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Other Voices  9/11/00

by  Jeb Bradley and Clifton Below


 Recently the Public Utilities Commission (PUC) issued its Final Order in the Public Service of New Hampshire (PSNH) deregulation case.  This historic step will begin to end the  troubled history long endured by customers and the state's economy.

 Lower electric rates and competition for PSNH customers has been delayed for over three years as PSNH won an injunction in Federal Court blocking the PUC's efforts.  A settlement was reached between PSNH and Governor Shaheen in August 1999.  After PSNH agreed to further concessions insisted upon by the Legislature and  customer groups, necessary legislation (SB-472) was enacted in June. 

      The PUC Order sets the stage for an average 15.5% rate reduction for PSNH customers.  Large customers see a 12.4% reduction and residential customers receive 17.2%.  PSNH's existing electric rates are 35% higher than the regional average.  With this reduction, that 35% rate gap will shrink to 14% and should be completely closed over time.  Clearly, this will benefit the New Hampshire economy and every PSNH customer. 

       PSNH can now issue rate reduction bonds authorized by SB-472 to refinance up to $670 million of high cost debt with all of the savings passed onto customers.  This was authorized by SB-472.  This process should occur within two or three months and then competition for PSNH customers will begin.  During a 33 month transition period for residential and small commercial customers average rates will  fall by 15.5%.  Large commercial and industrial customers will enter the competitive market earlier, in 9 to 21 months.

      The PUC order is subject to rehearing motions and possible appeals to the New Hampshire Supreme Court.  Thus SB-472 required PSNH to automatically lower rates by 5% on October 1.  The remaining 10.5% rate reduction will follow  the end of any appeals.  Should there be no appeals, the full rate reduction will go into effect when PSNH sells its rate reduction bonds.

       Most customer interests support the final version of the settlement including the Office of Consumer Advocate, Business and Industry Association, Cabletron, Lodging and Restaurant Association, Homebuilders Association,  Grocers Association, and Hospital Association.  13 Chambers of Commerce supported the final agreement as did numerous businesses, and competitive energy suppliers, but not everyone. 

      Detractors include: Campaign for Ratepayers Rights, Think-NH, Granite State Taxpayers, and Great Bay Power Corporation, a minority owner of Seabrook.  The three former organizations believe the final settlement is not good enough from a customer perspective.  Great Bay  objects to treatment of Seabrook decommissioning costs because, unlike other Seabrook owners, it has no retail customers.  Appeals by these groups could delay rate savings and choice for PSNH customers. 

      We disagree with the premise that this settlement is not good enough from a customer perspective.  PSNH will write-off or otherwise absorb $450 million, or about 20% of its so-called stranded or uneconomic costs.  To the best of our knowledge, the $450 million write-off represents the largest percentage stranded cost concession by a utility in this country.  PSNH's write-off will cost them nearly a third of their stockholder equity.

      It must be remembered that PSNH successfully blocked efforts to lower
electric rates in Federal Court.  During that time, PSNH  was collecting 100% of its stranded costs from customers.  In the absence of an agreement, PSNH would very likely  collect all $2.3 billion of its stranded costs.  The PUC and the Legislature's independent expert consultant also determined that the improved  settlement has a better rate outcome for customers than what a traditional rate case might produce.

      In 1998, there was an opportunity to significantly reduce PSNH's stranded costs.   PSNH is mandated by federal law to purchase high priced power from wood to energy plants.  Agreements had been reached between wood plants and PSNH to reduce these costs by $150 million over the life of the purchase obligations.  Unfortunately, these deals were never fully approved by the PUC.  The House passed legislation that would have enabled the financing necessary to realize these customer savings.  But, the Senate rejected the bill.  Since that time, PSNH customers have continued to pay all costs associated with the wood plants.

