The New Hampshire Gold Rush (1)

New Hampshire is being eyed as the new Gold Rush state by private transmission and renewables developers looking to find cheap, open-door routes to the lucrative southern New England energy markets. The passive regulatory climate, legislative inaction, and outdated eminent domain provisions can only encourage profiteers to set their sights on New Hampshire and strike it rich.

The Franklin campground purchase

PSNH stepped in it again the other day when it trumpeted to NH newspapers and the AP that it had just spent $2.35 million to acquire a moribund campground in Franklin appraised at $653, 000 (Concord Monitor, Dec. 12; Union Leader, Dec. 13). After it lost out on the Balsams deal the previous week, PSNH evidently needed to save face in front of the investors, who were expecting to hear the new Coos route announced by the end of this month.

Instead, the investors heard that PSNH had just spent 400% of the appraised value of a 118-acre property on which to build a converter station in Franklin for the Northern Pass line. The rate payers also heard and almost immediately they wanted to know if any part of their money had gone to fund speculative purchase of a campground for an as yet unpermitted project:

. . . it's appalling, and truly scary for ratepayers, to see PSNH or its affiliates going heavily into land speculation. What does PSNH know about land investments? Probably a lot less than they know about keeping the lights on, which means their expertise, if any, is just a click above zero.

Where is the state's Public Utilities Commission to check up on our hapless PSNH's efforts to become statewide land barons? Has the Commission done the work to assure ratepayers that PSNH is not going off on another bankruptcy-inducing escapade? Or is the Commission forgetting to connect the dots?

A few questions for the Commission.

Why is PSNH (or its affiliates) spending time and money on land speculation? Is this good for ratepayers? Has this been approved by the Commission?

Where is PSNH getting the money to speculate in land in the hope that Northern Pass might get approved? Are they using ratepayer money?

Or is Northern Pass (an affiliate of PSNH) paying? Or Northeast Utilities (an affiliate)? Or Hydro-Quebec, also likely an affiliate via its shared control of Northern Pass? Are there sweetheart deals between PSNH and these or other affiliates that should be scrutinized by the Commission?

What are PSNH ratepayers getting in return for the diversion of PSNH's management time and attention?

Have the required "affiliate contracts" for these transactions been filed with the Commission, as is required under RSA Chapter 366? Could the Commission kindly disclose any such contracts on file, so ratepayers know what's going on? Has the Commission reviewed the contracts? Has the Commission asked for the necessary information to see if these affiliate contracts are damaging to ratepayer interests? [Union Leader comment, December 13, 2011]

The last time PSNH shot itself in the foot this way was when it announced in July 2011 that the substation upgrade in Deerfield increased the tax revenue benefit of Northern Pass to the town. Oops . . . if that were true, PSNH/NP had admitted to starting construction illegally without a site evaluation permit. PSNH backed and filled, asserted that the substation had nothing to do with Northern Pass, and lowered the estimated tax benefit to Deerfield, although NP's website still has not corrected the figure. We'll probably hear similar noises about the required affiliate contracts here.

Why Franklin?

But the campground purchase raises yet other questions: why was Franklin initially chosen as the site for the converter station and why was the 118-acre Franklin campground apparently not the first choice in Franklin for it? Whatever the residents of Franklin may think about their new benefactor, surely PSNH did not choose Franklin to help the town climb out of its financial bind. And we can only speculate that the original Franklin site was too small for the converter station.

NP's James Muntz actually answered the "why Franklin" question a year ago:

The 40-mile AC Line from Franklin to Deerfield extends the existing 345-kV bulk power system further north into New Hampshire. This part of the NPT Line may provide an attractive “jump off” point for additional reliability-based 345-kV upgrades in the future as loads grow. Potential reliability projects enabled by this extension include the addition of autotransformers in Franklin to enhance reliability in that region and further expansion of the 345-kV system to points north or west to meet future reliability needs in either New Hampshire or Vermont. (TSA filing, p. 303; emphasis added)

An attractive "jump off point"

Brian Bosse, an engineer with NU who is involved in the NP project, said much the same thing at a Goffstown Rotary breakfast last month. In answer to an audience question of "why Franklin?" for the converter station, Bosse explained that Franklin is a “strategic location” to convert to AC because it is at a north/south and east/west crossroads for power in NH. Converting to AC there opens up the ability to tap into that power in the future. Bosse said he had no knowledge of any plans to do so.

