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Editorial: An uncertain future for PSNH

Utility regulators are listening closely, and New Hampshire lawmakers should be too. What they’re hearing is a sucking sound that could turn into a roar as customers flee the state’s largest, and most expensive, electricity producer for cheaper alternatives. The more that leave, the bigger the burden will be on the remaining residential customers, whose rates must pay the cost of Public Service of New Hampshire’s vintage power plants and the $422 million scrubber the company installed on its coal-fired plant in Bow.

Nearly all of PSNH’s big customers – the state’s manufacturers and big commercial enterprises – left long ago, and about half of its small business customers have jumped ship. Last year, the flight of the utility’s 420,000 residential customers began in earnest. About 30,000 now get power from competitors who buy electricity produced by burning newly cheap natural gas on the open market. About 3,500 customers who received power from PSNH by default left in December, and that was before the utility’s state-regulated energy rate went from 7.11 cents per kilowatt hour to 9.54 cents.

Last month, the migration away from PSNH prompted the Public Utilities Commission to open an investigation into the phenomenon and its effect on the utility’s ability to “maintain default service at just and reasonable rates.” In hopes of doing so, PSNH wants PUC approval to offer an “alternate default energy rate” or discount rate to large customers who have been getting power elsewhere for at least two years if they come back to PSNH. If that plan succeeds, the utility says, the pool of customers that pay the cost of its power plants will increase, bringing costs down for all.

That’s a big if.

Because natural gas has been so cheap, PSNH’s three coal- and oil-fueled plants have run less and less often in recent years. The costs to staff and maintain the plants – excluding the cost of the Bow scrubber – run about $43 million per year, according to testimony filed with the PUC. The utility considers paying that cost reasonable, since the plants are needed during peak demand periods like the recent cold spell that caused natural gas prices to spike dizzyingly. PSNH customers, the utility said, saved $15 million because the company operated its plants over those two weeks.

The old plants are insurance against such spikes or a disruption in the gas pipelines serving New Hampshire, but they are expensive insurance. At some point, the PUC and lawmakers will have to decide whether to order PSNH to divest itself of its power plants or separate into a regulated transmission system and a generation system that competes on the open market instead of being guaranteed a 9.86 percent return on its investment. That’s not the question before the PUC at the moment, but it will have to be answered sooner rather than later.

PSNH doesn’t believe the day will come when retaining the plants won’t be a good deal for it customers in the long run, because it believes natural gas prices will continue to rise until burning coal is cheaper. But coal emits twice the volume of greenhouse gases per unit of energy produced as natural gas, so no decision should be made without considering that factor.

If the PUC approves PSNH’s discount rate to lure back customers, regulators and lawmakers should give it a year to see if it lowers costs for residential customers. If so, fine. If not, it will be time to take up the divestiture question again. It’s likely that no one will come forward to buy power plants that are a half-century old, so divestiture could be synonymous with closure.

Either way, a big loss is inevitable. If that happens, lawmakers 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.

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