       It may well prove impossible to now renegotiate any of those contracts.  PSNH customers may never realize a dime of the $150 million of savings once possible in 1998.  Ironically some of the same parties that now threaten to appeal the most recent settlement with PSNH, also opposed the $150 million savings in 1998.  Some parties apparently thought then, as they do now, that there is some better deal just around the corner for customers.  Wishful thinking in 1998 may have cost PSNH customers $150 million.  Wishful thinking today would delay the full rate reductions and  customer choice.  The 1998 example stands as a stark reminder that there is a price for delay.  PSNH customers inevitably lose.

      Appeals are likely despite the $150 million mistake and the cost of delay.  For this reason SB-472 required PSNH to reduce rates by 5% for 6 months if there are delays.  The 5% rate  reduction will cost PSNH up to $20 million.  It was proposed by Senator Clifton Below, prime sponsor of SB-472, and became the lynch pin to finalize the settlement.  Another key issue involves the proposed merger between Consolidated Edison, a New York utility, and Northeast Utilities the parent company of PSNH.  Passage of SB-472 will force PSNH to give customers a significant portion of the savings that result from mergers, nearly $75 million over ten years.  That is a positive aspect of the merger though some disagreement exists about whether several million dollars of those savings will flow to customers.  Of greater concern are on-going reliability problems in ConEd's service territory, most notably a significant New York City blackout in July 1999 and the continuing outage of a nuclear plant due to radioactive leaks in a steam generator. 

      Another significant long term concern is ConEd's desire to remain a significant owner of power plants while becoming the nation's largest electric delivery utility.  Most New England utilities are selling their power plants to competitive energy suppliers.  Separating electricity delivery from generation will better assure a level  playing field among competitive suppliers. ConEd's insistence they be able to acquire generation facilities could undermine competitive forces in New England.

      Much attention this summer has been focused on California's electric deregulation.  Rates in San Diego have nearly doubled and regulators have introduced temporary price caps.  The difficult situation in California is very different than New Hampshire in several critical respects. California allowed competitive rates to be determined by spot market prices instead of direct relationships between buyers and sellers of power.   Spot market prices fluctuate daily, even hourly, depending upon weather, load demand, and outages.   By comparison in New Hampshire, prices during the transition period will be bid over the length of that period, and will be known and stable. 

      California has not built new power plants or transmission lines for a number of years.  The state can barely import or produce enough power during peak demand.  Meanwhile the state's economy has boomed. Supplies have not kept pace with increased electricity demand.  California left itself extremely vulnerable to price spikes due to the lack of new capacity.

       New England, in contrast, is increasing generation capacity.  New natural gas supplies are now available from Nova Scotia and other parts of Canada.   Over 6,000 megawatts (MW) of new generating capacity, an amount equal to almost 30% of New England's peak demand of about 22,000 MW, has been approved for connection to the regional transmission grid, including a new 525 megawatt power plant that recently broke ground in Newington and a 742 megawatt  plant that is moving ahead in Londonderry.  These super efficient gas fired plants operate at competitive costs and with much less air pollution than most existing plants, ensuring adequate capacity, reliability and a competitive market for generation supply.

      The California experience has shown that when an industry as essential
as electricity generation is deregulated, there are likely to be bumps in the road.  Other states can certainly learn from California's experience.  However to reimpose regulation would be misguided.  Markets and competition over time are far more likely than regulation to produce lower rates,  quality service, and technological innovation.  Let's not forget in New Hampshire's case, regulation led to the highest average electric rates in the nation.

      A problem likely to affect the cost of electricity are price run-ups of oil and other fuels.  Increases at the gas pump and home heating fuel have been most dramatic, but the price of electricity will undoubtedly increase somewhat.  This would be true with or without electric industry competition.

      Another issue receiving more attention is the environmental impact that PSNH's coal and oil burning facilities have.   PSNH has made significant environmental improvements in the last decade.  However as their plants are sold to new owners in the restructuring process, further environmental progress needs to be made.  The timing of pollution reductions as well as their cost are important considerations.  We plan to introduce legislation addressing this in January.

