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Grant Bosse

Grant Bosse: Public Utilities Commission is power mad

The intelligent and hard-working members and staff at the New Hampshire Public Utilities Commission are working hard to lower your electric rate. They’re from the government, and they’re here to help.

The PUC and the New Hampshire Legislature have been trying to reduce New Hampshire’s shockingly high utility bills for a while now and have even introduced a sliver of market competition into the bureaucratic, overregulated, micromanaged labyrinth of electric rates.

Last week, the PUC recommended Public Service Company of New Hampshire, the state’s largest electric utility and the only one to generate much of its own power, sell its remaining generation assets. The Merrimack Station coal plant in Bow is at the heart of the issue.

The PUC report claims that while PSNH, a wholly owned subsidiary of Northeast Utilities, has more than $600 million worth of power plants on its books, the actual value of those plants is closer to $200 million. That burden forces the PUC to set PSNH’s rate for power generation well above its competitors. And as large, industrial customers and eventually more and more homeowners switch to a different supplier, those extra costs are spread among a smaller and smaller base of customers, forcing rates higher and customers to seek other options. This is known as the Death Spiral.

With natural gas prices below coal for the first time in history, PSNH runs Merrimack Station only 20 percent of the time, buying most of its power from natural gas plants.

The PUC wants PSNH to get out of the power generation business entirely and become solely a distributor. PSNH would still own and maintain the power lines, but it would get all of its kilowatts from someone else. It would still charge the distribution fees that are currently on your bill.

PSNH agrees that the costs drive its rates above the market, but faults the PUC for failing to point out why its

assets are more expensive than they are worth. Here’s why: In 2006, the Legislature passed a sweeping mercury reduction law, which mandated that PSNH install a wet flue gas desulphurization system at Merrimack Station, known as a scrubber.

The scrubber removes sulfur and mercury from the plant’s smokestacks, greatly reducing pollution. It’s also incredibly expensive. In fact, the scrubber’s $422 million price tag accounts for the entire difference between the book value and market value of PSNH’s power plants.

When the Legislature mandated scrubber construction, it limited PSNH’s ability to recover the costs to customers who actually buy power from PSNH. If PSNH delivers someone else’s power to you, you’re not paying for it. In effect, the cost of the scrubber alone drives PSNH’s default service rate well above market value. If the company could recover scrubber costs from its distribution and transmission customers, its power charge would be quite competitive.

Etna Republican Jim Rubens fought PSNH’s effort to recover “stranded costs” from ratepayers following the initial move toward electric competition in the 1990s, and he’s opposed paying for the scrubber ever since. He says if the Legislature forces PSNH to sell off its power plants at a loss, it would lead to stranded costs, Round 2.

“If PSNH were to divest, they would probably claim that ratepayers would be force to pick up the differential,” Rubens explained. “The sale price will probably be lower than the net book value.”

Rubens argues that if the Legislature had removed the mandate to build the scrubber, while requiring PSNH to meet the lower mercury emissions on its own, the company would have had a choice to retrofit Merrimack Station with a scrubber, buy power from other sources, or come up with another approach, without passing on the costs of complying on ratepayers.

This week, PSNH came back to the PUC asking to lower its energy generation charge by almost a full penny, from 9.54 cents per kilowatt hour to 8.62. This would bring is closer to its competitors, which currently advertise rates from 7.89 to 8.69 cents. The company says that a winter spike in natural gas prices has subsided, lowering its costs to acquire power. Scrubber costs make up 0.98 cents in both rates.

“It’s clearly a response to the marketplace. They’re bleeding customers,” Rubens responds. He sees the request as a tactic admission that PSNH’s default service charge is not competitive.

The Legislature spends a lot of time complaining about the high cost of electricity, but every move it makes drives that cost higher. The Regional Greenhouse Gas Initiative, Renewably Portfolio Standards and a $400 million scrubber may be justifiable for many reasons, but they all make ratepayers pay for them one way or another.

The PUC report not only fails to mention why PSNH’s generation assets are so expensive, it also neglects to address how much ratepayers would be charged for the write-off if PSNH were forced to divest. It makes huge assumptions about the unstable and unpredictable natural gas markets years into the future to conclude that it’s not worth burning coal at Merrimack Station anymore.

The PUC recommendation is the latest example of well-meaning bureaucrats trying to micromanage us to lower electric rates. It hasn’t worked out well so far.

(Grant Bosse is editor of New Hampshire Watchdog, an independent news site dedicated to New Hampshire public policy. He is a senior fellow at the Josiah Bartlett Center for Public Policy.)

Legacy Comments3

A well-known apologist for PSNH, Mr. Bosse is dead wrong in arguing that completing deregulation by forcing divestiture is "government meddling." It's quite the opposite: it would free up the market. And it's disingenuous to say that PSNH was forced to build the scrubber without also acknowledging that it was NU/PSNH's choice to keep the coal plants. Both were huge business mistakes on PSNH/NU's part driven by greed of the moment. Just by being on the books, they have made a huge annual payout to NU. NU investors should now pay for their mistakes, not NH ratepayers. But don't expect the PUC to fully do its job and deny "stranded costs" that will continue to reward NU investors for bad business practices and to penalize NH residents for being, well, the unfortunate residents of a state with a captured PUC.

It seems that psnh of CT only decided it was a good idea to build the scrubber that they had long resisted after they hiked the price from less than 250 million to almost 500 million - which is more than the cost of a brand new gas fired power plant - another shining example of their business acumen. The legislature didn't force them to build the scrubber - only if they were going to keep burning coal. There should be no "stranded costs" recovery for bad business decisions. They want to collect 10% per year [50 Million dollars per year] for the "upgrades" to this one plant. Shareholders, not ratepayers, should be on the hook for speculation as this boondoggle was widely opposed.

Grant and the Bartlett Center are an invaluable asset to NH. Every reader would serve themselves well if they bookmarked their web site and read it regularly

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