PUC Finds Restructured Utility's Sought PPA Would Be Akin To Owning Generation After Unbundling, Rejects PPA

The New Hampshire PUC has rejected a proposal from Public Service of New Hampshire (Eversource) for a 20-year PPA with a unit of Hydro-Quebec, finding the PPA to be inconsistent with the state's electric restructuring.

The PPA as proposed would not have impacted default service. Eversource would have sold products under the PPA into the wholesale market, with costs/credits recovered via the nonbypassable stranded cost charge

However, the PUC's order rejecting the PPA is notable with respect to the retail market due to its broader findings regarding utility PPAs generally

"As a practical matter, the proposal by Eversource to enter into a long-term PPA for power that it would resell into the wholesale market is essentially the same as Eversource owning an electric generating facility," the PUC said

"The proposed PPA is not needed to supply distribution services to Eversource distribution customers, and its costs and related expenses would not be permissible 'stranded costs' under the SCRC rate feature. The proposed PPA is designed to support electric generation supply over a proposed new transmission line, and therefore the expenses or losses related thereto would be disallowed in distribution rates, including the SCRC," the PUC said

While the PUC previously approved certain short-term PPAs between PSNH and wood-fired plants, the PUC noted such action was taken when PSNH still owned generation (while PSNH still owns generation, it is in the process of divesting the facilities).

Moreover, the PUC contrasted the prior wood PPAs with, "the 20-year proposed term of the PPA here, both in terms of the risks posed to Eversource ratepayers and the general intent of the restructuring statute (to effectuate competition and service/price unbundling)."

The proposed hydro PPA, "goes against the overriding principle of restructuring, which is to harness the power of competitive markets to reduce costs to consumers by separating the functions of generation, transmission, and distribution," the PUC said

"Allowing Eversource to use the SCRC mechanism as a ratepayer financed 'backstop' for its proposed 20-year PPA would serve as an impermissible intermingling of a generation activity with distribution rates," the PUC said

"[W]e cannot approve such an arrangement under existing laws, and accordingly dismiss Eversource’s petition," the PUC said

Note that the PUC's ultimate conclusion for rejecting the PPA was the recovery of generation costs via distribution rates

While, as noted above, the PUC also cited the overriding principle of restructuring, and while the PUC likened the PPA to generation (for purposes of cost recovery), the PUC did not explicitly find that PSNH was prohibited from entering into the PPA due to restructuring per se. This leaves open the question of whether a PPA which recovered costs from generation rates (e.g. default service) would be permissible.