Dreaming up transmission lines

Bosse may not know whether anyone has been dreaming about running high voltage transmission lines east or west from the Franklin converter station, but here's a 2009 map that draws a line from Webster (i.e., Franklin) west to Vermont's now completed Southern Connector line for a new 345kV transmission power line, the ultimate source of which is Hydro-Quebec:





                                                           (Full map is here.)

Whoever dreamed up this transmission line using Franklin as the "jump off point" for Hydro Quebec power would build towers from Franklin to Claremont through Newport, Croydon, Sunapee, Springfield, Wilmot, Andover, and other towns. (This line runs through towns in Senate districts 5 and 8, and both its senators, Matthew Houde and Bob Odell, respectively, voted against passing a bill, HB 648, that would strengthen eminent domain protection last June.) How much "widening" (read: eminent domain) would be required on the existing easement to include this new 345kV line?

(You can read more about the idea of connecting Northern Pass from Franklin to VELCO's  Southern Connector line in Vermont here and, more recently, here, as VELCO's CEO Dutton talks about the Franklin line as an "injection point" for Hydro-Quebec's power into Vermont.)

Note that power from Quebec would go to Vermont via New Hampshire, something less than a direct route. Why? One reason is because Vermont has stringent regulations about aesthetics. Vermont will be burying its DC line in Lake Champlain. The new merchant-funded transmission developers looking to strike gold and cash in on Canadian renewables will try New Hampshire first. Wouldn't you? A weak regulatory climate and a legislature that so far has been diffident about passing updated eminent domain protection for property owners are leaving the door wide open. Transmission developers will always be attracted to states with weak eminent domain protections.

Subsequent blogs in this "Gold Rush" series will show you more maps of New Hampshire with potential high voltage transmission lines that may be drawn across your town. There's no dearth of gold rushers out there just waiting to cash in on New Hampshire.

Part 2 of the "Gold Rush" series is here. The series concludes here.

Bradley/Carson Amendment 2: More Smoke and Mirrors

In a brazen breach of public trust, the Senate Judiciary Committee approved the Bradley/Carson amendment by a 4-0 vote on December 8, 2011.  You may listen to Senator Carson presenting the bill and discussing it afterwards here.

The earlier guest blog in this series of two looked at the legislation proposed by Senators Bradley and Carson to replace HB648.  The prior blog examined the key provisions of the Bradley/Carson amendment – a prohibition on certain eminent domain threats, and a requirement for landowners to be offered a minimum of two times appraised value – and found that these parts of the bill are illusory and offer no real protections to landowners.

This guest blog continues to scrutinize Bradley/Carson and looks at four other proposals in the bill.  Do they help landowners in any significant way?  Do the provisions make any sense?

No, and no again.

Landowner purchase option

The bill tries to address what happens if a transmission line project like Northern Pass successfully seizes land from a property owner by eminent domain, but then the project languishes and doesn’t get built. (This is what happened when Pfizer pulled out of New London in the Kelo debacle.)

The right solution is obvious.  If the project doesn’t get built, landowners should automatically get their land back.  And the transmission line developer should get part of its money back – the purchase price  it paid the landowner for the forced taking, less the losses, costs, expenses and damages suffered by the landowner.  The landowner should be put back, as nearly as possible, in the same position as if the bad dream of eminent domain hadn’t come to real life.

But Bradley/Carson, written by two Senators who proudly shill for Northern Pass, looks at it differently.  Under B/C, landowners do not automatically get their land back.  Instead, they have only an “option.”  And the option is not simply to “unwind” the eminent domain and get the land back for what was paid.  Nope, more tricks.  The option is to buy back the land from the transmission line developer at the then-current market value. 

This is ridiculously unfair.  First, as we all know, apart from times of bubble bursts, land values tend to go up over time, so landowners will most likely need to pay more to buy back their land than they received as part of the eminent domain seizure.  Sound fair to you? 