      New Hampshire has had a long and tortured history regarding high electric rates.  Past PSNH decisions, state policies, and federal laws have led to this sorry situation.  Problems were created over a number of years and will not vanish overnight.   That should not diminish the value of this settlement.  No settlement is perfect.  If the demand for perfection is allowed to undermine the ability to achieve a good solution, it is PSNH customers who will lose, not PSNH.

       This settlement achieves the best possible outcome from a customer perspective.  Litigation will end, electric rates will go down, PSNH will write-off  or absorb $450 million in costs, customers will have choices, and cleaner power plants are being built.  Hopefully, we will soon begin to put the mistakes of the past,  problems that began with Seabrook and led to PSNH's bankruptcy, the 1989 Rate Agreement, and the highest rates in the nation, behind us for good. 

Representative Jeb Bradley (R-Wolfeboro) and Senator Clifton Below (D-Lebanon) Co-Chair the Legislative Oversight Committee on Electric Utility Restructuring

PSNH deal gaining momentum in House

Opposition groundswell never develops

Concord Monitor, Wednesday, May 17, 2000

By AMY McCONNELL
Monitor staff

When Republican Rep. Robert Letourneau's elderly constituent called this week asking him to reject a refinancing plan for $825 million of Public Service Company of New Hampshire's debt, the man found a sympathetic ear.

The Derry man lives on Social Security and pays $300 each winter month for his lights and electric heat. He'd recently received a letter from the refinancing plan's opponents, who said customers would get cheaper rates without it - and without the deregulation deal.

The letter, Letourneau said, told the man to push his representative to vote against the measure in the House this afternoon.

What the letter didn't tell the elderly man, he said, was that without the current agreement, the state and PSNH will likely continue a lawsuit in federal court. After hearing that, the constituent told Letourneau - who hasn't decided how to vote - to use his best judgment.

And Letourneau's best judgment, he said, will likely rely not on opposition groups' claims but on arguments tomorrow from members of the House committee that passed the plan last week.

"I'm depending on the people sitting on the science and tech committee to lead us in the right direction," he said, referring to the House Science, Technology and Energy Committee. "They're not about to take the House floor and mislead us . . . they're going to tell us the truth and they're going to give us the straight scoop on this."

With the full House voting tomorrow on this measure, several legislators say the bill's critics have failed to produce a groundswell of opposition. Lawmakers and even some critics expect the bill to pass today.

Some legislators plan to reject the refinancing bill out of lingering distrust of PSNH. But others - like Letourneau - are following the lead of committee members such as Republican Reps. Jeb Bradley of Wolfeboro and Jeff MacGillivray of New Ipswich, and of Democratic Rep. Terie Norelli of Portsmouth, in deciding how to vote.

Those committee members, who wrote and support the legislation now before the full House, say changes to the agreement - by the Public Utilities Commission, by the Senate and by them - make it better than any alternative.

The pending agreement promises to cut customers' rates by 18.2 percent, force the company to accept $474 million in losses and allow consumers to choose a new energy supplier.

After selling its generating plants, the company will apply an estimated $920 million in proceeds to pay down its $2.3 billion debt. Much of that debt is a product of cost overruns in building the Seabrook nuclear power station - still a sore point for some legislators.

In return for its concessions, the company gets up to $825 million of its high-interest debt and other obligations refinanced with lower-interest bonds, which customers would then pay off over 12 years through their electricity rates.

For both PSNH and its customers, the agreement eliminates financial uncertainty surrounding the company's 1997 lawsuit against the state, which had ordered it to sell its generating plants and cut its rates. The deal, according to consultants to the Legislature, saves customers nearly $115 million more than the best-case alternative: Winning the federal lawsuit, allowing regulators to set rates, then refinancing some of the company's debt. It also eliminates the risk of possibly losing the lawsuit, and having to pay off the company's entire $2.3 billion debt.

