PSNH turns to N.H. Supreme Court in scrubber showdown with PUC

What could be at stake is either millions of dollars in savings for ratepayers or a multimillion-dollar hit to shareholders

Public Service of New Hampshire has filed an appeal with the New Hampshire Supreme Court of several Public Utilities Commission decisions related to the agency’s continued examination of whether the utility can pass on the costs of the $422 million mercury scrubber at its Bow power plant to customers.

Although the appeal – filed Wednesday — is technical and procedural in nature,  what could be at stake is either millions of dollars in savings for ratepayers or a multimillion-dollar hit to the shareholders of Northeast Utilities, PSNH’s parent company.

For the last two years, the PUC has been questioning whether PSNH should have chosen to shut down the coal-burning Merrimack Station rather than install the scrubber or try to sell it when it became obvious that economic conditions were changing, making the investment to upgrade the plant is no longer prudent.

PSNH argues that it never had such a choice, that both the Legislature, the PUC, environmental agencies and even the Supreme Court mandated that it go ahead with installing the scrubber. The company also says that it was unfair – or, in legal terms, “arbitrary, unreasonable, or capricious” — for the PUC to change its mind and reopen the whole question after PSNH invested all that money.

The company also asserts that the PUC didn’t have the authority to interfere with the mandates, and it said so in earlier decisions.

PSNH argues in its appeal, starting with a Christmas Eve order in 2012 — as well as additional decisions in May, July and August of this year — the PUC concluded that “installation of the scrubber was not mandated, that it has the authority to determine whether PSNH failed to exercise prudent management discretion by building the scrubber, that it does have the authority to determine whether PSNH can recover any of the costs of doing so, even if the project was otherwise prudently managed,” and thus the commission has “turned this matter into a political football.”

The PUC declined to comment on pending litigation, but in its Aug. 27 ruling on similar PSNH pleadings, the commission stated that the utility misunderstood its previous rulings.

The PUC said it did not have the authority to stop the utility from going ahead with the scrubber, but it always made clear its authority to determine whether PSNH could recover its costs when it sought to do so.

In other words, it let the company proceed, but at its own risk.

“No utility may proceed blindly with the management of its assets or act irrationally with ratepayer funds; PSNH had a duty to its ratepayers to consider the appropriate response, possibly even including a decision to no longer own and operate Merrimack Station, when facing changing circumstances,” said the commission in its August order.

The PUC’s 2008 order “made clear the scope of our eventual prudence review would encompass those issues.”

Divestiture issue

The decision to install the scrubber has been a contentious issue ever since the estimated cost of the project jumped from $250 million to $457 million in 2008 — two years after state lawmakers gave the utility the go-ahead on installation.

A number of environmental groups and businesses – in particular, Stonyfield Farm — challenged the law, arguing that it was better to simply close down the Bow plant rather than continue to spend money to comply with increasingly stringent environmental standards.

PSNH overcame every legal challenge, and the scrubber was completed in 2011, two years before deadline, and $35 million under the revised budget, successfully meeting legal requirements to reduce emissions of mercury, sulfur oxide and other pollutants.

Since then, thanks to increased competition generated by the lower price of natural gas, almost all of PSNH’s large business customers and a significant number of small businesses and individuals began fleeing to competitors. That left fewer customers for PSNH to spread the scrubber’s cost over a smaller customer base.

The scrubber got tied up in the whole question of whether the company should divest from such costly fixed assets. PSNH maintains that there was value in hanging on to a diverse portfolio, as the region becomes increasingly dependent on natural gas.

Currently, the scrubber is responsible for nearly a penny of the company’s energy rate of 8.62 cents per kilowatt hour, but that’s temporary. The cost could end up being more than 2 cents – a quarter of the energy rate — depending on the results of litigation and the number of customers that remain when such a decision is finally reached. Although the energy rate is only a portion of a customer’s bill, it is that rate on which alternative energy providers compete.

Those competitors have joined environmentalists in arguing that ratepayers shouldn’t foot the entire bill for the scrubber.

“When they started signing contracts for construction in 2009, this was a time when everything was happening in Wall Street. They were well aware of the changes in economy, and it would have been prudent to take a second look,” said Doug Patch, a former PUC commissioner and now an attorney representing one of those competitors, TransCanada.

Patch noted that the issue is still in the hearing stage, and it was unusual for a party to go to the Supreme Court before a regulating agency issues a final decision. The court could easily decline to hear it, he said.

PSNH could not be reached for comment, but in its brief, it argues that it was a waste of resources for the PUC to issue a ruling when it did not have the authority to do so.

But the PUC’s consumer advocate, Susan Chamberlin, disagreed.

“Every party that loses a motion believe they are wronged, but let’s just continue the hearing and get a final decision before going to court over it,” she said.