It gets worse.  A piece of raw land worth, say, $1,000 an acre becomes an entirely different animal in value terms when it’s assembled together with other parcels to form a transmission line corridor.  It’s sort of like when a new Walmart is built next door to your parents’ farm, and the farm gets rezoned “commercial." Land that was worth $1,000 an acre is suddenly, almost overnight, worth $5,000 an acre or more because of the change in how it can be used. 

So, when our eminent-domain-targeted landowner goes to Northern Pass in five years and says, “I want to exercise that option to buy back my land because you didn’t build your lines," she’ll be told, “sure thing, just pay us the current market value for transmission corridor land."

The price they ask will be astronomically out of reach, because Northern Pass will say the land is valued based on its potential use as a transmission corridor.  They forced the landowner to sell at $1,000 an acre and under B/C they can refuse to let her repurchase for less than $5,000 an acre.  Which means the “purchase option” is illusory – not worth the paper it’s printed on.  (More generally, this also shows how grossly unfair eminent domain valuation is to landowners!)

Let’s look at one more part of the fine print in the “purchase option.”  When do landowners get to try to buy back their land?  A quick read of B/C says, after five years.  But look at the wording.  B/C says the option can be exercised “if, after 5 years, the project for which land or property rights were taken has not commenced.”

Northern Pass will almost certainly take the position, kindly left open for them by Senators Bradley and Carson, that the “project has commenced” if they’ve put a shovel in the ground, or trimmed a few trees, or the like.  In other words, Northern Pass needs to do just a tiny bit of work to keep the option off the table.  This is not an option, it’s a fraud.

Homes and tenants

In a burst of apparent empathy and generosity, the Bradley/Carson amendment offers some modest adjustment payments for homeowners whose properties are taken by eminent domain for transmission lines and for any tenants.  Homeowners would get “reasonable relocation and housing replacement expenses,” capped at 10% of the eminent domain payment, and tenants would get up to one year’s rent.

It’s a nice gesture, but the money pales in comparison to the actual, uncompensated losses that homeowners will suffer if their land is taken.  The problem is that eminent domain payments are set at fair market value -- not the value that homeowners attach to their homes, but fair market value.

What’s the difference?  If a homeowner valued her land at only fair market value (FMV), then, by economic theory, she’d sell it if someone offered her a dollar more than FMV.  If she thought only in FMV terms, she’d always be looking for a buyer, because she’d value the cash amount exactly the same as she values her home.

That’s of course not the way homeowners think.  We don’t check every day on whether we can sell our homes at the current FMV.  Many of us would not sell our homes for twice or even three or four times FMV.  Our own subjective value for things that have life meaning for us is much, much more than FMV.  Think of what price you would ask for your beloved dog or cat, or the photo albums of our families or children, or our favorite old wooden snowshoes.  Our homes are a part of ourselves and how we live, and we think of them emotionally and in terms of our core well-being, not just as dollars and cents.

That’s the huge disconnect in eminent domain.  Northern Pass can try to take our homes for FMV, with no consideration of the much, much higher subjective value we place on them.

Tossing in a few extra nickels of relocation expenses looks pretty on paper but doesn’t change the shocking economic unfairness (and social unfairness) of taking homes people don’t want to sell.

For those who may want to look further, there is a robust body of economic literature on the structural flaw of eminent domain through the failure of FMV to compensate landowners for their actual losses.

Entry onto land

Landowners have been justifiably concerned that Northern Pass or its agents have entered onto their land to conduct inspections and gather data for the planning, design and construction of the transmission lines.  This has been done without the necessary statutory authority. 

RSA 371:2-a clearly says that Northern Pass has no right of entry onto a landowner’s land for these purposes until after a petition for eminent domain has been filed.   The only exception permitting an earlier entry onto an owner’s land is if the “ownership of the land … cannot be ascertained without entry to do survey work.”

The right legislative response to unauthorized entries by Northern Pass or its agents is to put some real teeth into the existing statute.  There should be a requirement to provide landowners with clear, written proof of any claimed authority to enter land.  There should be a steep fine for unauthorized entries.  A pattern of unauthorized entries should summon meaningful enforcement action by the Public Utilities Commission.

The Bradley/Carson amendment purports to address unauthorized entries but of course does none of the necessary things.  Instead, B/C once again seeks to make it look like the bill will help landowners when in fact it only requires trivial and  meaningless  actions – notice by certified mail, which must include the name of the utility, the time and date of the entry, etc.

