Storm clouds gather for New Hampshire electric ratepayers

Christophe Courchesne

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.

Focus Areas

Climate Change

Places

New Hampshire

Campaigns

Northern Pass

8 Responses to “Storm clouds gather for New Hampshire electric ratepayers”

  1. Thanks Christophe for the excellent analysis. Two questions.

    1. Picking up on a point we discussed a while ago on this blog, PSNH has now confirmed that if Northern Pass goes forward and the existing PSNH right of way (ROW) is used for a portion of the project, then PSNH will expect to negotiate rental or use fees that will ultimately be paid by Hydro-Quebec.

    We did a grossly simplistic, apples to oranges comps analysis (using landowner rental payments in recent shale gas leases as a proxy for the value of land rights as a percent of transaction revenues) and estimated that PSNH could theoretically seek up to $150MM annually as ROW rental payments, assuming an average $1B annual revenue stream to Hydro-Quebec from sales of electricity over Northern Pass.

    That number may be off by orders of magnitude, but even at plus or minus 75% it certainly is a big number in the context of PSNH’s revenues. In thinking about impact, it would seem (at first blush) that any ROW rental payments to PSNH may be part of the regulated business and would thus flow, directly or indirectly, into rate considerations.

    Has CLF given any thought as to how that revenue stream might be used by PSNH in the context of reshaping its operations along the lines CLF advocates? In terms of CLF’s policy goals, would the balance of considerations indicate that that revenue stream would be “best” left at PSNH (ie, trade above-ground towers on existing PSNH ROW for large incremental revenue stream to assist PSNH in refitting its business), or would it be “best” allocated to, say, the state of New Hampshire (ie, bury the transmission lines on existing state ROWs such as highways or rail beds and route the rental money to the state, recognizing there may be less money if design/build costs are higher)?

    It seems like there may be some complex tradeoffs here, and any thoughts you could share would be helpful to the public in thinking this through.

    2. Your last paragraph talks about a “radically redesigned Northern Pass proposal”. Could you share some of the elements of what might be an acceptable redesign from CLF’s point of view?

    Thanks again, and best,

    Jim (and Sandy)

    • Christophe Courchesne

      Jim and Sandy – Thanks as always for your questions. As you can appreciate, the first one is very hard to answer right now, and we also do not yet have the underlying facts that will determine the regulatory treatment of the ROW revenues. The allocation of the revenue stream is an important issue; it certainly suggests the private incentives are preventing any discussion of alternative project designs or approaches more in line with the public good. At this point, we are focused on advocacy to ensure Northern Pass advances – and does not hinder – a clean energy future for New Hampshire and the region and to achieve” (a) a solution with minimal impact on the environment and communities; (b) equitable sharing of benefits and burdens from the project; (c) displacement of dirty power, and (d) a market that encourages energy efficiency and provides a level playing field for local renewable energy. As currently conceived, the Northern Pass proposal is not poised to achieve these outcomes – the record so far suggests that it falls short for all four objectives. Even if ROW revenue were reallocated for public benefit, it is unclear whether such a commitment would materially change the way we see the current proposal. I will say that the use of existing state ROWs, with ROW revenues providing a direct source of financial benefits to the state, is an intriguing option that CLF has strongly urged the Department of Energy to consider in its NEPA review of Northern Pass.

  2. Thanks Christophe for the excellent analysis. Two questions.

    1. Picking up on a point we discussed a while ago on this blog, PSNH has now confirmed that if Northern Pass goes forward and the existing PSNH right of way (ROW) is used for a portion of the project, then PSNH will expect to negotiate rental or use fees that will ultimately be paid by Hydro-Quebec.

    We did a grossly simplistic, apples to oranges comps analysis (using landowner rental payments in recent shale gas leases as a proxy for the value of land rights as a percent of transaction revenues) and estimated that PSNH could theoretically seek up to $150MM annually as ROW rental payments, assuming an average $1B annual revenue stream to Hydro-Quebec from sales of electricity over Northern Pass.