But as the deregulation deal traveled from the Senate to a House committee and now to the full House, its critics have complained that the agreement does too little for customers.

Consumers, several groups say, would fare better if utility regulators set rates the usual way, by measuring PSNH's costs and determining how much the company could charge. And the state might win the lawsuit in federal court by appealing the ruling of the judge, who is widely perceived as pro-PSNH, or winning a change of venue.

Yesterday, those critics presented a united public front for the first time at a news conference arranged over the weekend.

"We see this agreement as a golden pair of handcuffs," Chris Sterndale, executive director of the Campaign for Ratepayers Rights told the assembled press corps. "We give the company $825 million and we give up all opportunity for future savings."

Officials from Granite State Taxpayers, Think - New Hampshire, Citizens for a Sound Economy, Coalition of New Hampshire Taxpayers and New Hampshire Public Interest Research Group also spoke against the bill, as did Republican gubernatorial candidates former state attorney general Jeff Howard and (by proxy) former U.S. senator Gordon Humphrey.

Although their opinions varied on how proceed without a settlement, most of the groups claimed PSNH was overstating the amount of bad debt it was asking customers to pay off. The company, they said, should accept more than the $474 million in losses legislators are now demanding in exchange for approving the refinancing package.

Howard said the company should give up an additional $150 million. The additional losses, he said, would partially compensate customers for the company's three-year delay in deregulating.

And the other opponents joined former state senator Jim Rubens in his appraisal of the deal.

The settlement brokered by the governor, they said, would cost PSNH customers $200 million more than continuing to regulate the company - as long as the state won the lawsuit or won a change of venue. Yesterday, Rubens said the data he was using was drawn from utilities regulators' own April 19 ruling, with a refinancing package added.

"I didn't make up the data - it's their data," he said. "Now they're saying that a consultant's numbers hatched over some phone conversation in private are better numbers."

Legislators, he said, should beware repeating the mistake of the 1989 Rate Agreement, in which lawmakers relied on misleading information to approve a bailout of PSNH that left customers with the highest electric rates in the country.

He has circulated a chart among legislators to bolster his claims.

But Rubens said the coalition has little chance to turn the hearts of House members at the last minute. The hastily organized group is "outlobbied, outorganized and outstrategized" by the supporters of the measure, he said.

"That something like this might pass is emblematic of a government that's financed by business," Rubens said. "We'd like ratepayers to do better, but the public is fairly comfortable with the economy so the antagonism level is not that high . . . we're not expecting miracles."

And why did critics wait so long before pressuring lawmakers as a united front?

Many people, he said, were waiting to see how the Senate and House would transform the bill. It wasn't until the measure passed in committee last Wednesday that some opponents realized they weren't going to get what they wanted, according to Rubens.

The coalition has not counted expected lawmakers' votes and is not pressuring individual House members, Rubens said. Instead, each group has asked its members to lobby their own representatives.

But the opposition, and their letters to their membership, have had little effect in Democratic Rep. Linda Foster's Mount Vernon district, she said. About 10 constituents have called her, and each urged her to support the refinancing package she must vote on today, she said.

Because of recent improvements to the bill, Foster said she plans to support it despite critics' claims that a better deal might exist.

Accepting the current deal is "sort of like buying a used car," Foster mused. Now that the deal has been negotiated, it's natural to wonder whether a better deal was possible.

"Well, at some point you have to take the deal or you can just get smacked around in court for the next five years," Foster said. "You can always say, 'Oh, I could have done better,' but that may not be the case."

While individual skeptics exist, Foster said, there is no organized opposition to the measure among House members. Legislators, she said, seem likely to follow the lead of Science and Technology Committee members like Bradley, Norelli and MacGillivray, whom they trust, Foster said.

"You can't have your finger on every bill that's running through the House, so you establish contacts on various committees with people you can trust to tell you the truth," Foster said. "If there's a better deal out there, I truly believe the people involved would have been able to negotiate that deal."