What Will the 2017 Version of the NH Republican Energy Agenda Yield in 2020
By Harold Turner
So far in 2017, New Hampshire’s Republican leaders, along with some factions of the business community, have followed a clear pro Northern Pass (“NP”) agenda …… with an underlying circa early 80’s shade of Seabrook Nuclear I & II “push” all over again. I was there in the 80’s, on the ground, and it wasn’t pretty. In each case the projects were hailed and promoted as the answers to our energy “problems”. The last time it ended in a PSNH bankruptcy. This time at least, the ratepayers won’t be directly on the hook for NP if the project doesn’t live up to all the economic hype. It’s not always wrong to be for something, but it is always risky to have all your eggs in one PSNH basket. True electric supply competition is the key to driving down energy prices, and that doesn’t mean requiring electric ratepayers to pay for capacity in gas pipelines either. As we approach Spring, are Republicans standing on thin ice on energy policy?
The proposed transmission line from Hydro Quebec to its Deerfield, NH interconnection, known by most everyone by now as Northern Pass, is projected to carry 1090 MW of hydropower through New Hampshire to the Massachusetts load centers, of which only 100 MW would come back to our state in the form of an undisclosed [to the public] power purchase agreement (“PPA”) between NP and PSNH. The current peak demand load on our NH grid is approximately 3000 MW, so 100 MW would be about 3.5% of our peak load requirements. As of the January 2016 ISO-NE report, there were eleven (11) proposed transmission projects competing to connect to the ISO-NE grid totaling more than 7,000 MW of potential capacity. That doesn’t include projects like the new off-shore Bay State Wind project, being jointly developed by Eversource and DONG Energy, with up to a 2,000 MW of potential. Simply put, the addition of 100 MW of new hydropower supply from Canada to New Hampshire is not going to fix the high cost of energy in New Hampshire no matter what price that amount of energy is offered at, as your fixed (T&D) charges will remain the same or increase, and the size of the new supply is so small compared to the total New Hampshire load. You can buy into the NP economic testimony if you want, but count me out. If we can’t change our location, which I’m pretty sure we can’t, we are never going to remove ourselves from one of the highest energy cost regions in the country since our regional grid operator (ISO-NE) controls the wholesale electricity market.
Multiple transmission lines from the north (Canada) do have the potential of bringing in wind and hydropower sourced supplies in the future to replace our aging fleet of existing power plants in New England, but the costs of new transmission won’t be small, and the sellers of electricity usually figure out how to price themselves to the marketplace (aka-what the market will bear, etc.), which means that our existing high costs are likely to remain high costs on a regional basis as compared to other parts of the country. The good news is that as a New England system, our electrical demand is not growing due to new energy efficiency measures and distributed generation deployed within ISO-NE, as shown in ISO-NE’s January, 2016 report. The changing ISO-NE picture is happening in many parts of the country as well.
There was also some recent good news on the electrical capacity front. ISO-NE’s 2017 forward capacity auction was just completed (FCA#11) and the system resources needed for 2020–2021 not only were easily filled, but the resulting system wide clearing price of $5.30 per kilowatt-month was lower than the previous year’s auction (FCA#10 @ $7.03/kw-month), and is the lowest clearing price since the floor price was eliminated in the 2013 auction. Just remember, those lower capacity prices don’t start until sometime in 2020. Of some significance to this story is the fact that FCA#11 does not yet include any future generating capacity coming to ISO-NE from NP, which at 1090MW out of a capacity target of 34,075 MW, would represent about 3.2% of the ISO-NE system capacity. Also of note is the fact that the latest 34,075 MW capacity target was down from the previous year’s auction target of 34,151 MW, reflecting increased capacity coming from both new demand resources and behind-the-meter solar PV growth. Some organizations are already trying to make arguments to cancel proposed projects within the ISO-NE region, based upon the favorable auction results.
I’m not just picking on NP/Eversource/PSNH. I can perfectly understand why Eversource would want to build the proposed NP line, especially when transmission line investments are projected to account for more than 50% of their total EPS growth through 2020, and transmission assets will rise to be 42% of their total rate base by 2020 per their latest Q4 investor call. Eversource expects to add $9.6 Billion Dollars (2017–2020) of investments into their rate base in the next four years of which $3.9B will be transmission, with guaranteed rates of return, even without the Bay State Wind project. If you are looking for an energy company to add to your stock portfolio, their projections look pretty compelling for a stock pick. However, I simply can’t agree that, at 3.5% of peak NH electricity demand, it has any merits as a game changing “energy project” for New Hampshire customers. If all of the predicted $63M ** energy “savings” (Note: Newly reduced from $80M on their website) each year were guaranteed, and dedicated to our industrial class customers (who pay the 5th highest rates in the country), then it could make a big difference to our economy. Without large energy savings targeted to our industrial class, it is at best simply an “economic development” project that could have difficulty meeting the SEC’s “public interest” criteria. Other than it being mostly wires, Northern Pass is not much different than other unpopular (to the general public) projects that have been proposed in the past in NH. What is the value of the permanent added tax base revenue to New Hampshire communities ($30M according to their website) — and temporary construction jobs — along with millions of one time dollars promised to go to agencies and other special interest organizations in the state ($210.5M according to their website) in exchange for gaining favor to carve up the landscape and run a power line through NH to MA? All the hype is cloaked in “energy savings”, not economic development: the “energy savings” are neither guaranteed nor fully substantiated IMO.
