The New Hampshire Public Utilities Commission (PUC), in a March 27 order, dismissed Public Service Company of New Hampshire’s d/b/a Eversource Energy (NYSE:ES) June 2016 petition requesting approval of a proposed 20-year power purchase agreement (PPA) between the company and Hydro-Quebec’s wholly owned subsidiary, Hydro Renewable Energy (HRE), and associated program details.
“The commission has determined that the proposal cannot be approved because it is inconsistent with New Hampshire law, specifically the Electric Utility Restructuring Statute, RSA Chapter 374-F,” the PUC said.
As noted in the order, under the PPA’s terms, HRE would sell – and Eversource would buy – about 100 MW of firm, on-peak electric energy delivered to Eversource’s Deerfield substation over the proposed Northern Pass Transmission (referred to in the order as NPT) line. That energy would then be resold into the ISO New England (ISO-NE) wholesale energy market by Eversource, the PUC said.
Under the terms of Eversource’s proposal, net gains or losses from the purchase and subsequent resale of the energy would be accounted for through the stranded cost recovery charge (SCRC) rate established by the 2015 Restructuring Settlement Agreement and approved by the PUC in July 2016. The SCRC, the PUC added, is assessed on all Eversource customers.
The PUC said that the basic argument of Eversource – which is the only party to the proceeding that filed legal briefs in favor of the legality of the petition – is that RSA Chapter 374-F was intended to lower energy prices and that Eversource’s entering into the PPA with HRE could further that intent, and would further the statutory directives to ameliorate stranded costs – if the PPA were to be below market and the SCRC were to receive an offset through Eversource’s proposal.
Eversource also relied on its general corporate authority under RSA Chapter 295, and the specific statutory provisions of RSA Chapter 374:57, which sets forth Eversource’s obligations when it “enters into an agreement with a term of more than one year for the purchase of generating capacity, transmission capacity, or energy.”
The PUC added that Eversource pointed to the experience in another docket (Docket No. DE 11-184), which related to certain PPAs entered into by Eversource with small wood-fired energy producers (Wood IPPs), under the federal Public Utility Regulatory Policies Act and RSA 374:57.
The PUC said that regulatory staff, NextEra Energy Resources, the New England Power Generators Association, Conservation Law Foundation and Society for the Protection of New Hampshire Forests – collectively, referred to as the opponents – disagreed and focused on what, in their view, is the primary intention of RSA Chapter 374-F: separating the functions of generation, transmission, and distribution for electric distribution utilities (EDCs) in New Hampshire to enhance competition and to prevent EDCs from shifting the risks of generation and transmission investments to distribution customers through distribution rate recovery, as they had done in years past.
The opponents argued that recovery of PPA-related losses through the SCRC would serve as an impermissible intermingling of generation and/or transmission activities on the one hand, and distribution activities on the other, and an impermissible shifting of related financial risks to Eversource’s customers, the PUC said.
The PUC also noted that while the State Office of Energy and Planning (OEP) took no position on any issue regarding Eversource’s legal authority to enter into the proposed PPA, the OEP said that the proposed cost recovery mechanism through the SCRC for PPA-related potential losses was not supportable. The OEP argued that the proposed assessment of losses from the PPA would not qualify under the definition of “stranded costs” presented under RSA 374-F:2, IV, or offer an appropriate means of mitigating stranded costs as outlined in RSA 374-F:3, XII(c), due to the inherent risk of losses, the PUC said.
The PUC said that as discussed in an October 2016 order, the PUC found that after enactment of the restructuring statute, EDCs like Eversource should unbundle rates for distribution from rates for energy supply – and likewise, from rates for transmission.
The proposed PPA is not needed to supply distribution services to Eversource distribution customers, and its costs and related expenses would not be permissible “stranded costs” under the SCRC rate feature, the PUC said.
The proposed PPA is designed to support electric generation supply over a proposed new transmission line, and therefore, the expenses or losses related thereto would be disallowed in distribution rates, including the SCRC, the PUC said.
The PUC also noted that its approval of the Wood IPPs was issued in the context of Eversource continuing to own its own generation plants, and expecting to own those plants for the foreseeable future – at the time that that order was issued in 2011.
There is a clear difference between the short terms – two years or less – of the contracts entered into with the Wood IPPs, and the 20-year proposed term of the PPA involving HRE, both in terms of the risks posed to Eversource ratepayers and the general intent of the restructuring statute – to effectuate competition and service/price unbundling, the PUC said.
Since that time, as of the 2015 Restructuring Settlement, Eversource has committed to the divestiture of its generating plants, thereby moving toward the full implementation of the funcational-separation goals of RSA Chapter 374-F, the PUC said.
Among other things, the PUC said that the proposed PPA involving HRE goes against the overriding principle of restructuring, which is to harness the power of competitive markets to reduce costs to consumers by separating the functions of generation, transmission, and distribution. Allowing Eversource to use the SCRC mechanism as a ratepayer financed “backstop” for its proposed 20-year PPA would serve as an impermissible intermingling of a generation activity with distribution rates, the PUC said.
An Eversource spokesperson on March 30 told TransmissionHub that the PPA is not a requirement of the project permit process.
“The PPA was proposed as a response to many, including business leaders and policy makers, who asked for a guarantee that New Hampshire, as host state of the Northern Pass project, will receive its fair share of energy from the project and economic benefits above and beyond those received by other New England states,” the spokesperson added.
As TransmissionHub reported, Lee Olivier, Eversource executive vice president – Enterprise Energy Strategy and Business Development, during the company’s 4Q16 earnings call in February, noted that the New Hampshire Site Evaluation Committee (SEC) has set evidentiary hearing dates for the transmission project beginning in April and continuing through July.
The project, which would extend about 192 miles from the Canadian border through New Hampshire to southern New England, is comprised of a single circuit 320-kV high voltage direct current (HVDC) transmission line linked to a 345-kV alternating current (AC) transmission line via an HVDC/AC converter terminal located in Franklin, N.H.
Olivier noted that assuming that the project receives a favorable decision from the SEC in September, the company expects to receive U.S. Department of Energy approval before the end of the year.
“With those approvals in hand, we expect to begin construction early in 2018, and for the project to be completed by the end of 2019,” he said. “Our new capital forecast shows capital expenditures associated with Northern Pass of about $680m in 2018, and $800m in 2019.”