Transparency and the Eversource settlement
Keeping power purchase pricing data confidential hurts customers
On July 1, the NH Public Utilities Commission approved the long-awaited settlement on divestiture and sale of power generation assets owned by Eversource. The settlement included some controversial items in “stranded costs” that Eversource, the former Public Service of New Hampshire, was allowed to recover from ratepayers, including most of the costs for installing a mercury scrubber at Merrimack Station in Bow and several long-term power purchase agreements (PPAs) at above-market rates. After years of litigation on the prudence of Eversource’s consideration of the scrubber – which was nearly double the estimate originally provided to lawmakers and state agencies – and months of litigation over the settlement itself, the PUC decided that it was in the public interest to order approval. Absent intervening events, Eversource and its stockholders can now recover nearly the entire scrubber investment and over-market costs of the PPAs through a non-bypassable charge to all business and residential ratepayers within its service territory.
Although PUC approval was not surprising in light of broad support for the settlement, the order included some stern warnings about Eversource management and litigation practices associated with the scrubber.
In particular, the PUC found that, contrary to internal corporate policies, Eversource had failed to timely update a 2008 financial analysis used to justify installation of the scrubber “despite the need for such an update in light of the changed market conditions in early 2009.”
Failing to follow its own internal policies or revising outdated cost information to justify the scrubber was found to be contrary to good utility management because it “risked damaging the company and thereby ratepayers with an imprudent investment of significant magnitude.”
Because the results of an updated cost analysis “would have informed the appropriate [Northeast Utilities] management committee, the legislative debate in 2009, and this commission,” the PUC suggests that Eversource’s failure to do so prevented state authorities from making fully informed decisions on whether to continue pursuing the scrubber solution to Merrimack Station’s mercury emissions.
The PUC’s reference to the 2009 legislative debate also suggests that this was the exact time that the update might have allowed policymakers to change course by amending legislation as a way to avoid what became a nearly $500 million investment in an old facility.
The PUC also “strongly cautioned” Eversource about its ongoing duty to present all relevant information to the commission, admonishing the company for failing to disclose in a 2008 filing the necessary price spread between natural gas and coal costs – the “economic” price for the scrubber.
In other words, if Eversource had been transparent about the price spread between natural gas and coal required to make the project economic, the scrubber might not have been built, saving ratepayers hundreds of millions of dollars in non-bypassable charges on their electric bills.
The lesson learned, as the state takes next steps to completing the final transition to a fully competitive market for electric supply, is that transparency will be essential to assessing proposed electric supply and transmission projects.
One example is the recent request for PUC approval of a 20-year contract with a Hydro-Quebec subsidiary for the purchase of 100 megawatts of Canadian hydropower, one-tenth of the total to be delivered to New England by way of the controversial Northern Pass transmission project.
Eversource claims “expected” economic benefits for New Hampshire customers but has asked that all contract pricing terms be kept confidential so that they are shielded from public review, absent formal intervention in the proceeding. At the same time, the utility has asked for guaranteed recovery from all ratepayers in its service territory for the costs of the PPA.
The Office of Consumer Advocate has objected to confidential treatment of the PPA pricing terms, arguing that pricing should not be kept secret because they are key to the central question of “whether it is in the best interests of Eversource’s captive customers to be tethered to Northern Pass in such a fashion.”
New Hampshire businesses that seek downward pressure on electric bills would also be prevented from reviewing the pricing information and deciding for themselves whether the PPA supports Eversource claims of economic benefit to the state.
It remains to be seen how the PUC intends to carry out its articulated principles of utility transparency to other proceedings that could affect ratepayers for years to come.
Maureen D. Smith, who chairs the Energy & Environmental Practice Group at the law firm of Orr & Reno, can be reached at msmith@orr-reno.com. The views expressed in this article are her own.
