PSNH seeks OK to borrow up to $600m for scrubber, emergencies

Public Service of New Hampshire is asking permission from the New Hampshire Public Utilities Commission to borrow up to $600 million for up to 40 years — the largest such request the company has made at one time in absolute terms.If the utility ends up borrowing the full amount, it would owe a total of $1.3 billion by the end of 2012, more than doubling its debt load in five years.PSNH said there is nothing unusual about the increase in borrowing because the request is over a 2-1/2-year period, and the money would allow the company to build its aging infrastructure to withstand the onslaught of bad weather and increased environmental regulations.The company said the money would give it the flexibility to deal with a sudden emergency, such as the recent ice storm, and to take advantage of the lowest possible interest rate in a volatile bond market, as well as refinancing some short-term debt.The company’s debt to equity ratio would remain approximately the same, said Stephen Hall, rate and regulatory service manager of PSNH.“You seem to imply that debt is a bad thing,” said Hall. “It is not. Equity is much more expensive than debt, and you have to balance the two.”The last time PSNH asked for anywhere close to a similar amount of borrowing capacity it was in 1986, to finish building the Seabrook nuclear power plant.PSNH filed for bankruptcy reorganization two years later because it was in over its head in debt.This time PSNH’s largest capital item is the controversial $457 million scrubber, which is supposed to be installed to bring the company’s coal-fired plant in Bow up to federal mercury emissions standards.Several environmental organizations, and some of PSNH’s large customers, oppose the project, saying that it might be better to scrap the plant and use that money to invest in conservation and alternative energy.Only about a quarter of the $600 million requested would be used for the scrubber installation, but no one disputes that it is the scrubber that it will be front and center in comments about the bonding request. (PSNH wants a decision at the end of September.)

‘Flexibility’ soughtPSNH last year borrowed $122 million to fund the scrubber through a $150 million bond issue that was opposed by environmental groups and the state PUC Consumer Advocate’s Office.The new request would probably include $148 million for the scrubber, according to PSNH spokesperson Martin Murray. Indeed, according to the PUC filing, the utility says it probably won’t even need to borrow all $600 million — $435 million is the likely amount, it says, with about $210 million sought in the first quarter of 2011 and some $225 million in the first quarter of 2012.PSNH is asking for more than it needs because it wants the “flexibility, just in case,” said Murray, to borrow more money with quicker notice to take advantage of interest rates, or in case PSNH faces an ice storm-like emergency. And it is asking for it all at once to save the expense of asking for it each year, he said.Terms of the bond issue are vague, depending on the bond market at the time, but the interest rate cannot be more than 4 points above the applicable fixed or floating interest rate. PSNH would file a report some 30 days after issuing the debt to determine the exact cost of borrowing, but estimated closing costs on the entire $600 million are $4.5 million.“The issuance of long-term debt associated with paying that cost is normal business,” said Murray. “What is unusual is that we are seeking the right to issue debt over a multi-year period, if it is in the interest of customers.”But Art Cunningham, an attorney for the New Hampshire Sierra Club — which plans to intervene in the case — insists the borrowing is “not routine.”Thomas Frantz, who heads the PUC’s electric division, agreed somewhat. “I wouldn’t say it is unusual, but it is not routine,” he said. “It’s a fairly significant debt they are proposing to authorize.”‘No comparison’The most PSNH has sought to borrow in the last decade was in 2001, when the company asked for $300 million. It did not make another request for three years after that. In 2004, it asked for $100 million, in 2005, $50 million, and 2007, $200 million. It made no borrowing request in 2008.The company’s current outstanding long-term debt is $837 million, up from $577 million at the end of 2007. If all the new debt sought is used, PSNH’s long-term debt would rise to $1.27 billion and total debt would be $1.32 billion, according to the filing.The last time PSNH took on that level of borrowing was in the mid-1980s.In order to complete building the Seabrook nuclear power plant, PSNH borrowed $425 million in 1984, and in 1986 it added another $325 million. The utility filed for bankruptcy in January 1988.In today’s dollars, the 1984 bond issue would have been for $906 million.Hall said “there is no comparison” between the company’s pre-bankruptcy debt and today’s. “Back then, we were in a cash crunch, the sole focus was on building the power plant. It was a risky company with a debt ratio much higher than 50 percent. We are a much healthier company today.”But in 1984, electricity usage was on the rise, and Seabrook not only added to the company’s assets, it expanded its ability to generate electricity.This time, the projects covered are a host of items that deal with transmission, distribution and generation and would primarily be used to maintain the existing system, from expanding the budget for tree-trimming to preventing damage during the next ice storm and, of course, the Bow scrubber, which would enable the company to meet new environmental regulations. And demand for electricity is declining.But, Hall said, the lower demand is primarily a result of the recession. And with the eventual advent of technology for plug-in cars, the demand for electricity will eventually increase again, and PSNH would be ready with a much more reliable system.In the meantime, the only way to pay for the projects covered by the borrowing request is to raise rates. Indeed, said Hall, the latest request for a rate increase has taken these various capital projects into account.But are the projects necessary, asks the Consumer Advocate’s Office and the Sierra Club.The advocate opposed PSNH’s last bonding request because ”the record contains no evidence that any of the projects were “necessary for PSNH to continue to provide safe and adequate service,” the office said at the time.The PUC rejected that argument, saying at the time that it shouldn’t have “to review in detail each and every capital expenditure for which a utility might use the proceeds of a financing that is subject to the Commission’s approval,” and besides the rate impact of the bond issue at the time was minimal.But it added at the time that, while “certain financing-related circumstances are routine, calling for more limited Commission review of the purposes and impacts of the financing … other requests may be at the opposite end of the spectrum, calling for vastly greater exploration of the intended uses and impacts of the proposed financing.”The Sierra Club said it plans to argue that the latest borrowing circumstances aren’t routine. First, the organization said PSNH is asking for more than $600 million, if extension of short-term borrowing, which PSNH estimates at $214 million, is included. The request also includes a $100 million revolving line of credit.
“You add it all together, and you are pushing a billion dollars authorization,” said the Sierra Club’s Cunningham.In addition, Cunningham argued that the Bow scrubber may not help the plant meet eventual mercury standards, and it would do nothing to help the company comply with the tightening of other Clean Air Act standards.“These are real serious cost implications. I don’t see spending all this huge amount of money on 20-year-old equipment and still end up violating the act,” said Cunningham.Such unexpected costs, said opponents, are one reason PSNH might be asking for more borrowing capacity than it needs. If PSNH thinks “that the pollution control equipment will cost substantially more than it projects, why don’t they just say that?” said Cunningham.But, according to Murray, the extra amount being sought is more of a cushion for bad weather, not unexpected cost overruns.Bob Sanders can be reached at bsanders@nhbr.com.