New Data: PSNH’s Coal-Fired Business Model in Free Fall

Christophe Courchesne

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.

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