This legislative non-response to a problem will likely have the effect of telling our court system that the legislature really doesn’t care about protecting landowners from unauthorized entries by Northern Pass or other private utilities.  And that’s probably just what Senators Bradley and Carson intend….

Study committee for landowner “procedural rights”

As a general rule, when you hear some senators propose a “study committee,” you should immediately run to the nearest exit door.  Study committees are usually meant to slow things down, do pretend work, and ultimately paper over an issue the senators are politically scared to address.

This is a classic example.  The authors of this guest blog have met with Senators Bradley and Carson and pointed out to them that the very basic elements of fair process to landowners (a set timetable, appeal rights, etc.) are NOT present in eminent domain proceedings under RSA 371:1, which is the provision that would be used by Northern Pass.

We explained how to fix the problem.  It’s far from rocket science.  Just add a reference in 371:1 to the place in New Hampshire law where the procedural protections for landowners are already clearly set forth – the Eminent Domain Procedure Act.  Landowners should have the same protections when their land is threatened with seizure for a transmission line as they do when it is threatened for a highway.

All Senators Bradley and Carson had to do – if they were serious about giving the basic procedural protections to landowners in the path of Northern Pass – was to insert a few additional words into the B/C amendment referencing the Procedure Act.

But just like the senate in the Star Wars movies, what you see with Senators Bradley and Carson is not what’s really happening.  Their “study committee” for landowner protections pretends that there’s a tough issue out there that’s never been thought about (false!).   And the big pretend lets them delay the process, give more room for Northern Pass to lobby, and set up an ultimate result that benefits Northern Pass at the expense of landowners.

You’re reading it here first.  Any study committee set up under B/C will somehow come to the conclusion that landowners in the way of transmission lines do not deserve the standard protections that existing New Hampshire law gives to landowners in all other cases of eminent domain.  Senators Bradley and Carson hope the Opposition will have lost attention by then.

***********

Our Bradley/Carson analysis, part 2?  Second verse, same as the first. 

The B/C amendment is all about what’s good for Northern Pass.  Senators Bradley and Carson think property owners and the voters of New Hampshire aren’t smart enough to see that we’re getting screwed.

Let’s prove them wrong.

The Bradley/Carson Amendment: All Smoke and Mirrors

A guest blog on the Bradley/Carson amendment to HB 648 offered in the Senate Judiciary Committee on December 8, 2011. This is the first in a series of two blogs.

We will leave it to other commentators to talk about what could possibly have motivated Senate Judiciary Committee Chairman Houde and Senators Luther, Groen and Carson to vote unanimously in favor of the Jeb Bradley/Sharon Carson amendment to HB648.

For our part, we’ll focus on the substance of the Bradley/Carson amendment. Will this proposed legislation help landowners who are faced with the potential for eminent domain by Northern Pass or any other private, participant-funded transmission line?

The answer is a resounding "no."

Let’s analyze the  section by section to see how it really works.

The first key change in the Bradley/Carson amendment is a new provision that purports to protect property owners from wrongful threats of eminent domain.   Unfortunately for landowners, this provision is all hat and no cowboy.   Let’s go to the scoreboard:

·         First and foremost, the Bradley/Carson amendment gives absolutely no effect to the substantive limits on eminent domain in Article 12-a of the state constitution, makes zero attempt to define the classes of transactions for which eminent domain is prohibited, and leaves on landowners the almost impossibly expensive and time-consuming burden of litigating whether private transmission lines can use eminent domain.  Article 12-a prohibits eminent domain for private development projects.  At least two members of the Senate Judiciary Committee (Senators Houde and Groen) have stated clearly that private transmission lines like Northern Pass are “private developments” and are prohibited from eminent domain under Article 12-a.  But strangely, the Bradley/Carson amendment has absolutely no substantive prohibitions on the kinds of projects that can use eminent domain.  The amendment just sits there, fat, dumb and happy, pretending that there is no need to update the 100-year old eminent domain statutes to redline new forms of private development projects that cannot constitutionally use eminent domain.  Landowners are left in the lurch.  The Bradley/Carson amendment abdicates the clear legislative responsibility to define with precision when eminent domain is available.  The amendment makes zero forward progress on the key issue – crafting a clear legislative solution that private transmission lines like Northern Pass have no right to use eminent domain.  Bradley/Carson cynically leaves on landowners’ shoulders the uphill battle of spending money to litigate (against well-funded corporate opponents) the question of eminent domain authority before the Public Utilities Commission and the courts.

