PSNH: it would be a bad idea to force it to divest power plants

Public Service of New Hampshire (PSNH) said June 30 that a recent study report by the staff of the New Hampshire Public Utilities Commission (PUC), which focused on the ownership of the company’s state-regulated power plants, is wrong in its findings.

Since New Hampshire restructured its retail energy market in 1999, the state has chosen a sound policy path, providing consumers competitive options, as well as a safety net, the utility said. This safety net includes “default” energy service, which is provided by PSNH, at prices set by the PUC.

Because PSNH retains electric generating facilities in New Hampshire, it said its retail customers have saved more than $700m compared to open market rates over the last ten years. The system is not perfect, it added. In particular, PSNH retail customers are subsidizing costs of the competitive market.

Earlier this year, the PUC wisely opened a docket to examine these issues. In a surprise move, the PUC staff issued a non-binding recommendation urging policymakers to force PSNH to sell its power generating facilities, the utility noted. In its response, the utility noted that the staff recommendation is inconsistent with the PUC directive under which it was initiated, and that it respectfully disagrees with the analysis and conclusions. “Their conclusions reflect a short-term view of our energy markets, which is not supported by sound analysis or history,” PSNH said.

PSNH noted that as part of restructuring, the legislature initially directed PSNH to sell off all its generating facilities. PSNH began that process, with the selling of its interest in the Seabrook, Millstone and Vermont Yankee assets. But then, amid growing concern over the Enron scandal, plus energy shortages and price spikes in other parts of the country, state lawmakers in 2001 prohibited the sale of any remaining PSNH generation assets. Legislators strengthened that prohibition in related legislation in 2003.

Since then, New Hampshire has taken other steps to ensure in-state energy remains a part of the mix. For example, in 2006, New Hampshire passed a law requiring PSNH to install a state-of-the-art “scrubber” on the Merrimack coal plant to radically reduce mercury and sulfur emissions, making it on the cleanest coal-fired plants in the U.S. The cost – at around $400m – was specified under state law to be recovered through PSNH’s default energy service rate.

These generating assets continue to provide a reliable source of electricity, helping keep the lights on throughout the year. With the market price of electricity relatively high, few competitors entered the New Hampshire retail market. But with the recent dip in the price of natural gas, more competitors have come into the market, PSNH said. Around 50,000 residential customers have chosen competitive suppliers, while more than 370,000 have stayed with PSNH default service.

PSNH says getting rid of power plants would create vulnerabilities

“New Hampshire customers enjoy the best of both worlds,” the utility said. “They can choose from a variety of suppliers, or they can choose to receive service under PSNH’s regulated default energy service rate. If a competitive supplier suspends its business or defaults on its obligation to customers– something we’ve already seen – PSNH picks up the service, without electric service ever being interrupted to customers. Despite the risks and uncertainty of the competitive electric market, consumers can be assured PSNH will always be there, providing reliable service, at a reasonable, state-approved price.”  

One unintended consequence of customers choosing other suppliers is that a smaller number of customers are left to cover the fixed costs of default service. There are fixed costs to maintaining the safety net of universal service and system integrity for current or returning default service customers, while preserving the flexibility for customers to move back and forth between PSNH and other suppliers. Additionally, PSNH said it is required to provide the billing and administrative functions for competitive suppliers – at very low below market cost, thus subsidizing the profits of competitive suppliers.

The Legislature this session established a process, SB 191, for creating a state energy strategy. This is a much-needed and thoughtful approach, which PSNH strongly endorses. “With this process in place, it does not make sense to now undertake a wholly separate track of policymaking regarding the question of PSNH’s generating facilities,” it added. “These issues are complex, and interrelated, and should be carefully considered as part of an overall strategy.”

In pointing to being vulnerable to market forces if stripped of its generating capacity, PSNH said that ISO-New England has pointed out that gas pipeline constraints could put as much as 2,500 MW of gas-fired capacity in New England at risk during peak periods. A stakeholder process to address this growing concern has been initiated through the ISO’s Strategic Planning Initiative. NYISO has initiated a series of similar discussions among its own stakeholders and, prompted by the same reliability concerns as ISO-NE, is considering revisions to its market design that could include pay-for-performance or other incentives.

PSNH owns and operates a fleet of state-regulated power plants, jointly capable of generating 1,150 MW. It also purchases energy from independently-owned power plants and the New England wholesale electricity market. Its portfolio includes the highest percentage of renewable energy (21%) of any major utility in the region. This renewable energy is provided by PSNH-owned generating assets and contracts with outside power plants. PSNH’s fossil fuel power plants include:

  • Merrimack (440 MW coal);
  • Newington (400 MW gas or oil); and
  • Schiller (100 MW coal or oil and 50 MW biomass).

PSNH’s fleet also includes five peakers that are designed to burn jet fuel and natural gas. Nominally rated at approximately 20-MW each, these units are located in Bow (two units), Groveton, Tamworth and Portsmouth.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.