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House, Senate approve PSNH divestiture bill

PUC to determine the final outcome

Should New Hampshire’s largest public utility sell off its fossil-fuel-burning power plants? That is the question the state Legislature decided the Public Utilities Commission should answer.

Both the House and Senate passed the bill yesterday that calls on the commission to determine whether it’s in the best economic interest of Public Service of New Hampshire’s customers for the utility to sell off some or all of its generating facilities, which include Merrimack Station, Schiller Station and Newington Station.

The bill will now go to the governor’s office for final signature. And if passed, the PUC – made up of three commissioners appointed by the governor and confirmed by the Executive Council – should begin proceedings by the first of next year.

The commission’s decision will likely impact consumer rates. Although almost none of the stakeholders involved, including PSNH, opposed the bill to give the decision to the PUC, opinions are divided on which option is best for the state’s electric customers.

PSNH officials have said divestiture, or the selling off of its generating fleet, is not in the best interest of its customers. The utility, the only one in the state that owns and operates its own generation facilities, did not oppose the bill because the PUC is the proper forum for the decision, said the company’s vice president of generation, Bill Smagula.

But PSNH contends that its fleet of power plants is an important part of New Hampshire’s energy mix at a time when the market is largely dependent on a volatile natural gas supply.

“For some period of time retaining generation . . . is important to meet customers’ needs,” Smagula said. For several months over this winter, it was more economical for PSNH to run its fossil-fuel power plants than to purchase electric power, generated by natural gas, off the open market, said PSNH spokesperson Martin Murray. That was due, in part, to a lack in pipeline infrastructure, he said.

“We’re on the verge of a high-risk period. Nobody is building anything and we’re without really a solution in sight,” Smagula said. PSNH’s plants that run about 40 to 50 percent of the time, Smagula said, provide insulation from natural gas volatility and “closing the plants, it just doesn’t add up to me.”

For consumer advocate groups and other power providers, it’s a different story.

“We have to ask, how much does an insurance policy have to cost to be of value,” said New Hampshire’s consumer advocate Susan Chamberlin. “From my perspective, it’s not fair for consumers to have to pay for plants that are really old and rarely run,” she said.

As the costs to maintain and operate PSNH’s fleet of power plants have risen, customers have migrated away from PSNH to purchase power from other retailers, said Michelline Dufort, who represents EmpowerNH, a coalition of environmental and consumer organizations, business and trade groups, and power providers that support both the bill and divestiture. That trend is unsustainable, because as more customers leave, the increasing costs are spread out among a smaller rate base, she said. The phenomena has been dubbed a “death spiral.”

Dufort said she doesn’t see market conditions changing anytime soon that would reverse the trend.

“The costs of those power plants and additional investments that may be required . . . continue to be a major burden for PSNH customers,” she said. “The divestiture process would put an end to that burden, put limits around how much customers have to pay and set an endpoint for it.”

A staff report put together by the PUC and released in April concluded that over the long term there will continue to be a disparity between PSNH’s default service rates and market prices. The report said PSNH’s default service customers “would be better off under a divestiture of the PSNH assets if the stranded costs were recovered from all customers.”

The issue of so-called stranded costs are a question mark in the equation. In the case of a sale, the stranded costs represent the difference between the price the plants would fetch on the open market and their value on PSNH’s books. According to the April PUC staff report – based on analysis by La Capra Associates – that difference is in the $400 million range. Someone, usually the ratepayers, covers that cost.

It would be worked out during the PUC’s review and would depend on many factors, Chamberlain said. They include how much money the plants would get in a sale, whether default customers or all PSNH customers would pay the stranded costs, and the outcome of an ongoing docket at the PUC to determine how much cost the company will recover for a $422 million scrubber it installed at Merrimack Station.

“That’s where the devil’s in the details,” said Sen. Jeb Bradley, a Wolfeboro Republican who sits on the Senate’s Energy and Natural Resources Committee.

The PUC will need to work through all of those variables during its review. By March 31 of next year the commission must submit a progress report to a legislative oversight committee, according to the bill’s language.

“This is a major step forward,” Bradley said. “I think there will have to be a collaborative process . . . to create a winning solution for everybody.”

(Allie Morris can be reached at 369-3307 or at amorris@cmonitor.com.)

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