What are the chances that the actual cost of developing and constructing Northern Pass will greatly exceed the company’s estimate of $1.6 billion? Based on Eversource’s recent track record in New Hampshire with the auction of its power generating assets and the scrubber boondoggle at its coal-burning plant in Bow, it’s a safe bet the cost will soar well beyond $1.6 billion.

Last month Eversource subsidiary PSNH announced its oil, coal, wood-burning, and hydro power generating plants plus fuel and other inventory fetched a combined auction price of $258.3 million, a whopping $458.1 million less than their net book value of $746.4 million. 

If that $458.1 million loss figure is kind of ringing a bell with you, you might recalling the controversy around the fact PSNH drastically increased the estimated cost of the scrubber project to reduce mercury emissions at its coal-burning plant in Bow (Merrimack Station) to $457 million after initially estimating a cost of $250 million.  

PSNH ratepayers will be footing the bill for both.

How did we get here?

Let’s start with the scrubber boondoggle. When it became clear at the beginning of this century that the mercury emissions from the Bow plant were a danger to public health, PSNH convinced the legislature and Governor Lynch that the best way to address this health hazard was to require PSNH to install a wet flue gas desulphurization system (commonly known as the scrubber). When the legislation requiring the scrubber was passed in 2006, the estimated cost was $250 million. At the time this seemed like a better option than shutting down Merrimack Station because the energy produced from burning coal was relatively cheap compared to other sources of energy.

Just two years later, PSNH admitted that its estimate for the scrubber cost had ballooned to $457 million. Meanwhile, the cost of natural gas had begun to drop. A coalition of New Hampshire businesses in 2009 asked the legislature to revisit whether the scrubber made sense before construction of the scrubber commenced. This effort was defeated based on PSNH’s assurances that even if the scrubber cost $457 million, the price of energy produced by Merrimack Station would be less than natural gas prices.

But in 2012 when PSNH asked the NH Public Utilities Commission to allow the company to start recouping the entire cost of the scrubber plus “a reasonable rate of return,” i.e. a guaranteed profit, from its ratepayers, the Staff of the PUC, several ratepayers, environmental groups, and the Office of the Consumer Advocate objected. 

The core of the argument made by the PUC staff and the Consumer Advocate was that PSNH had not been candid in 2008 and 2009, before construction began, to the PUC and the legislature about what the company knew then about the impact of falling natural gas prices on the economic viability of the scrubber.  The Consumer Advocate argued that the PUC should disallow a large portion of the scrubber costs, stating:

It is not known, however, how the Legislature would have responded to the information of large ratepayer losses. Nonetheless, PSNH must be held accountable for failing to adequately disclose key Financial Sensitivities of the Scrubber Project to decision makers; failing to study Scrubber Project economics throughout the construction period of the project; and failing to adequately keep decision makers informed of critical implications of changing economic and market conditions. 

The dispute about how much of the scrubber cost PSNH could collect from ratepayers was still raging in 2014 when PSNH, after 20 years of fighting against any requirement that it sell off its power generating plants, suddenly became interested in reaching an agreement to sell these assets, including the controversial Merrimack Station. A coincidence, no doubt.

This is how we got to the recent auction that resulted in $458.1 million of “stranded costs” that PSNH ratepayers will be required to pay as part of their monthly electric bills.

A settlement agreement was reached between PSNH and interested parties that was subsequently approved by the PUC and blessed by the legislature that established the terms of the auction and provided for PSNH recovering the entire cost of the scrubber, less $25 million.

Once the deal is fully consummated, the stranded cost recovery charge per kilowatt hour for PSNH customers will increase by a little under one dollar.

Remember, as discussed in a previous blog, there are several different components to electric rates. There are distinct rates for stranded costs, transmission costs, distribution costs, energy costs, and a few other items.

For customers who get their energy from PSNH’s default service, the increased stranded cost recovery charge will likely be offset by a reduction in the energy rate because the energy will no longer come from PSNH’s white elephant generating plants.  

However, there is going to be a big and unpleasant surprise for PSNH customers, mainly businesses, who have been buying energy from a competitive supplier. There is no offset to the increase in the stranded cost recovery charge for them.      

Given the Eversource track record in New Hampshire, is it really in the public’s best interest to grant Eversource siblings Northern Pass and PSNH a site certificate to construct and operate the 192-mile high voltage transmission lines and towers?