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Thu August 21, 2014
Berlin Biomass Plant Fully Operational, But At What Cost To Ratepayers?
A new biomass plant in Berlin is finally producing electricity for Public Service of New Hampshire under a controversial 20-year contract that a report says will cost PSNH ratepayers $125 million more than if the electricity was purchased on the open market...
That estimate came from the consulting firm of La Capra Associates which did the report for the state's Public Utilities Commission as part of a wide-ranging review of PSNH’s operations.
In a statement PSNH said the La Capra report isn’t a sure thing because its conclusions are “highly dependent on a number of issues that are uncertain and difficult to predict - the future price of gas, the retirement of other power plants, and new infrastructure development, among other things. "
But La Capra’s conclusions are not unfamiliar to PSNH. The La Capra report echoes warnings the Public Utilities Commission staff and the state’s Office of Consumer Advocate made back in 2011. That’s when the three PUC commissioners considered testimony and dozens of documents as they were considering whether to approve the contract.
The PUC staff estimated over 20 years the contract would cost ratepayers at least $140 million more than if PSNH bought electricity at market prices. In return, the PUC staff said, there would be “what amounts to a modest boost in the economy of the North Country.”
“It looks like there is a really significant risk that customers would be locked into making those over-market payments,” Meredith Hatfield, who headed up the state's Office of Consumer Advocate, said at the time.
It’s not easy to calculate what this might mean to the average ratepayer in the short term. It could be a few cents every month or a few dollars or – if energy prices increase considerably – nothing.
But whatever the amount PSNH customer David Van Houten of Bethlehem objects because he had no choice.
“Well, I actually resent having to pay more without being asked to pay any more,” he said.
Public Service of New Hampshire argued strongly for the contract. Company officials said the PUC staffers didn’t have a crystal ball. They said energy prices could go up enough so that the deal would save ratepayers money.
And, they said the plant would produce renewable energy which isn’t cheap.
But the PUC staff was aware of the state requirement for renewable energy - and - it still argued that the contract amounted to gambling with consumer dollars.
PSNH also promised to keep track of any extra money that was paid. Gary Long, president of PSNH at the time, explained what would happen.
“Then, we would return that either through some sort of a payment back to customers or we would purchase the plant at a discount cost and then the discounted cost would go back to customers.”
Long – who died earlier this month - was referring to what some critics thought was a key part of the deal: that PSNH could use the extra money its customers paid to help it purchase the Berlin plant, although that would require a change in state law.
But while the PUC staff and the consumer advocate objected, many politicians favored the contract.
It seemed lucrative enough that it would make it easier for the developer to get the financing needed to build the biomass plant and help the struggling economy of the North Country.
There would be millions of dollars in taxes along with construction work, and the promise of about 40 permanent jobs.
Providing the wood chips would help about 200 forestry jobs.
The region’s big timber owners would get a new customer wanting 750,000 tons of wood chips every year.
Amid a flurry of lobbying, in 2011 the three PUC commissioners, Thomas Getz, Amy Ignatius and Clifton Below approved the 20-year contract between PSNH and Laidlaw Berlin BioPower. The plant has since been purchased by Cate Street Capital of Portsmouth.
It was a proverbial win, win, win, according to then Governor John Lynch.
“And this is a great day for Berlin. It is a great day for the North Country and it is a great day for all of New Hampshire,” Lynch said at the plant's groundbreaking in 2011.
But not everyone is happy.
As PSNH customer Jim Dannis of Dalton sees it the state forced ratepayers to contribute to a public works project to boost the economy of the North Country.
“The Public Utilities Commission is supposed to defend ratepayers’ interest. Ratepayers aren’t supposed to be used as pocket books,” he said.
Susan Chamberlin leads the state’s Office of Consumer Advocate and she doesn’t like the idea of consumers paying more than is necessary.
“I tend to look at things from a more direct cost/benefit analysis as a ratepayer,” she said. “I don’t like to see customers pay anything above market. If we have a deregulated electric market then we should be using the market to set the prices.”
But not being tied to the market can cut both ways.
Last winter there were times when electricity on the open market was about twice as expensive as the Burgess deal, said Tom Frantz, the director of the PUC’s electric division.
So, for a little while it was a good thing for ratepayers.
But that doesn’t mean there is anything wrong with La Capra’s prediction that ratepayers will - over the long run - pay $125 million more than they should, said Jim Dannis, of Dalton, a private investor who used to manage a hedge fund.
“I draw a sharp distinction between a serious valuation effort and sticking your finger in the air at a given point in time and saying, gee right now, at this second, it works. That is not valuation," Dannis said.
From an environmental perspective Bethlehem’s Van Houten also says using wood to generate electricity alone is not the best use of the renewable resource. “They are generating a lot of waste heat and they are not capturing that at all,” he said. And, while wood is abundant there is not an endless amount.
Of the three PUC commissioners who approved the deal only Amy Ignatius remains on the commission.
A PUC official said the three commissioners are not allowed to discuss previous decisions.
But former commissioner Thomas Getz – who now works for a law firm - wrote in an e-mail that he approached the Burgess BioPower case the same as any other, and made “the very best decision I could based on all the available evidence.”
Whether that was the very best decision for PSNH ratepayers probably won’t be clear for years.