Utility Opposes Bill to Force Sale of Generation Facilities

New Hampshire’s Legislature is considering a bill that could require Public Service of New Hampshire (PSNH)—the state’s largest electric utility—to divest all 12 of its generation facilities by 2013 to complete restructuring of its electric sector. At a hearing on Thursday, PSNH staunchly opposed the measure, saying the bill could have “far-reaching economic risks, and reliability consequences for all New Hampshire business and residential customers.”

The bill stems from New Hampshire’s landmark electric restructuring law enacted in 1996, which by 2002 allowed customers to buy power from a supplier other than their regulated utility. But the Legislature also acted to guard against skyrocketing energy prices and rolling brownouts—such as were experienced in California at the time—by creating a system in which PSNH maintained ownership of regulated generation in combination with market purchases.

This was, as PSNH explains it, “to provide customers a ‘backstop’ or ‘default’ service to ensure electric service continued to be available to customers while customers also have the ability to choose an energy supplier from a competitive marketplace.” The bill now under consideration, HB 1238, would essentially force PSNH to sell its generation assets in order to complete the restructuring.

PSNH has 320 employees and still owns its traditional fleet of nine hydroelectric and three fossil-fueled power plants with a capacity of 1,165 MW. It says it uses the energy these plants produce—estimated to provide 27% of New Hampshire’s capacity, though just 3.4% of New England’s total capacity—to serve customers who have not switched to an independent supplier.

At a hearing at New Hampshire General Court’s House Committee on Science, Technology, and Energy on Thursday, witnesses shared strong opinions about the measure.

Daniel Allegretti, vice president for energy policy with Constellation Energy, and New England State Chair for the Retail Energy Supply Association (RESA), pointed out that the state’s only other utilities, Unitil and Granite State Electric Co., fully exited the generation business and became electricity delivery companies.

“Unlike its peers, [PSNH] halted a similar divestiture of its generation and supply assets in 2002,” RESA said in statement last week. The group reported that after eight years, in May of 2010, PNSH claimed significant numbers of customers were leaving its default service for more competitive offers. “For PNSH, this meant higher costs being shared by a shrinking pool of ratepayers, and price increases on its remaining customers, many of them residential and small businesses.”

"To end this destructive cycle of increasing default service prices, RESA member companies, power generators, and others all recommend that PSNH divest its generation plants and arrange default service supply from the marketplace as other local utilities have done," Allegretti testified. "Investors, not consumers, should bear the risk of capital investment. Divestiture of assets is a process that has been successfully overseen and implemented in New Hampshire and in other states. The residents of New Hampshire should no longer be held hostage to [a] system that enables costs to be recovered on the backs of ratepayers."

PSNH, which has launched a campaign to help garner support against the measure, testified on Thursday that the “forced sale” of its generation facilities would threaten hundreds of jobs in the state.

“Our customers today have the best of both worlds because they can buy from the market when it is cheaper than PSNH energy, and they can buy from PSNH when the market is more expensive,” testified Terry Large, PSNH director of Business Planning and Customer Support Services. “To be clear: New Hampshire completed electric utility deregulation. The state chose to do it differently than some other states, and PSNH customers have been the been the beneficiaries.”

“PSNH customers have saved more than $700 million over the last decade because our energy was priced below the market price for most of that time,” said Large. “A question for the Legislature is: ‘is it in the best interest of consumers to eliminate their ability to choose, and instead rely solely on a market that is driven mainly by a single fuel, natural gas, which historically has experienced significant price volatility?’”

Large also testified that a forced sale would likely create “stranded costs”—the difference between the sale price and value of the plants that PSNH is eligible to recover—that will be recovered from all PSNH customers. He noted that the energy market is currently depressed due to the economic recession and “abnormally low” natural gas prices, factors that may depress the sale price of the power plants in the near term.

“In fact,” said Large, “in one recent sale of a power plant, the purchaser of the AES Thames plant in Connecticut was not a power generator who intended to operate the plant in the future. It was a scrap dealer.”

Sources: POWERnews, RESA, PSNH