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New England electric rates to be investigated

New Hampshire Union Leader

January 09. 2016 8:35PM

The cost of moving electricity from one place to another, which appears on your electric bill as transmission, is much higher in New England than in other parts of the country, and the Federal Energy Regulatory Commission wants to know why.

In an order issued on Dec. 28, FERC commissioners wrote that New England transmission rates appear to be “unjust, unreasonable and unduly discriminatory or preferential” and called for an investigation.

The commissioners wrote in their order that the owners of transmission towers in New England appear to set rates with no meaningful justification and no real opportunity for them to be challenged. “The rates appear to lack sufficient detail in order to determine how certain costs are derived and recovered,” according to the commission order.

“Rate protocols should afford adequate transparency to affected customers, state regulators or other interested parties, as well as provide mechanisms for resolving potential disputes,” the order states, adding that, “integrity and transparency ... are critically important to ensuring just and reasonable rates.”

The commission has set in motion a process that could lead to a settlement with the transmission owners and ISO-New England, the grid operator; or it could lead to hearings, legal arguments and an eventual order dealing with the transmission costs and how they are set.

New Hampshire electric consumers could be seeing much more economic benefit from the free-fall of oil and natural gas prices, if not for the offsetting effect of transmission and distribution costs. Transmission moves electricity from the sources to the wholesalers on the big metal poles and towers, while distribution gets it to your door on the wooden poles that line the street.

“It used to be a few years ago, about 50 or 60 percent of the electric bill would be made up of the cost of the energy,” said Dan Dolan, president of the New England Power Generators Association. “Now we are seeing upwards of 60 percent of a bill being made up of transmission and distribution costs. It's been a complete flip from the historical norms, with a massive build-out that the utilities have undertaken.”

The same does not hold true in other parts of the country, where transmission and distribution make up much smaller portions of the bill (see chart), even though the grid operators in the other regions serve a much broader territory.

“This activity is driven in large part by FERC's interest in implementing a consistent approach to rate transparency across the country,” said Martin Murray, a spokesman for Eversource, which along with National Grid owns 80 percent of the transmission load in New England.

Twice as expensive

The PJM Interconnection, which serves 13 states and the District of Columbia in a swath of territory extending from New Jersey to Illinois, has the second-highest transmission costs in the country after New England.

Transmission costs in the PJM market are about 50 percent of what is charged in New England. While Eversource customers in New Hampshire pay 2 cents per kilowatt hour for transmission, Commonwealth Edison (the Pennsylvania utility in the PJM market) charges 1.1 cents.

But contrasting transmission costs across regions of the country does not make for an apples-to-apples comparison, according to Murray.

“Existing transmission lines served the region very well in the 1980s and 1990s, but once generation was deregulated, existing power plants closed and new ones opened, transmitting energy from point A to point B became more complex,” he said.

In the mid-2000s, new federal rules required significant investments to address reliability concerns in the wake of the blackout of 2004, according to Murray.

“The substantial investments in the transmission system have been successful in reducing congestion charges and addressing reliability concerns,” he said. “As an aside, these investments are also critical to the region's ability to improve access to renewable energy sources.”

Projects over budget

While increased investment in new transmission may have been necessary, it perhaps could have been less costly, according to Dolan, who said many of the projects went over budget, with no consequences for the builders.

“When the incentive is that you earn more based on how much you spend, well that makes it a big challenge for some of these entities to control their costs, and we haven't seen any consequences associated with (cost over-runs),” he said.

By some estimates, 11 power line projects from 2004 to 2012 sponsored by Eversource (then Northeast Utilities) or National Grid that were supposed to cost a combined $2.2 billion ended up costing ratepayers $3.9 billion.

Many of those projects went over budget because regulators approved changes that made them bigger or more expensive, according to Murray.

Eversource and National Grid recently completed the $483 million Interstate Reliability Project, a new 345-kilovolt transmission line along 75 miles of existing rights-of-way in Connecticut, Massachusetts and Rhode Island, on time and on budget.

High rates of return

The cost of transmission projects is spread out among the entire New England region, with each state paying a share based on its portion of the electric load. Consumers in New Hampshire pay roughly 9 to 10 percent of each project because New Hampshire makes up 9 to 10 percent of the load for New England.

Another factor contributing to the high cost of transmission in New England, according to former N.H. PUC Commissioner Michael Harrington, is the high rate of return that transmission builders are guaranteed on a basically no-risk investment.

“With interest rates near zero, it's hard to understand how they can continue to justify rates of return in the 9 to 12 percent range, paid by ratepayers,” he said.

The New England States Committee on Electricity, a coalition of the six governors, recently commissioned a consultant to compare transmission costs across the country and how they are calculated, with a report due out later this year.

Watching closely

Between the NESCOE study and FERC investigation, some changes are likely in the way the transmission rates are calculated and approved. The rate of return for transmission builders is also in play.

Assistant Attorney General Chris Aslin, who specializes in environmental issues, said New Hampshire is watching the process closely.

“We are monitoring this issue and support the FERC's oversight of ISO-NE to ensure ratepayers are not overcharged for transmission services,” he wrote in an email. “While New Hampshire is already represented through NESCOE's involvement, we are currently reviewing the issue to determine whether the state will intervene directly, and will make a decision prior to the Jan. 27 deadline for intervention.”

Meanwhile, the Office of Consumer Advocate in the Public Utilities Commission has intervened on behalf of New Hampshire residential ratepayers.


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