“No supportable basis for optimism” and “ever higher costs”: PUC Staff calls out PSNH’s failed business model
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.