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What Will The 2017 Version of The NH Republican Energy Agenda Yield in 2020

By Harold Turner

So far in 2017, New Hampshires Republican leaders, along with some factions of the business
community, have followed a clear pro Northern Pass (NP) agenda with an underlying circa early
80s shade of Seabrook Nuclear I & II push all over again. I was there in the 80s, on the ground,
and it wasnt 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
wont be directly on the hook for NP if the project doesnt live up to all the economic hype. Its 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 doesnt 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 doesnt 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 jobsalong 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 states landscape for a long time to come, especially if New Hampshire ratepayers dont
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 80s for Seabrook) and get it wrong, it could cost them a lot of votes come 2020.
As we know, it doesnt 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.

So where does this $63M savings figure really come from? 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 saving $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 to occur in any way. NOTE: When I started writing this piece their website had always
previously claimed $80M/yr, nowNP/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.

***$579,000,000 is the claimed value of reduced capacity costs from the next annual forward
capacity market auction held by ISO-NE. That auction (FC#12) will occur in February, 2018 for the
2021-2022 time period. To achieve a $579M reduction in capacity costs, the NP project would need to
be responsible for driving the bid clearing price for the region below $4.00/kw-month, or about 25%
lower than the 2017 auction which already fell 25% from the 2016 auction without any benefit from
NP. The actual auction price is only guaranteed for that ONE YEAR period, at which time auction
prices could be higher or lower based upon market conditions. $63M for New Hampshires portions
(should it occur), would then impact the one year (2021-2022) period, and reduce rates by
approximately 1/2 cent per kwh for all of the 12,750,000,000 kwh of energy sold into New Hampshire
for the entire yearwith no guarantee that the following years auction wont go higher or lower due
to actual market conditions.

I bet you this makes your head just spin, doesnt it? Grab the Tylenol!!
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