Witness after witness sat down at the microphone in Room 103 of the State House recently — and each of them got the same question from Senator Kevin Avard of Nashua, chair of the Senate’s Energy and Natural Resources Committee. He asked, “How are we going to lower rates?”
It is, indeed, the question of the hour. There appears to be a national consensus that electricity rates are out of control and, certainly, the concern looms large in New Hampshire. Retail electric rates took another lurch upward here on Feb. 1, thanks to higher wholesale electricity costs.
Given that, one can hardly blame Senator Avard for sponsoring Senate Bill 591. It would reopen the door for our electric utilities to get back into the generation business even though we have only recently emerged from an expensive, 22-year process of getting Eversource, Unitil, Liberty and the New Hampshire Electric Cooperative to sell off their electricity producing machines.
Senator Avard made his reasoning quite clear as he presented an amendment to his bill on Jan. 28. He thinks a shortage of generation facilities is the reason that rates are too high. In particular, he believes the construction of new high-tech nuclear generators, much smaller than the 1,200 megawatt Seabrook Station we all know and love, is how to relieve the upward pressure on rates.
As the state’s ratepayer advocate, I must respectfully disagree.
But I don’t just disagree with Senator Avard, a key Republican lawmaker. Senate Democrats are wrong about how to address electricity affordability too.
Seven of the Senate’s eight Democrats have signed onto SB 597, styled the “Lower Energy Prices Act.” In its original form, SB 597 would have outlawed annual electric rate increases of more than four percent when adjusted for inflation.
Unfortunately that approach is unconstitutional. The Takings Clause of the Fifth Amendment to the U.S. Constitution says you can’t just grab someone’s property — even the property of utility shareholders — without providing just compensation. So utility rates that are artificially limited are likely to be declared “confiscatory” by a court because, or so the logic goes, it’s no different than confiscating the shareholders’ property without just compensation.
So now the lead sponsor, Minority Leader Rebecca Perkins-Kwoka of Portsmouth, has an amendment to SB 597 with a new approach: Any utility whose rates go up by more than 4% a year must switch to a different “ratemaking system.”
The “ratemaking system” in question is known as “alternative forms of regulation” — basically, rate adjustments that are based on something other than what it costs the utility to provide service. Alternative ratemaking plans can reward, or penalize, utilities according to performance benchmarks. Or they can authorize automatic rate increases when utilities hit certain investment benchmarks.
World War III is about to break out in New Hampshire over alternative regulation. While
the Democrats are doubling down on the idea, the Republicans have bills pending in both chambers to repeal the authority of the Public Utilities Commission to approve such schemes. Governor Ayotte has publicly stated she does not like alternative regulation. And the state’s Department of Energy just filed an appeal of last year’s decision of the Commission to approve an alternative regulation plan for Eversource.
I have a better idea. Let’s stop giving Eversource and other utilities free money.
As he presided at the hearing on Senate Bill 591, Senator Avard kept referring to the utilities’ “guaranteed rate of return.” There is no such guarantee. What the law — both the Fifth Amendment and the statutory requirement for “just and reasonable” rates — secures for utilities is the opportunity (not a guarantee) to earn a reasonable rate of return.
We need to rethink what “reasonable” means in this context. Is it the 9.5% the PUC awarded Eversource last year? Or is it the 8.1% recommended by our experts? That’s a figure our experts regard as, if anything, generous to utility shareholders. Groupthink looms large here, since utilities around the country keep on getting our PUC and their counterparts around the country to approve bloated equity returns, thus effectively awarding free money to utility shareholders at ratepayer expense.
Meanwhile, rest assured: You are not crazy. The snow and the cold we’ve been experiencing have sent wholesale electricity prices skyward. We’ve been burning a lot of fuel oil to produce electricity because generators have trouble procuring natural gas during cold spells. Awful wholesale prices always trickle down to retail rates sooner or later.
Given these circumstances we should thank our legislative leaders, and our governor, for worrying about rising electric bills — and natural gas bills too. But rebuilding the vertically integrated utility empires of bygone days is not the answer, and alternative regulation is not the easy fix its proponents claim. To tame electric rate increases, we need to stop coddling utility shareholders.
Attorney Donald M. Kreis is the state’s Consumer Advocate, representing the interests of residential utility customers.