·         Bradley/Carson’s new “threat” limits are toothless and don’t help landowners.  Perversely, they are drafted to help Northern Pass by providing a new “safe harbor” for Northern Pass’s longstanding strategy of threatening eminent domain via broad public statements.  The new provision prohibits only those eminent domain threats that are made in “landowner negotiations."   That leaves open the abusive course of action already employed by Northern Pass, which is to make broad public threats of eminent domain in press statements, interviews and federal and state regulatory filings.  Northern Pass has already put eminent domain front and center in every landowner conversation, without having to mention the words in one-on-one negotiations.  Rather than any new limit that protects landowners, Bradley/Carson is in fact a safe-harbor for Northern Pass.  It allows Northern Pass to continue business as usual in buying up land in abusive, unequal bargaining situations, having already put the eminent domain threat out into the public domain.

·         Bradley/Carson’s financial penalties for wrongful “threats” are peanuts -- just a small cost of doing business – and aren’t near enough to stop abusive threats.  In the context of a project like Northern Pass, which is projected to generate $1 billion of average export sales per year for Hydro-Quebec, $68 million a year in equity returns for Northeast Utilities and NSTAR and as-yet undisclosed right of way rental fees for PSNH (we estimate in the tens to hundreds of millions of dollars annually), what is the impact of a possible $25,000 civil penalty?  Essentially zero.  If Northern Pass needs a $1 million dollar property to site its line, a $25,000 penalty for a free pass to explicitly threaten the landowner with eminent domain costs Northern Pass only 2.5% of the purchase price.  That’s just a small bit more than the real estate transfer tax, and a lot less than the fees they are likely paying their real estate agents.

·         What’s the bottom line?  Bradley/Carson does nothing to stop eminent domain for private transmission lines.  Bradley/Carson does nothing to stop Northern Pass’s current abusive strategy of making broad public announcements of the eminent domain threat, so they become part of every landowner discussion without any new mention of the words.  In fact, the amendment effectively gives Northern Pass a free pass to continue this abuse.  And if there are key landowners that Northern Pass really, really wants to threaten with eminent domain, Bradley/Carson doesn’t stand in the way, because the $25,000 penalty is peanuts and just a small cost of doing business.

The second main provision of the Bradley/Carson amendment deals with the purchase price for landowners.   The amendment says eminent domain can’t be used against a landowner unless the landowner has previously been made an offer by the transmission line developer at a price of 200% of appraised value, and the landowner rejected the offer.   Sounds sort of good on a first read, but the fine print shows, once again, that this provision hurts property owners and is all about helping Northern Pass.  To the scorecard:

·         The “200%” promised to landowners is not based on any objective baseline value, but instead is based solely and exclusively on the transmission developer’s own appraisal.  That means there is no landowner protection at all because there are no objective value numbers.  We all know what Northern Pass’s appraisers have said – really ridiculous stuff such as transmission lines have no material impact on land value.   There is no requirement in Bradley/Carson for an independent, professional third-party appraisal, or even a reference to town tax appraisals.  Northern Pass can say to a landowner “our appraiser puts a value of $10,000 on the 150’ strip of land we want to buy as an easement," and that’s the end of the story under Bradley/Carson.  If Northern Pass then offers the landowner $20,000, and the landowner says no because selling the easement will knock $50,000 off the value of the full 50-acre parcel, tough on the landowner.  Northern Pass can then proceed to eminent domain under Bradley/Carson and pay the landowner only fair market value.  And don’t be fooled by that pretty little provision in the amendment that says landowners can get their own appraisals and even get reimbursed $1,500 for the expense.  Read the fine print.  The landowner’s appraisal is completely irrelevant to the baseline for the 200% price.  It’s solely the transmission line developer’s appraisal.  Very sneaky, cynical and tricky stuff here indeed….

