As PSNH rates rise, the New Hampshire advantage is at risk

The utility’s power plants should compete in the competitive marketplace, not enjoy a favored status that retards the state’s economy

Nearly a decade after New Hampshire decided to insulate Public Service of New Hampshire and its generations-old power plants from the region’s emerging competitive market for electricity, that choice – whatever its merits at the time – has left the state in a quiet crisis of escalating electricity costs for the homeowners and small businesses that today buy their power from PSNH.

How our new governor, new Legislature and state regulators address this challenge – and whether or not they reject PSNH’s attempts to protect its favorable treatment to the detriment of New Hampshire’s innovation economy and its most vulnerable residents – will be a critical part of their legacy.

On Jan. 1, PSNH’s energy service rate is expected to climb to over 9.5 cents per kilowatt hour. All of New Hampshire’s other electric utilities are charging 7.5 cents or less. PSNH’s rates are rising to cover the costs of its aged power plants, especially its large coal and oil-fired power plants, plus a nearly 10 percent rate of return. In 2013, PSNH will likely seek even higher rates to recover the full costs of the $422 million scrubber at its largest power plant, Merrimack Station in Bow.

This plant operated less than one third of the time during the first three quarters of 2012; its higher-than-market costs prevented it from being called upon by New England’s electricity grid. PSNH’s power plants have operated less and less over the last several years due to their high costs.

Unfortunately, PSNH customers must pay not only for the replacement power that PSNH gets from other, cheaper generators, but also for the fixed costs of PSNH’s idle plants – such as the cost of the scrubber.

Today’s crisis was not unexpected, especially after it became clear in 2008 that the scrubber project would cost twice as much as PSNH estimated and was far too expensive an upgrade for a relatively small 50-year-old power plant.

Nevertheless, PSNH lobbied the Legislature intensively to proceed with the project. Today, PSNH blames “government mandates,” even though it quietly makes nearly a 10 percent return on its scrubber investment and fought hard against a review of the project when the cost doubled.

By comparison, the scrubber’s cost is more than 20 times greater than that of the Regional Greenhouse Gas Initiative – which helps New Hampshire’s businesses, communities and homeowners reduce their bills through energy efficiency.

Other utilities in New England that aren’t burdened with the costs of an uneconomic fleet of power plants – including PSNH’s own sister utilities in Massachusetts and Connecticut – are charging much less than PSNH, as are a growing group of “competitive electricity suppliers.”

Many PSNH customers have already chosen to buy power from competitive suppliers: There are virtually no large businesses in the state that buy power from PSNH any longer, and many smaller businesses and residents are following suit.

As this “migration” trend continues, it creates an unsustainable “death spiral” – PSNH’s high fixed costs are spread over a shrinking customer base, which is thus forced to pay higher and higher rates.

This is what is driving up PSNH rates, not our investments in clean energy programs like RGGI and renewable portfolio standards, which apply to all utilities.

The growing portion of PSNH rates that exceeds the current market price of power amounts to a tax levied on New Hampshire’s economy to subsidize these aged fossil fuel power plants and the well-being of PSNH and its parent company, Northeast Utilities. This outcome inflates the cost of living and of operating a business in New Hampshire and will increasingly hinder the state’s economic prosperity.

The solution is not, as PSNH has argued, to spread its costs to the many customers who have taken the opportunity to buy low-cost power from others – arguing that its power plants should be paid for even by those who do not use them. PSNH’s approach is essentially a bailout for its own misguided investments in uneconomic power plants and upgrades, and New Hampshire simply cannot afford it.

PSNH should instead be forced to buy power for its customers in the region’s competitive marketplace, where prices have been driven down over the last several years by a well-functioning market, cleaner, more efficient power sources, and strong regional investments in energy efficiency.

Whether through divestiture or some other mechanism, PSNH’s power plants should compete in that market on the same terms as other power plants, not enjoy a favored status that retards New Hampshire’s economy. And in transitioning to that market, Northeast Utilities shareholders – not New Hampshire ratepayers – should bear the costs of PSNH’s poor investment decisions.

In the new year, as the PSNH crisis deepens, New Hampshire policymakers will face a choice: to answer PSNH’s pleas to “save its plants” from the free market by taxing ratepayers more and/or taxing more ratepayers (those who don’t even buy power from PSNH), or to side with the state’s consumers and businesses as they take advantage of cheaper, cleaner energy supplies.

Our policymakers’ choice will be a defining moment: whether to protect the New Hampshire advantage and grow the jobs of the future – or not.

Ken Colburn of Meredith, principal of Symbiotic Strategies LLC, is a former executive director of Northeast States for Coordinated Air Use Management. Rick Russman of Kingston is a former Republican state senator and a co-founder of Conservation New Hampshire.