Monday, January 16, 2012

Why New Hampshire Needs to Pass HB 648 (Bragdon/Forrester amendment): Q's & A's (Part 3)

Why New Hampshire Needs to Pass HB 648 (Bragdon/Forrester amendment)

Q's & A's

Part 3

Q9: I've heard a rumor that there may be an announcement of a power purchase agreement (PPA) between PSNH and Hydro-Quebec (HQ) and that Northern Pass will say this means that Northern Pass is good for New Hampshire and should have eminent domain. What is the story with a possible PPA? Does it change the eminent domain analysis? If a PPA is announced, does this mean HB 648 should not pass?

A: I doubt there will be an announcement, but let's discuss the general idea of a PPA anyway in the context of eminent domain. Whether it’s between PSNH and HQ or any other parties, a PPA would be entirely irrelevant to eminent domain and HB 648. As we discussed in Part 1 and Part 2, the whole point of Article 12-a of the state constitution (New Hampshire’s “anti-Kelo” amendment) is to reverse the Kelo logic. Kelo said that if a private development project creates economic or social benefits, that’s enough to justify eminent domain. New Hampshire voters soundly rejected that idea by adopting Article 12-a. Article 12-a says a private development project is not entitled to eminent domain, period. The project can have all sorts of pretty-looking claimed economic and social benefits – jobs, taxes, lower electricity costs, environmental benefits, you name it – and the project is still not entitled to eminent domain. And that’s as a matter of NH constitutional law.

A PPA would be nothing more than another claimed economic benefit related to the Northern Pass project. It would not change the analysis under Article 12-a that NP is a private development project and is not entitled to eminent domain. And it would in no way reduce the need for HB 648 to close the loopholes in the 100-year-old eminent domain statutes to make them consistent with Article 12-a and to remove any loopholes that suggest private development projects can “take” property.

That’s all that needs to be said about this or any PPA, 12-a, and 648. Period.

Q10. OK. Why do you think there will be no PPA, if you don't mind my asking?

A. It's complicated. There are two things to understand. First, PSNH would have to say that the PPA is possible only because of Northern Pass, that they are taking electricity from the Northern Pass transmission line and using it in New Hampshire. They’d say this proves the Northern Pass line benefits New Hampshire.

Sounds good at first glance, but a PPA between PSNH and HQ has nothing to do with Northern Pass. PSNH and HQ could enter into the PPA right now!

Why? Because electricity already moves freely around the grid from suppliers to users, both under PPAs and spot wholesale transactions. HQ is already a major seller of electricity into New England. Right now – today – Vermont’s utilities buy gobs of electricity every day from HQ. Right now – today – HQ sells gobs of electricity into the New England grid, and when PSNH buys wholesale it is already buying HQ’s electricity. It’s the same across the board. The Seabrook nuclear plant sells a slug of its power to Vermont under PPAs. The Dixville wind farm sells most of its power to Massachusetts and Vermont under PPAs. The Berlin biomass plant will sell all its power to PSNH under a 20-year PPA recently approved by the New Hampshire Public Utilities Commission (PUC).

Got any doubts? Just look at Northeast Utilities’ webpage quoting transmission services for long-term electricity purchases from HQ in Quebec all the way down to customers in New England. (See To be clear, we don’t know the specific capacities available to each customer, but we do know that PSNH could purchase HQ power right now on a long-term firm basis with transmission over HQ’s and Northeast Utilities’ network.

Sure, the Northern Pass line would add more capacity for imports of HQ’s electricity into New England. But there is already room for a PSNH/HQ PPA. If PSNH and HQ wanted to, they could have signed a PPA years ago. To announce a PPA on the eve of the senate debate and try to link it to Northern Pass would be the height of hypocrisy.

Second, PSNH would have to say that a PPA with HQ shows that Northern Pass is good for New Hampshire because it will contribute to lower electricity prices and bring in “clean” power. As we have just shown, NP is irrelevant to a PPA. But let’s humor PSNH and look at the pricing and renewables issue.

This would be a tough one for PSNH. It would be interesting to see how PSNH would try to steer between a rock and a hard place, the Scylla of having PPA pricing so high there are no price benefits for New Hampshire and the Charybdis of having PPA pricing so low it undercuts the state’s own renewables producers.

Let’s look at the numbers. Fairly stated (that is, including an appropriate cost allowance for the Bow scrubber and the costs of the above-market small biomass PPAs), PSNH’s electricity rate is somewhere between 8.5 cents and 9 cents per kWh. This is a high rate (one of the highest in the nation) because PSNH continues to run its old, inefficient plants (Bow, Schiller, etc.), and also because PSNH has locked itself into a series of long-term, above-market PPAs. Wholesale prices run roughly 5 cents per kWh, which means PSNH’s customers are paying WAY above market for our power. We’re subsidizing PSNH’s failed business model.

Three other background numbers are important. What does HQ currently charge the Vermont utilities for their PPAs? The current price is in the range of 5.7 cents per kWh. What do alternative “base load” suppliers charge for PPAs? Vermont Yankee recently offered its power at 4.9 cents per kWh. And what does PSNH pay under its most recent New Hampshire “renewables” PPA? PSNH will be paying the Berlin biomass plant 6.9 cents per kWh. (Transmission charges are not included in these prices.)

So how would PSNH and HQ price their PPA, with these price points in the background? If the PPA is priced above 5.7 cents per kWh (HQ’s price to Vermont), PSNH would look pretty stupid for leaving money on the table and disadvantaging New Hampshire ratepayers. Indeed, if the PPA is priced above current wholesale (5 cents per kWh), PSNH will continue to lose out competitively to new wholesale-based entrants like Resident Power who buy wholesale and resell retail over PSNH’s distribution lines. PSNH’s death spiral will continue.

But to have any cost benefits for ratepayers, and to slow down the death spiral, PSNH has to price the PPA below its current “fair” energy service rate (below 8.5 cents to 9 cents per kWh). Otherwise PSNH is not reducing its energy costs at all. But if the PPA is priced below 6.9 cents per kWh (PSNH’s PPA price with the new Berlin biomass plant), PSNH will be admitting to the world that it mispriced the Berlin deal just a few months ago! And, more importantly, PSNH will be undercutting the future development of New Hampshire’s own renewables sector if it prices below the Berlin price. As I said, PSNH is stuck between a rock and a hard place. It can’t price the PPA above 5.7 cents per kWh, on the one hand, and, on the other hand, it can’t price it below 6.9 cents kWh.

Indeed, the big policy considerations militate against a PPA with HQ. If PSNH really wanted to save money for ratepayers, they’d buy from the nuclear plants at prices cheaper than HQ’s going rate. If PSNH wants to tout renewables, they’d enter more PPAs with NH renewables generators at prices higher than HQ’s going rate.

With all due respect to PSNH, we doubt they’d be able to figure their way out of this muddle. We believe that, on careful review, PSNH would be unable to make any credible case that a PPA with HQ is “good” for New Hampshire ratepayers and for New Hampshire’s renewables sector. The claims of policy benefits would almost certainly ring hollow.

Got it?

Q. Yes. It’s the frying pan or the fire for the PPA.

A. In any event, the main point is still this: no matter what PSNH and HQ do or say about a PPA, any PPA is simply irrelevant to the senate discussion on 648. It won’t change the fact that as a private project, Northern Pass is not entitled to eminent domain under Article 12-a. And it won’t lessen the need for HB 648 to remove the loopholes from the old eminent domain statutes and make them consistent with Article 12-a.

Any other questions?

Q. Nope. The answer is always the same: pass 648 Bragdon/Forrester now to complete the work of 12-a.