·         The “200%” price is only for the interest in land sought by the transmission line developer (likely just a strip easement across the land) and gives no effect to the much larger part of a landowner’s damages, the diminution in value to the rest of the parcel that will be severely harmed by the transmission line easement.  If a landowner owns a 50-acre parcel with a current market value of $100,000, bisecting the land with Northern Pass’s transmission line on a 150’ strip easement will likely knock 50% or more off the value of the land, or a $50,000 loss.  Under Bradley/Carson, Northern Pass would provide the landowner with NP’s own appraisal of just the 5 acres needed for the 150’ strip easement, with a value of, say, $10,000.  If Northern Pass offers the landowner $20,000 for the easement (200% of NP’s own appraised value), Bradley/Carson then gives Northern Pass a free pass to proceed to eminent domain if the landowner doesn’t take the offer.  But look at the numbers – the landowner’s actual loss is $10,000 for the 5 acres of easement land (if you believe NP’s appraisal!) and $50,000 of loss on the remaining land that will be harmed by the siting of the lines.  That’s $60,000 of total loss, but the landowner was offered just $20,000 (just a third of the loss!) as the supposed “fairness test” under Bradley/Carson to let Northern Pass get to eminent domain.  Bradley/Carson is financially incoherent, grossly unfair to landowners, sets a supposed “fairness” test to get to eminent domain that in fact has no teeth, and once again works in favor of Northern Pass (to speed them to eminent domain).

·         The “200%” price is only a test price for eminent domain, and does not set a floor for what the landowner will receive in eminent domain.  In fact, Bradley/Carson doesn’t change the current law that says a landowner will get only fair market value in eminent domain.  Bradley/Carson would codify into law the current Northern Pass abuse of making a fat offer up front to a landowner with a short time deadline, with the understood (but unstated) threat that if the landowner doesn’t go along, she’ll get only market value in a later eminent domain proceeding.   We are realistic about the challenges and deficiencies in the legislative process, but this is truly ridiculous.  Bradley/Carson is structured as if it is expressly intended to harm landowners.  How could that be possible?  There was some discussion today at the Judiciary Committee about providing some price protection for landowners in the eminent domain proceeding, but it remains to be seen how that might be done.

·         Finally, to add insult to injury, Bradley/Carson is structured to provide an express subsidy to Northern Pass out of the pockets of landowners!  By setting 200% of NP’s own “appraised value” as the cap on the negotiated price before Northern Pass can go directly to eminent domain, Bradley/Carson substantially undercuts the 5x or higher multiple that has been established as the current fair market price for Northern Pass’s land purchases for transmission line development.   The amendment will effectively take this money from landowners and give it to Northern Pass.  In recent months Northern Pass has been paying multiples of five times or more fair market value for land purchases for the transmission lines.  Landowners who decide to sell a parcel with a fair market value of $100,000 are often being offered or paid $500,000 or more by Northern Pass or its affiliates or agents.  This is of course expensive for Northern Pass.  Bradley/Carson, whether intentionally or not, would have the effect of knocking that premium down from 5x or more to 2x (200%).   After all, if Northern Pass gets a free pass to eminent domain after offering only 2x, and they can get the property in an eminent domain proceeding for 1x (fair market value), there would be no incentive to offer more than 2x.  In a Bradley/Carson world, if Northern Pass believes it will be able to convince a captive New Hampshire Public Utilities Commission to order eminent domain, a rational Northern Pass will ratchet down its offer prices to the 2x in the legislation.  Is this what one would call an "unintended consequence" of Bradley/Carson – to suck more of the economics out of landowners and hand them over to Northern Pass?

In the interests of avoiding reader fatigue, we’ll stop here for now.

In a future post, we will examine the other provisions of Bradley/Carson.  As you might guess, from a landowner protection perspective, the rest of the amendment is no more than disappearing ink.

For the record, we’ve used Northern Pass to illustrate the fatal flaws in the Bradley/Carson amendment.   Northern Pass is just one of many private, participant-funded transmission lines on the planning horizon for New Hampshire.  There is a massive landowner protection and property rights issue facing the state. 

And Bradley/Carson is totally the wrong solution.

[Analysis of the B/C bill continues here.]