2014 Energy Policy: Divesture of PSNH Power Plants
HB 1602 an act relative to the divestiture of PSNH assets, addresses the issue of Public Service of New Hampshire (PSNH)’s remaining power plants. In recent days, the House Science, Technology and Energy Committee voted 11-1 to pass the bill and begin an intensive review process at the NH Public Utilities Commission (PUC). This topic has arisen a number of times over the past several years; however, in 2014, the ground shifted and the value of the plants to customers changed considerably:
1. Merrimack Station, the coal burning plant in Bow NH, and most of the rest of the fleet have become a peaking unit, used 30% of the time or less. When the legislature authorized what was then expected to be a $250 million investment in the plant, it ran as a base load unit, operating nearly 90% of the time. Ratepayers pay for these plants and costs whether the plants operate or not.
- Following divestiture, a new owner will likely make better use of the plant, operating it as part of a larger fleet, and treating it as a peaking unit mainly used in winter months.
2. In 2014, migration of PSNH customers is now over 55%. Nearly all of PSNH large customers have left and gone to the market, as have a measurable number of commercial customers. In 2013, approximately 25% of residential customers migrated.
3. The true cost of the scrubber at Merrimack Station will grow overtime. First proposed as a $250 million cost in 2008, cost overruns put the price tag at $437 million. In addition to this cost, the ratepayers make a 9.1% annual equity payment to PSNH, which costs nearly $40 million a year. The annual operating cost of the plant is paid by ratepayers. Over the life of the plant, these costs and the impact on ratepayers will grow each year. (Paying interest to PSNH for two or three years of scrubber recovery while the prudency rate case drags on will also cost ratepayers).
4. There are two major environmental issues lurking in the background of PSNH power plants. The first is an Environmental Protection Agency (EPA) permits issue that addresses the water discharge at Merrimack Station. The EPA position is that discharging hot water into the river is not allowed, and a cooling system needs to be installed. PSNH is disputing this finding. But should the EPA prevail, the $150 million or more pricetag will be added to this plant. In addition, there is an important federal lawsuit working its way through the system that charges PSNH violated federal law when it made investments in its coal power plants that should have triggered a new source review, which would likely have closed the plants as they would not have been able to meet current pollution standards. In late 2013, PSNH lost its motion to dismiss this case, indicating it was weak. If the case is concluded while PSNH still owns the plants, the ratepayers will be responsible for paying for a plant that will never operate.
Risk of No Action on HB 1602:
- The current structure doesn’t work. Ratepayers are paying for a fleet of peaking plants as if they were base load plants.
- Migration of PSNH customers will very likely increase, accelerating the death spiral in which fewer customers are left to pay for an expensive set of power plants, leading to the need to spread the costs among few customers with the impact of higher rates for those who remain, leading to more customers leaving. At some point, too few customers will remain and policy makers will be forced to tax non-PSNH customers for these costs.
- Every year that divestiture is delayed; the annual carrying costs of the scrubber grow.
- The pending environmental compliance issues surrounding the PSNH plants could pop up at any time in the next year or two. Absent divestiture, the ratepayers will own these costs.
For more information on divestiture and energy policy in NH, please contact Jim Monahan, Vice President of the Dupont Group.