Two studies tackle question of economic benefits of Northern Pass

Whether New Hampshire's economy would benefit from projects like Northern Pass is driving at least some of the discussion over the proposed transmission line.

Although federal approvals of the 180-mile high-voltage transmission line are on hold pending establishment of a right-of-way from the Canadian border to Groveton, debate over projected costs and benefits of Northern Pass has not slowed.

Opponents claim that the project would harm the local economy, while proponents claim it would help the economy by reducing energy costs and creating local jobs. For example, in an article in the July 13-26 NHBR, "N.H.'s economic future needs projects like Northern Pass," Public Service of New Hampshire and Northern Pass LLC claim that the project would save "hundreds of millions of dollars annually" in energy costs and bring "more than 1,200 jobs during a three-year construction period."

There has been limited empirical analysis to date about economic impacts from the proposed transmission line. However, two independent studies sponsored by the New England Power Generators Association have raised questions about claimed reductions in energy costs and projected job benefits.

For its report, PA Consulting Group Inc. reviewed the economics of the proposed transmission line in light of major changes taking place in energy markets, including recent natural gas price reductions that have dramatically reduced regional wholesale electricity prices.

The June 2012 report, "Electricity Market Impacts of the Northern Pass Transmission Project," used as a starting point the 2010 market impact analysis prepared for Northern Pass Transmission LLC by Charles River Associates. However, PA Consulting reached different conclusions on predicted cost savings.

The critique started from the premise contained in the CRA analysis, which was that additional energy flowing over the new transmission line would produce a small incremental reduction in wholesale energy costs to New England load customers – reductions of 2.8 percent in sample year 2016 and 3.2 percent in sample year 2024. PA Consulting concluded that they were "likely overstated."

One reason cited was the recent surge in domestic natural gas production, which has transformed the outlook for future U.S. natural gas supplies and prices. According to PA Consulting, using the government's updated natural gas price projections would cut CRA's estimated energy cost benefits in half.

The report also said CRA overlooked potential cost increases that could offset estimated cost reductions.

For example, CRA ignored the fact that all New England customers must purchase capacity in addition to energy. Because the modest reductions in wholesale energy prices from the proposed transmission line would translate into lower energy revenues for existing and new generation sources in New England, capacity prices would need to increase to ensure sufficient capacity remains economically viable.

As a result, PA Consulting concluded that "higher capacity prices will increase costs to New England consumers and offset a portion of the energy price benefits from the [project]."

The report also concluded that CRA used an overly optimistic assumption about the amount of energy that would be delivered over the proposed transmission line, which formed a basis for CRA's prediction that the transmission line would result in significant wholesale price reductions.

Because existing transmission interties with Ontario, New York, New England and New Brunswick would allow delivery of all surplus energy without construction of the new transmission line, it appeared that the only benefit of the new line would be to allow shifting of power sales from lower-priced hours over existing interties to higher-priced hours over Northern Pass.

Furthermore, any increase in transfer capability to markets other than New England would reduce the amount of energy available for delivery by Northern Pass or increase the cost of that energy to New England customers.

The report also concluded that Northern Pass would not reduce regional natural gas usage.

How many jobs?

In a separate economic analysis, "Job Impacts in New Hampshire from Construction of the Proposed Northern Pass High-Voltage Transmission Line," Dover-based PolEcon Research concluded that job impacts from the project would be about half of Northern Pass estimates and would be temporary.

According to the study, the highest impact on forecasted job growth would be one-tenth of one percent during the second year of a three-year construction period.

Annual employment impacts would range from a high of 533 in the second year to a low of 241 in the first year of construction, with a larger percentage of the in-state jobs allocated to lower-wage construction laborer jobs, according to the study.

PolEcon found that the greatest job benefits would likely accrue to out-of-state workers. Local contractors were not expected to be hired due to the specialized nature of a transmission project of this size, lack of in-state expertise and industry practice.

The report ultimately concluded that New Hampshire businesses would likely benefit from no more than 11 to 19 percent of the project expenditures, with counties in northern New Hampshire receiving disproportionately fewer benefits.

Economic analyses should take all market forces into account and use reliable methodologies based on current data when projecting reductions in energy costs. When local jobs are at stake, projected employment benefits should consider both short- and long-term impacts, as well as regional, state and county-specific impacts. To the extent that the two studies help to qualify and to quantify economic benefits from Northern Pass, policymakers will be better equipped to weigh all costs and benefits that could flow to New Hampshire.

Maureen D. Smith, formerly a New Hampshire senior assistant attorney general, is a director/shareholder and member of the Energy and Environmental Practice Groups at the Concord law firm of Orr & Reno. Her clients include the New England Power Generators Association. She can be reached at msmith@orr-reno.com.