Eversource Energy Reaches Deal With State To Sell Its Power Plants

Mar 12, 2015

In a deal that is being called historic, Eversource Energy, formerly Public Service of New Hampshire, has agreed to sell its power plants. The agreement is part of what’s been called a “global settlement,” which resolves a variety of issues facing the utility all in one neat package.

The parties to the settlement say it is a win-win for the state and the company.

Here are the broad outlines of the deal: First, Eversource New Hampshire will sell all of its power plants. That’s three fossil fuel generators, and nine hydro-power facilities. It also agreed to write-off $25 million of the original $422 million price tag of a mercury scrubber on its power plant in Bow, and to not increase distribution charges (the half of the electric bill that pays for the poles and wires) for two years. Finally the deal would capitalize a $5 million fund to support clean energy and energy efficiency.

In return, Eversource is will be allowed to bill rate-payers for the difference between the sale-price of its power plants, and their assessed value, and to recover the lion’s share of cost of the scrubber through energy rates.

Selling the Power Plants, Saving On Rates?

The sale will take place through an auction about 18 months from now.

According a PUC report – carried out by an independent firm called La Capra Associates – they could go for $435 million dollars less than their assessed value. Any difference between the sale price and the assessed value will be made up by New Hampshire rate-payers, on the distribution side of their bill.  If the PUC report is accurate, this will add about .4 cents to every rate-payers bill (check your bill a line called the stranded cost recovery charge to see what would carry the increase).

But there’s reason to believe that the sale price could be higher. Power plant owners have been getting better prices of late in something called the Forward Capacity Market.

“I do think the market has moved favorably for generation assets, so the proceeds may well be higher than what La Capra projected,” says Bill Quinlan, Eversource New Hampshire’s President.

Regardless, of the final number, the plants are likely to sell at some kind of a loss, and yet the announcement Thursday trumpeted that the deal would save ratepayers $300 million dollars over 5 years.

Understanding how requires a little knowledge of how the utility business works.

Right now, the operation of Eversource’s power plants is part of a regulated electric rate, and they are given a guaranteed 10 percent profit on all the costs associated with those plants by the regulators at the Public Utilities Commission. Once the plants are sold, the difference between the price and the assessed value will be paid back to Eversource through a market-rate loan, with something closer to a three percent interest rate.

“So instead of us paying the company for the carrying costs of the plants – to operate them as well as the company’s return – we are instead we’re going to pay them, basically what the ratepayers owe the company for their investments,” says Meredith Hatfield, the state director of Energy and Planning, “We’re going to pay it at that market interest rate, and there’s a huge difference.”

So, while the half of a customer’s electric bill that pays for the poles and wires could rise by .4 cents, thanks to not paying that 10 percent profit, the energy half of the bill could fall by even more.

“That’s where the vast majority of the savings for PSNH customers will be. It’s an opportunity that’s a win-win for the company, a win-win for customers of PSNH, and frankly a win-win for the State of New Hampshire in terms of our overall energy reliability,” says Jeb Bradley, Republican Majority Leader in the New Hampshire Senate.

But What About Bow and Portsmouth?

The one place where it might not be a win-win, are the towns that host the power plants.

If the sale price is very low, the assessed value of those plants could plummet, and the town of Bow and the city of Portsmouth could lose a huge amount of tax revenue. Even worse, there is some speculation a potential buyer could buy the plants just to scrap them.

There are some protections built into the agreement.

On top of the 18 months needed to arrange the sale of the plants “there’s another 18 months that the new owners that the new owners must run the plants,” says Democratic State Senator Dan Feltes, “A requirement, so you’re looking at roughly 3 years or so, basically a timeline of requirement that the plants run.”

On top of that Eversource has agreed to make payments to the towns for 3 years in order to soften the blow of any lost tax revenue, and the deal includes preservation of collective bargaining agreements, in a nod to the 280 unionized workers at the plants.

Hurdles Yet to Come

If there is any group that’s going to be upset about this agreement, it’s likely to be big commercial energy users.

Unlike residential customers, the vast majority of the big guys are already dodging the added cost of PSNH’s power plants and scrubber by switching to other suppliers for the electricity half of their bill. But the cost of this deal will be put onto the distribution side of the bill, which everyone pays.

“I expect that they might be unhappy, and the question is how unhappy, and do they see that this might be much worse than they might get otherwise,” says Susan Chamberlain the State Consumer Advocate.

For this deal to go forward, the Public Utilities Commission needs to give it the green light, and the legislature has to pass a bill that authorizes many of the provisions. But if or when that’s done, this deal would settle two longstanding disputes: who pays for the mercury scrubber, and should Eversource be allowed to own power plants.

Considering how hard Eversource has fought on these questions in the past, now that It has  signed onto this agreement, the hard part is likely done.