PSNH Proposes Nonbypassable Alternative for Recovery of Above-Market PPAs

Public Service Company of New Hampshire has proposed an alternative cost recovery methodology for the above-market costs of PPAs it is seeking to execute with several wood-burning IPPs (DE 11-184).

Originally, PSNH proposed recovering the above-market costs of the PPAs, which are to last about two years, through the energy (default) service rate, at a rate of $8.5 million per year (see 10/19). However, while these above-market costs would be bypassable, PSNH would simultaneously remove $8.5 million of currently bypassable costs from the energy service rate and place them into the nonbypassable distribution rates, so that the above-market PPA costs would not alter the bypassable energy service rate.

The total above-market costs of the PPAs are estimated to be about $24 million; amounts not recovered through the energy service rate in one year due to the $8.5 million limit would simply be deferred for recovery through the energy service rate in the next year.

PSNH's proposal was opposed by Non-Advocate Staff of the PUC (a separate contingent of Staff had agreed to a settlement with PSNH calling for the removal of costs from the energy service rate to implement the PPAs). Non-Advocate Staff said that the energy service costs proposed to be moved into distribution rates - uncollectible expenses and regulatory assessment expenses -- were clearly related to default service and thus not eligible for recovery through delivery rates.

PSNH's preferred outcome is its original proposal to recover above-market costs in bypassable energy rates, with a transfer of $8.5 million in default service costs to distribution rates.

However, PSNH has now alternatively proposed recovering the above-market costs through a new and distinct nonbypassable distribution charge, which PSNH said that the PUC could implement under its plenary ratemaking authority.

This approach would retain the bypassable status of all current energy service costs, would maintain the energy service rate at the level it would be as if the PPAs were not executed, and would treat the above-market PPA costs similar to the system benefits charge, with PSNH citing the public policy benefits of the above-market PPAs as justifying such treatment (the PPAs are needed to maintain the economic viability of the five generators at issue).

This new nonbypassable charge for the above-market costs of the PPAs would be temporary in nature, lasting only as long as necessary to recovery, "all above-market costs of the PPAs with a return at the Company's weighted cost of capital for its generation segment."

Although the PPAs are not expected to be below-market during their term, PSNH is silent as to how allocate any benefits of the PPAs if they indeed end up below market.

Although silent with respect to treatment of the PPAs under its new proposal, by assigning only above-market costs of the PPAs to customers on a nonbypassable basis, energy from the PPAs are implicitly being used to serve default service load. Since such PPAs will be dedicated to default service customers -- but with above market costs shared by all customers (essentially providing the PPA energy to default service customers at the market price) -- the question is whether similar treatment would be afforded if the PPAs produce costs below market; namely, would all customers paying the nonbypassable charge now receive a nonbypassable credit from the lower-priced PPAs, or will the low cost energy from the PPAs be dedicated solely to default service, thereby lowering default rates versus the market price for supplemental power.