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N.H. PUC Staff Sees Economic Value from PSNH Plant Divestiture
Staff of the New Hampshire PUC have filed a preliminary status report addressing the economic interest of PSNH's retail customers as it relates to the potential divestiture of PSNH's generating plants.
"Staff continues to believe that over the long term, PSNH's default service rate will be substantially higher than market prices resulting in continued upward pressure on default service rates. Based on La Capra's forecast of wholesale prices in New Hampshire and adjusted for retail, Staff's rate analysis indicates that PSNH's default service customers would be better off under a divestiture of the PSNH assets if the stranded costs were recovered from all customers. Customers who do not receive default service from PSNH, however, would see rate increases through the imposition of a stranded cost charge. While we recognize the volatility in today's energy markets, the value of PSNH's 'hedge' will likely diminish over the long term and will continue to be at risk due to potential environmental legislation," Staff said.
Based on two consultant reports and Staff's analysis, Staff concludes that:
• If the plants are sold, regardless of whether the PPAs are also sold, and stranded costs are charged to all PSNH customers:
--- ES Customers (energy service aka default service customers) would see a net economic rate benefit; i.e., the expected market-based default service rate plus the new stranded cost charge would be lower than the PSNH default service charge going forward.
--- Non-ES Customers would experience a rate increase as that group of customers is not currently paying any costs associated with PSNH's generation ownership.
• If the plants are sold, regardless of whether the PPAs are also sold, and stranded costs are charged to only PSNH ES Customers:
--- ES Customers would initially experience a slight net rate decrease or no net change, but going into the future the rate impact would depend highly on the future levels of customer migration.
--- Non-ES Customers would not experience any rate impacts, and the gap between their overall electric rate and that of ES Customers would grow.
"Staff's economic analysis confirms the findings from Staff's June 7, 2013 Report that there will continue to be a disparity between PSNH's default service rates and market prices going forward. There will be periods, such as occurred this past winter and during parts of the winter of 2012-2013, when PSNH's generating assets will provide substantial value to its customers. The increasing lack of fuel diversity in ISO-NE combined with serious volatility in New England's natural gas markets are expected to continue to have a profound effect on New England electricity prices, at least until more natural gas capacity and generating capacity becomes available in the region. The analysis contained in Staff's Report and the accompanying La Capra Report, however, assumes those short-term effects will be resolved over time, an assumption based upon market forecasts, but one nonetheless we recognize is undergoing critical discussion in the region as this Report is written," Staff said.
Staff recommends that:
1. The Commission complete the Scrubber docket before conducting any proceeding involving divestiture of PSNH's generating assets and PPAs in order to get a firm picture of the recoverable net book value of the assets;
2. The Legislature makes the necessary statutory changes that would allow the Commission to conduct a full review of the PSNH generating assets and to proceed with divestiture if, after a comprehensive proceeding at the Commission, the Commission finds it is in the economic interest of PSNH's customers to divest; and
3. The Commission requests ISO-NE to conduct a study of the potential reliability and economic effects of the closure or retirement of PSNH's fossil generating plants.
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April 2, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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