    That number may be off by orders of magnitude, but even at plus or minus 75% it certainly is a big number in the context of PSNH’s revenues. In thinking about impact, it would seem (at first blush) that any ROW rental payments to PSNH may be part of the regulated business and would thus flow, directly or indirectly, into rate considerations.

    Has CLF given any thought as to how that revenue stream might be used by PSNH in the context of reshaping its operations along the lines CLF advocates? In terms of CLF’s policy goals, would the balance of considerations indicate that that revenue stream would be “best” left at PSNH (ie, trade above-ground towers on existing PSNH ROW for large incremental revenue stream to assist PSNH in refitting its business), or would it be “best” allocated to, say, the state of New Hampshire (ie, bury the transmission lines on existing state ROWs such as highways or rail beds and route the rental money to the state, recognizing there may be less money if design/build costs are higher)?

    It seems like there may be some complex tradeoffs here, and any thoughts you could share would be helpful to the public in thinking this through.

    2. Your last paragraph talks about a “radically redesigned Northern Pass proposal”. Could you share some of the elements of what might be an acceptable redesign from CLF’s point of view?

    Thanks again, and best,

    Jim (and Sandy)

    • Christophe Courchesne

      Jim and Sandy – Thanks as always for your questions. As you can appreciate, the first one is very hard to answer right now, and we also do not yet have the underlying facts that will determine the regulatory treatment of the ROW revenues. The allocation of the revenue stream is an important issue; it certainly suggests the private incentives are preventing any discussion of alternative project designs or approaches more in line with the public good. At this point, we are focused on advocacy to ensure Northern Pass advances – and does not hinder – a clean energy future for New Hampshire and the region and to achieve” (a) a solution with minimal impact on the environment and communities; (b) equitable sharing of benefits and burdens from the project; (c) displacement of dirty power, and (d) a market that encourages energy efficiency and provides a level playing field for local renewable energy. As currently conceived, the Northern Pass proposal is not poised to achieve these outcomes – the record so far suggests that it falls short for all four objectives. Even if ROW revenue were reallocated for public benefit, it is unclear whether such a commitment would materially change the way we see the current proposal. I will say that the use of existing state ROWs, with ROW revenues providing a direct source of financial benefits to the state, is an intriguing option that CLF has strongly urged the Department of Energy to consider in its NEPA review of Northern Pass.

  3. Thanks Christophe for the excellent analysis. Two questions.

    1. Picking up on a point we discussed a while ago on this blog, PSNH has now confirmed that if Northern Pass goes forward and the existing PSNH right of way (ROW) is used for a portion of the project, then PSNH will expect to negotiate rental or use fees that will ultimately be paid by Hydro-Quebec.

    We did a grossly simplistic, apples to oranges comps analysis (using landowner rental payments in recent shale gas leases as a proxy for the value of land rights as a percent of transaction revenues) and estimated that PSNH could theoretically seek up to $150MM annually as ROW rental payments, assuming an average $1B annual revenue stream to Hydro-Quebec from sales of electricity over Northern Pass.

    That number may be off by orders of magnitude, but even at plus or minus 75% it certainly is a big number in the context of PSNH’s revenues. In thinking about impact, it would seem (at first blush) that any ROW rental payments to PSNH may be part of the regulated business and would thus flow, directly or indirectly, into rate considerations.

    Has CLF given any thought as to how that revenue stream might be used by PSNH in the context of reshaping its operations along the lines CLF advocates? In terms of CLF’s policy goals, would the balance of considerations indicate that that revenue stream would be “best” left at PSNH (ie, trade above-ground towers on existing PSNH ROW for large incremental revenue stream to assist PSNH in refitting its business), or would it be “best” allocated to, say, the state of New Hampshire (ie, bury the transmission lines on existing state ROWs such as highways or rail beds and route the rental money to the state, recognizing there may be less money if design/build costs are higher)?

    It seems like there may be some complex tradeoffs here, and any thoughts you could share would be helpful to the public in thinking this through.

    2. Your last paragraph talks about a “radically redesigned Northern Pass proposal”. Could you share some of the elements of what might be an acceptable redesign from CLF’s point of view?

