to accept the avoidable risk of a predictably volatile gas is deeply unsettling.

With the exuberance for cheap, domestic natural gas on the rise, proposals for new massive interstate pipelines are in the works. Houston-based Spectra, a natural gas pipeline company, is proposing a $500 million expansion for Massachusetts alone. Before we go down that route, I would like to make three simple suggestions.

1) Whether the natural gas industry ever delivers on its claim of being more environmentally friendly than coal or oil depends on how well natural gas infrastructure addresses leaks. We develop more accurate tools for assessing the greenhouse gas emissions from pipelines.

2) Not only is investment in new pipelines and power plants expensive, but it comes with serious and lasting environmental consequences whose costs are too often discounted or ignored.  Before we blindly rush ahead with investments to expand, we need to look closely at the full range of costs.

3) Finally, we would do well to remember the lessons we have learned so well about the environmental and financial benefits of looking to efficiency first. Efficiency, both in the traditional sense of reducing our use of natural gas, and in the sense of maximizing the efficiency of our existing natural gas infrastructure by replacing outdated infrastructure and repairing leaks will reduce risk, reduce costs, reduce environmental impacts and put people to work throughout the region.

As the explosions in San Bruno, Gloucester, Allentown, and Springfield have reminded us, this is about the safety of our communities. We should not let promises of short-term profit in new projects trump both the near-term risk of thousands of leaks and the long-term sustainability of this region and stability of our climate.

Ignoring leaky natural gas infrastructure is risky business. Let’s fix what we have, and maximize our efficiency gains, before aggressively expanding. We’ll be more sustainable, and safer, that way.

Photo courtesy of Wiertz Sébastien @ flickr.

It’s been a great year for CLF — and a great year on CLF Scoop. We’ve had lots of great posts by our advocates, staff and volunteers. See below for the most read 10 blog posts published in 2012.

Counting Down to Shark Week 2012
Nov 11, 2011 by Robin Just

The Promise of Urban Agriculture: New Growing Green Report
Jul 12, 2012 by Jo Anne Shatkin and Melissa Hoffer

Latest Research: Northern Pass Worse for the Climate than Advertised
Feb 14, 2012 by Christophe Courchesne

The “New Route” for Northern Pass Won’t Cure Its Failings
May 24, 2012 by Christophe Courchesne

Salem Harbor Enforced Shutdown: The Beginning of the End for Old Coal in New England
Feb 10, 2012 by N. Jonathan Peress

Risky Business: Leaking Natural Gas Infrastructure and How to Fix It
Nov 28, 2012 by Shanna Cleveland

Everything You Know Is Wrong: Growing the Economy Without Growing Electricity (and Energy) Demand
Oct 1, 2012 by Seth Kaplan

It’s Time to Stop Subsidizing PSNH’s Dirty Power
Feb 1, 2012 by Christophe Courchesne

Save the Beach or Save Your House: Which Would You Choose?
Apr 25, 2012 by Tricia K. Jedele

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

As the exuberance for “cheap, domestic” natural gas has heightened, so has pressure to build new pipelines and power plants.  Often lost in the frenzy, however, is the sobering reality that our existing natural gas infrastructure is in need of some serious care and attention.  A recent study highlighted the fact that the pipelines that deliver gas to our homes and businesses are riddled with thousands of leaks.  A large number of those leaks can be blamed on a system that still includes significant amounts of cast iron–some of which dates back to the 1830s.

Explosions in Philadelphia and Allentown, Pennsylvania in 2011 as well as a 2009 explosion in Gloucester, MA were traced to aging cast iron.  Coupled with the massive San Bruno explosion, the issue spurred the U.S. Department of Transportation to issue a “Call to Action” urging regulators and pipeline operators to accelerate the repair and replacement of high risk pipe.  Given this sense of urgency, the estimated timelines for replacement seem interminably long:

•  81% of the remaining cast iron is buried in only 10 states:

• Of these states, seven have implemented programs with deadlines for complete replacement:

• New Jersey – 2035; New York – 2090; Pennsylvania – 2111; Michigan – 2040; Illinois – 2031; Alabama – 2040; Connecticut – 2080; Missouri – 2059.

Really? Decades to get the job done, at best?  And about a century to fully “modernize” pipes in some states? Sad, but true.

Though public safety is the primary driver behind pipe replacement and repair, whether the natural gas industry ultimately delivers on its claims for being less damaging to the climate than oil or coal depends on how well natural gas infrastructure addresses leaks.  In addition, those who are clamoring to blindly forge ahead expanding new natural gas infrastructure before we’ve fully assessed the condition of our current system would do well to remember the lessons that New England has already learned so well about the financial and environmental benefits of looking to efficiency first.  Not only is investment in new pipelines and power plants expensive, but it comes with serious and lasting environmental consequences whose costs are too often discounted or ignored.  Why not maximize opportunities for operating the existing natural gas system more efficiently first, before building (and paying for) more?

Despite the fact that we know natural gas prices are predictably volatile, several states have begun to take action to lock energy customers into long-term commitments to buy natural gas-fired power, thus locking them into paying for the fuel even when the price spikes.  For example, here in Massachusetts, one legislator has championed the idea of providing 10-20 year long term contracts for a new natural gas plant.  The problem with signing a long-term contract for electricity from gas is that while customers benefit when the cost of gas is low, they suffer when the price spikes, as it inevitably does.  That’s notably different from long-term contracts for renewable energy which typically have a guaranteed, fixed price.

Proposals for new massive interstate pipelines are in the works as well.  Spectra, a Houston-based natural gas pipeline company is proposing a $500 million expansion for Massachusetts. And all the lines on the map for proposed expansions of pipeline leading from the Marcellus Shale to the Northeast rival the Griswold Family Christmas lights display.

Before we spend billions on new infrastructure chasing the next gold rush, we must repair and rebuild our existing infrastructure and examine the tried and true tool of efficiency.   A recent study on the potential for natural gas efficiency in Massachusetts showed that efficiency could reduce winter electric demand enough to support the increased use of gas on the system without building new infrastructure:

From Jonathan Peress's presentation at the Restructuring Roundtable on June 15, 2012

But there is a risk that regulators will not fully take these very real benefits into account as they review and approve the latest energy efficiency plans.  Indeed, traditional energy efficiency naysayers are using the low price of gas as an excuse to call for reduced investment in efficiency.

The bottom line is that natural gas does have a role in our energy future, but it  is one that must be carefully managed and minimized over time if we are to have any hope of averting climate catastrophe.  In the meantime, before we jump to expand new natural gas infrastructure, we need to look closely at what we already have in the ground and apply the lessons we’ve learned about efficiency.

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