If the state wants to approve it now for the economic development benefits alone, then we must ask how much $$ do we get vs. how much $$ do we lose as a state? Then we must judge it on that basis for its “public interest” value, and in that case, I would have no issue with it being proposed and promoted. Every business/developer should have the right to pitch an unpopular project, whatever it may be (e.g. casinos, nukes, oil refineries, private waste to energy plants, private landfills, etc. etc.), but they should all be evaluated on their actual merits. Trying to wrap this NP project up in some “hybrid” North American flag as “cheap hydropower” from Canada; promoting “clean/renewable energy” in the US; and helping New Hampshire companies “grow/save jobs” with lower cost energy……. is pure marketing hype. Let’s just call it what it is, and accept or reject it on its face value annual tax revenues and one-time special fund merits, unless they will guarantee the long term energy cost savings ($63M/yr) it purports for New Hampshire ratepayers. Talk is cheap, so I say to Eversource, guarantee us the money in a special fund and make it real.
As an economic development project, its above my pay grade to decide what’s best for New Hampshire’s total economy in the long run, especially not being a resident of the North Country, and doubly so for not being part of our tourism industry. The SEC will need to find NP in the “public interest” for it to proceed, and if they can’t, it deserves to be rejected like so many other unpopular projects have in the past. Most of all, I would love to see the politics surrounding NP set aside, as the public optics of this deal look worse and worse the longer it goes on. We all know that the more money that gets spent around the state attempting to get a contested project approved, the more compromised our state government (and others) tends to look……….real or imagined. Nothing ever stays hidden from the public forever, and once constructed, NP will visibly remain a controversial feature of our state’s landscape for a long time to come, especially if New Hampshire ratepayers don’t see the reductions in their energy costs now being promised from NP, which is precisely the timeframe when Republicans could find themselves standing all alone on thin ice. NP could do Republicans a big favor and just agree to bury the whole line to reduce the visible stigma of the project.
Maybe now is the right time for Republicans to think about standing on a wider plank and on a less risky part of the pond. If they completely bet the farm on this one (like they did in the early 80’s for Seabrook) and get it wrong, it could cost them a lot of votes come 2020. As we know, it doesn’t take a lot of swing votes to switch control of who governs the State of New Hampshire. There is no shame in learning when to pivot to a broader vision. There are many others measures ratepayers could benefit from other than, or in addition to, NP.
** $63,000,000/ (8760hrs x 100,000 kw) = 0.072 $/kwh = 7.2 cents/kwh ….which basically means that at current “energy supply” prices for Eversource, all the 100MW of energy must be delivered 24 hours a day and 365 days of the year for just about free of charge to equal $63M/yr in savings, as all of the other fixed T&D costs will remain the same …or increase. Of course, many rate payers already buy their “energy” from 3rd party suppliers for less than 7.2 cents/kwh, so their actual net benefits would fall short of $63M…….not to mention the fact that it won’t actually be offered free of charge to anyone. Read the fine print from the NP fliers and you will find that the PPA is really only projected to produce “up to $100M” savings to Eversource customers over the 20yr life of the contract (or about $5M/yr ave.)……and even that slim amount is not guaranteed. The rest of the $63M/yr “energy savings” to all New Hampshire customers, claimed by NP, somehow stems from the NP power entering ISO-NE (versus the other 10 competing transmission line projects) and then saving the region $579M in “Capacity” costs, and then accruing to New Hampshire’s a 9% (of ISO-NE) share of that benefit ……once again, none of which is guaranteed in any way. NOTE: When I started writing this piece their website had always previously claimed $80M/yr, now NP/Forward NH just updated their website and lowered the projected “savings” figure from $81–82.5 M/yr to $62.8M/yr per new SEC testimony by London Economics International, almost a 25% reduction in one year. Guarantee the money to be saved for New Hampshire and we can take it seriously, if not, it’s just marketing.
Harold Turner is a business owner and entrepreneur from Concord, NH. Among his current volunteer activities, he serves as the Chairman of the Granite Institute, a State Policy Network (SPN) affiliated 501(c)3 free market think tank, and is as an Advisory Board Member of the NH CleanTech Council.