Earlier this week, I brought a message from New Hampshire to a gathering of major players in the Northeast’s energy industry in lower Manhattan, the Platt’s Northeast Energy Markets Conference.
Remember Northern Pass, that novel Northeast Utilities transmission project that would import 1,200 megawatts of large-scale hydropower from Hydro-Québec?
The project, as it was conceived and pitched to the region and the industry, Northern Pass version 1.0 if you will, is dead.
I ran through the key financial elements of the original proposal, what I called the Northern Pass gambit:
- $1.1 billion to build a new transmission line, funded wholly by Hydro-Québec.
- A generous “return on equity,” or guaranteed profit on project costs, of 12.56% for project developer Northeast Utilities, paid by Hydro-Québec.
- Easy and inexpensive siting approvals for the line, which would be located solely in New Hampshire, mostly in corridors controlled by Northeast Utilities subsidiary Public Service of New Hampshire, the state’s largest and most powerful electric utility.
- Ample profits that would cover all Northern Pass costs and much more for Hydro-Québec, which would sell its hydropower in New England’s lucrative wholesale electric market, where energy prices were, in 2008 and 2009 when Northern Pass was conceived, orders of magnitude higher than Hydro-Quebec’s costs of generating power.
- Unlike New England-based renewable projects, no public or ratepayer subsidies.
These elements looked good to investors on paper. But they have, one by one, fallen apart, and they no longer add up. I took the audience through the Northern Pass reality:
- Years of a stalled siting process, as Northeast Utilities tries to purchase a new route for the northernmost 40 miles of the project, where PSNH has no transmission corridor, with repeated missed deadlines for announcing the new route and restarting the federal permitting process.
- Increasing costs – an estimated additional $100 million in project costs already, even without accounting for any new route, mitigation commitments, or any underground component.
- Growing doubt (even more pronounced than a year ago) that Hydro-Québec can recover Northern Pass development costs and its hydropower costs (which will only increase as costly new dam projects continue in northern Québec) through energy exports, given that wholesale energy prices in New England are now much lower.
- Opposition by the vast majority of communities affected by the project, 33 at last count, local chambers of commerce, political leaders, and a diverse, well-organized grassroots movement of residents.
- No support from any New England environmental group.
- Mounting risk to NU’s lucrative return on equity, with the underlying deal expiring in 2014, and any renewal subject to federal regulators’ recently more skeptical view of such incentives.
And finally, I gave the eulogy for the key financial element of Northern Pass 1.0 – the one that attracted so much interest in regional energy circles, was the project’s key distinguishing feature from New England renewable energy projects, and continues to reside within the project’s discredited and misleading media campaign: the promise that the project would not require any subsidies.
In the last several months, as CLF predicted, Northeast Utilities, Hydro-Québec, and their allies have launched a major initiative to secure out-of-market subsidies of one form or the other for Canadian hydropower. These efforts are now raging in the legislatures of Connecticut and Rhode Island and are simmering in other New England states. CLF is deeply engaged in protecting our state Renewable Portfolio Standard laws from this incursion and in turning back any long-term deals that will supply Canadian hydropower to these states at above-market prices or in a way that threatens renewable deployment in New England.
What would Northern Pass 2.0 look like? On the ground, whatever the “new route” New Hampshire continues to wait for, it will almost certainly look the same as Northern Pass 1.0, suffering from many of the same failings. But there will be some key differences, as the project’s underpinnings shift to accommodate a new economic reality. It will rely on public and/or ratepayer subsidies that will mean that New England will pay an above-market premium for the power or will provide an out-of-market gift of long-term energy price certainty to Hydro-Québec, in part to finance the associated transmission. In addition, many in New Hampshire’s North Country believe that the project will need to be sited on public land that is legally off-limits to circumvent the strong, ongoing efforts of the Society for the Protection of New Hampshire Forests to secure blocking conservation easements – in effect, another public subsidy for the project that will face overwhelming pushback in New Hampshire. (Clearly, Northern Pass’s dogged legislative fight to secure an ability to use eminent domain for the project, which it lost in resounding fashion in 2012, was only a preview of coming tactics.)
As CLF has consistently said, there may be appropriate alternatives to Northern Pass that strengthen New England’s access to Canadian hydropower resources, but only if those alternatives are pursued through well-informed, fair, and transparent public processes, provide meaningful community and ratepayer benefits, displace our dirtiest energy resources, and verifiably result in carbon and other emissions reductions. It does not appear that the emerging Northern Pass 2.0 – buoyed by a set of special deals and no discernible improvements – would do anything to advance these basic common sense principles, which should guide the region’s transition to a resource mix that will power New England’s clean energy future.
With few signs that Northern Pass’s sponsors have learned lessons from their missteps so far, Northern Pass 2.0 looks to have an even tougher path in New Hampshire than the dead end road that Northern Pass 1.0 has traveled. This was a message from the Granite State that the world of energy industry insiders and analysts needed to hear.