The staff at the New Hampshire Public Utilities Commission says the much-publicized deal for the Public Service Co. of New Hampshire (PSNH) subsidiary of Eversource Energy (NYSE: ES) to sell its power plants will actually cost ratepayers hundreds of millions of dollars over the next five years and probably shouldn’t be approved by the commission.
Several staff witnesses on Sept. 18 provided testimony to the commission on the merits of the plant sale, including Leszek Stachow, the Assistant Director in the Electric Division at the commission.
Rather than the $378.9 million in net savings over the period 2017-2021 that were identified by the company, Stachow said that staff believes that commencement of the generation asset sale process in 2016, with all the apparent savings as identified in a June Settlement Agreement and further clarified in Eversource testimony, will actually impose a financial burden on ratepayers relative to the retention of the generation assets.
“Based on the analysis of Staff witness Mr. Cannata, Staff believes that rate payers may be better served by deferring consideration of the sale of Eversource generating assets for five years, when alternative provision of both gas and power may be more clearly available,” wrote Stachow. “Staff therefore recommends that the Commission approve the Settlement Agreement on the condition that the sale of PSNH’s generation assets as provided for in the Settlement Agreement not take place at the present time because Staff’s analysis demonstrates that such a sale would not in the ‘public interest.’
“Irrespective of whether the Commission delays implementation of the asset sale process, Staff believes that the proposed allocation of recovery of stranded costs from different ratepayer groups as proposed in the Settlement Agreement does not pass the test of fair and equitable rate making. Staff further believes that the proposed recovery method does not meet the requirements for a fair allocation of divestiture costs of divesting Eversource generation plants among customer classes as required by Senate Bill 221-FN.”
On June 10, the so-called “Settling Parties” submitted a filing to the New Hampshire commission comprising the “2015 Public Service of New Hampshire Restructuring and Rate Stabilization Agreement.” According to Eversource, the Settlement Agreement is intended to: provide a reasonable and orderly process for PSNH to divest its generating assets; enable the State of New Hampshire to recognize the full implementation of a long-standing state policy to “restructure the New Hampshire electric utility industry”; and provide a path for significant savings for customers through securitization of stranded costs to lock in historically low interest rates in lieu of PSNH’s cost of capital.
On July 9, the governor of New Hampshire signed Senate Bill 221-FN, which contains the following requirement: “As part of an expedited proceeding, the commission shall review the 2015 settlement proposal and determine whether its terms and conditions are in the public interest.” The bill says the commission may incorporate rate designs that fairly allocate the costs of divestiture of PSNH’s generation plants among customer classes. As part of its review of the 2015 settlemen, the commission can take into account the impact on all PSNH customer classes, and consider the impacts on the economy in PSNH’s service territory, the ability to attract and retain employment across industries, and whether the proposed rate design fairly allocates the costs of divestiture of PSNH’s generation plants among customer classes.
Stachow said that staff recommends that the commission approve the Settlement Agreement, with these conditions: that the sale of PSNH’s generation assets not take place at the present time because staff’s analysis demonstrates that such a sale would not be in the “public interest”; and that the commission open a docket in the future to again consider whether sale of PSNH’s generation assets is in the public interest. Such a docket would be opened so that any sale would not occur earlier than Jan. 1, 2022.
If the commission determines to move forward with the sale of the assets at this time in order to complete the restructuring of the electric sector in New Hampshire, then staff recommends that in the interest of fairness and equity the commission consider the rate allocation recommendations provided by staff.
Power plant closures in New England may make these plants more valuable
Also providing Sept. 18 on behalf of commission staff was Michael D. Cannata Jr., who was engaged by consultant Innovative Alternatives Inc.
“My testimony first addresses what I consider to be errors or mistaken assumptions in the analysis that PSNH performed to estimate the savings that will result over the initial five years from selling PSNH’s generation assets at the present time (the Savings Analysis),” Cannata wrote. “I estimate that these errors in the Savings Analysis turn the settling parties’ claim of $378.9 million in savings into a customer cost of $677.6 million over the same five years. I next address issues which would further impact the estimated savings, but which were not included in my monetary analysis. I then address technical risks that exist today and that are expected to exist in the near-term future. Finally, I discuss the option of repowering PSNH generating plants in a qualitative manner.”
He said for one thing, the plant valuation may actually increase due to uncertainties in the ISO New England market. Another factor that will influence the future capacity factor of PSNH’s coal-fired Merrimack Station is the retirement of the Vermont Yankee nuclear facility in late 2014, with a capacity of approximately 600 MW, and the announced retirement of three Brayton Point coal units in 2017, with approximately 1,100 MW of coal generation capacity. “It is my understanding that the owners of Brayton Point have refused ISO-NE incentives to remain operational after 2017,” Cannata added. “Both of these generating stations have lower operating costs than the PSNH coal units. The net result is that when these stations are retired, a time which is concurrent to the anticipated sale of PSNH generation, Merrimack Station will be dispatched more often versus the dispatch levels of today.”
The installation in recent years of a scrubber at Merrimack Station accomplished a significant reduction of air and water emissions at Merrimack Station, Cannata pointed out. These reductions provide a hedge with known costs for PSNH customers to known and yet unknown environmental regulations.
As for the merits of any plant repowerings, Cannata said the first group of units to address is the hydro units. Hydro units cannot be “repowered” because they are water driven. However, PSNH has been incorporating more efficiently designed systems as various components are needed to be replaced.
As for the other plants:
- With regard to the stand-alone combustion turbines at remote field locations, Cannata said he believes that no opportunity exists for repowering due to their age, size, and design. In addition, there is no gas infrastructure at these locations.
- Newington Station already has the ability to burn gas, #6 oil, or crude oil and runs in the upper portion of the ISO-NE dispatch. Repowering would add gas-fired combustion turbines to complete the combustion cycle. While it is not expected that repowering this unit as a combined cycle unit would yield economic benefits to customers, further detailed consideration is required, Cannata added.
- As for the Schiller Station, Unit 5 has essentially been “repowered” by conversion to a biomass fluidized bed unit. Units 4 and 6 were built in approximately 1950 making these units about 65 years old. Cannata believes that no opportunity exists for repowering these units, including the combustion turbine, due to their age, size, and design. Physical space at Schiller Station is also an issue.
- Merrimack has higher costs due to the recent installation of the SO2 scrubber. Further costs to allow for gas firing of the boiler, the installation of gas turbines, and the gas pipeline infrastructure to provide the gas required would most likely raise costs of the station to the point where it may not be as economic in the market place. “I believe that this station would not be a cost-effective candidate for repowering at this time,” Cannata added.
The PSNH power plants subject to this potential sale process are:
- Merrimack Station, Bow, Coal, 439 MW.
- Newington Station, Newington, oil and/or natural gas, 400 MW.
- Schiller Station, Portsmouth, coal or oil at two units; biomass at one unit, 150 MW total.
Hydroelectric – 69 MW total
- Amoskeag Hydro, Manchester
- Ayers Island, Bristol
- Canaan Hydro, West Stewartstown
- Eastman Falls, Franklin
- Garvins Falls, Bow
- Gorham Hydro, Gorham
- Hooksett Hydro, Hooksett
- Jackman Hydro, Hillsborough
- Smith Hydro, Berlin