PUC report says PSNH should sell its plants and the public should pay
CONCORD — Public Service of New Hampshire should sell off its remaining power plants, and all electricity customers in the state should pay to recover the losses PSNH would incur in such a divestiture, according to a report by the staff of the Public Utilities Commission.
The report, issued Monday, comes as the next step in a process that began last June, when the staff at the regulatory agency first suggested that PSNH and its energy supply customers might be better off in the long run if PSNH bought power in the open market like the other regulated utilities in the state, Unitil and Granite State Electric Service — neither of which owns power plants.
At the time, the staff observed that a key consideration will be the current market value of the existing PSNH power plants, versus the amount of PSNH debt associated with the plants. The difference, known as stranded costs, has to be paid by someone.
The PUC commissioned consultants to assess market value so regulators could move forward with that information in hand. La Capra Associates, an energy consulting firm based in Boston, conducted the assessment.
The key issue is the price paid by PSNH energy supply customers compared to the price paid by about 25 percent of the company's customers. Those customers now buy energy on the open market, even though PSNH continues to deliver it.
"Staff continues to believe that over the long term, PSNH's (energy supply) rate will be substantially higher than market prices, resulting in continued upward pressure on default service rates," the report states. "Staff's rate analysis indicates that PSNH's default service customers would be better of under a divestiture of the PSNH assets if the stranded costs are recovered from all customers."
All PSNH customers, even those who do not receive default energy service from PSNH, would see rates increase through a stranded cost charge.
Electricity customers in the state just recently finished paying their share of PSNH losses from the sale of the Seabrook Nuclear Power Plant more than a decade ago, and now would acquire a new stranded cost charge for divestiture of the remaining power plants if the PUC issues such an order, and it survives possible court challenges.
Taking the long view
The PUC report conceded that PSNH ownership of the power plants helped control energy costs for New Hampshire consumers during the bitterly cold winter, but added, "It is important to not view the issues based only on current events."
"While we recognize the volatility in today's energy markets, the value of the PSNH hedge will likely diminish over the long term and will continue to be at risk due to potential environmental legislation," the report states. "There are times when PSNH's energy service rate may be below prevailing market rates, but those periods are expected to be more the exception than the rule."
PSNH spokesman Martin Murray said glib observations in the report gloss over the important role the coal-fired plants played in controlling energy costs for New Hampshire consumers.
"That's being dismissive of some very serious warnings that the power grid operator is providing to regional leaders and to federal authorities as recently as yesterday," he said. "There are very serious times ahead, and the impact and the variables can't be known with certainty. There's got to be a very comprehensive and thoughtful discussion about what we ought to do to ensure that customers are protected."
The report notes that if the plants are sold, any new owner could choose to operate some of them, all of them, or retire some of them. PSNH owns and operates nine hydroelectric plants, three fossil-fueled generators, a biomass plant that burns wood products, and five combustion turbines that are typically used only during peak demand.
La Capra Associates sets the mid-range market value of the power plants at $225 million, compared to a net value on PSNH's books of $660 million, leaving $435 million in stranded costs to be accounted for. That number is, coincidentally, almost exactly what PSNH paid to have environmental controls installed at the coal-fired Merrimack Station in Bow.