    Thanks again, and best,

    Jim (and Sandy)

    • Christophe Courchesne

      Jim and Sandy – Thanks as always for your questions. As you can appreciate, the first one is very hard to answer right now, and we also do not yet have the underlying facts that will determine the regulatory treatment of the ROW revenues. The allocation of the revenue stream is an important issue; it certainly suggests the private incentives are preventing any discussion of alternative project designs or approaches more in line with the public good. At this point, we are focused on advocacy to ensure Northern Pass advances – and does not hinder – a clean energy future for New Hampshire and the region and to achieve” (a) a solution with minimal impact on the environment and communities; (b) equitable sharing of benefits and burdens from the project; (c) displacement of dirty power, and (d) a market that encourages energy efficiency and provides a level playing field for local renewable energy. As currently conceived, the Northern Pass proposal is not poised to achieve these outcomes – the record so far suggests that it falls short for all four objectives. Even if ROW revenue were reallocated for public benefit, it is unclear whether such a commitment would materially change the way we see the current proposal. I will say that the use of existing state ROWs, with ROW revenues providing a direct source of financial benefits to the state, is an intriguing option that CLF has strongly urged the Department of Energy to consider in its NEPA review of Northern Pass.

  4. Thanks Christophe for the excellent analysis. Two questions.

    1. Picking up on a point we discussed a while ago on this blog, PSNH has now confirmed that if Northern Pass goes forward and the existing PSNH right of way (ROW) is used for a portion of the project, then PSNH will expect to negotiate rental or use fees that will ultimately be paid by Hydro-Quebec.

    We did a grossly simplistic, apples to oranges comps analysis (using landowner rental payments in recent shale gas leases as a proxy for the value of land rights as a percent of transaction revenues) and estimated that PSNH could theoretically seek up to $150MM annually as ROW rental payments, assuming an average $1B annual revenue stream to Hydro-Quebec from sales of electricity over Northern Pass.

    That number may be off by orders of magnitude, but even at plus or minus 75% it certainly is a big number in the context of PSNH’s revenues. In thinking about impact, it would seem (at first blush) that any ROW rental payments to PSNH may be part of the regulated business and would thus flow, directly or indirectly, into rate considerations.

    Has CLF given any thought as to how that revenue stream might be used by PSNH in the context of reshaping its operations along the lines CLF advocates? In terms of CLF’s policy goals, would the balance of considerations indicate that that revenue stream would be “best” left at PSNH (ie, trade above-ground towers on existing PSNH ROW for large incremental revenue stream to assist PSNH in refitting its business), or would it be “best” allocated to, say, the state of New Hampshire (ie, bury the transmission lines on existing state ROWs such as highways or rail beds and route the rental money to the state, recognizing there may be less money if design/build costs are higher)?

    It seems like there may be some complex tradeoffs here, and any thoughts you could share would be helpful to the public in thinking this through.

    2. Your last paragraph talks about a “radically redesigned Northern Pass proposal”. Could you share some of the elements of what might be an acceptable redesign from CLF’s point of view?

    Thanks again, and best,

    Jim (and Sandy)

    • Christophe Courchesne

      Jim and Sandy – Thanks as always for your questions. As you can appreciate, the first one is very hard to answer right now, and we also do not yet have the underlying facts that will determine the regulatory treatment of the ROW revenues. The allocation of the revenue stream is an important issue; it certainly suggests the private incentives are preventing any discussion of alternative project designs or approaches more in line with the public good. At this point, we are focused on advocacy to ensure Northern Pass advances – and does not hinder – a clean energy future for New Hampshire and the region and to achieve” (a) a solution with minimal impact on the environment and communities; (b) equitable sharing of benefits and burdens from the project; (c) displacement of dirty power, and (d) a market that encourages energy efficiency and provides a level playing field for local renewable energy. As currently conceived, the Northern Pass proposal is not poised to achieve these outcomes – the record so far suggests that it falls short for all four objectives. Even if ROW revenue were reallocated for public benefit, it is unclear whether such a commitment would materially change the way we see the current proposal. I will say that the use of existing state ROWs, with ROW revenues providing a direct source of financial benefits to the state, is an intriguing option that CLF has strongly urged the Department of Energy to consider in its NEPA review of Northern Pass.

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