Here is the “nut shell” version of why we should support LSR 18-2720.0 legislative proposal for 2018 submitted by Sen Dan Innis:
The bill, proposed by Sen Innis , would direct the NHPUC to require local distribution companies to once again offer power purchase contracts to existing New Hampshire small power generators (<25MW ) ………..similar to, but not the same as what was originally ordered under PURPA in 1983 and still applicable after the 2005 power act. However, these contracts would be handled as “short term contract rates” for the supply of Default Service energy at a reduced rate, not as “PURPA” contracts. It would be at the option of the small generator to enter into a contract at these rates. Currently, approximately 50% of all residential ratepayers choose to stay on “default service”.
The actual energy rate paid to the generator would be set each time (typically every 6 months) the local distribution company goes out to the market to purchase their larger “default service” power supplies that they make available to all connected customers. The small generator would be required to stay under contract for the same duration as the local distribution company’s contract for their 3rd party energy supplier.
The small generator would receive only 90% of the “default service” rate, the difference going to reduce ratepayer costs. That rate would increase to 95% if the small power generator could offer firm fixed power by buying a “hedge” instrument that would continue to supply power if their plant went off-line for any reason.
The reasons why this bill can work:
No new state taxes, fees, funds or agencies would be created, and it is rare to have an opportunity to create actual NH electrical ratepayer savings while strengthening our economy at the same time.
The money paid to NH small generators will stay in the NH economy, whereas now that money is paid to out of state energy re-sellers through ISO-NE or other 3rd party contracts. Currently, there are numerous projects (<25MW) living on the marginal edge of operating, as evidenced by the recent shutdown of the Indeck Energy Project (biomass) in Alexandria. We especially see this bill having a very positive economic effect on our wood industry and the NH North Country.
Electric customers will see zero increase in rates as a result of this change. They will still pay the same “default service” rate (or less*) if they stay on default service. (*-less due to less Capacity & Transmission charges to the distribution company – (see below), as well as the 10% energy discount coming from the small NH generators portion of default service)
The total output from all the existing small power projects in the state < 25MW is a relatively small amount (estimated at less than 10%) of the total KWHs sold in the state per year, hence this bill doesn’t somehow change how our electric utility “system” operates in any meaningful way and it is no economic threat to any 3rd party. Local distribution companies will simply continue to contract for their 3rd party default service supplies required as they did before……… minus that portion which is provided by this new class of in-state existing small power generators.
Buying NH small generator power, as part of our default service supply requirements, will eliminate the Transmission Charges that would have been included on all other Default Service Suppliers for that same amount of power………thereby saving (transmission) costs for all ratepayers of all classes as well as a portion of the utility’s capacity costs allocated by ISO-NE. (Ex- if 10% of total power came from “load reducing” NH small generators, the total transmission costs each month for the utility would drop by 10%)
LET’S DRILL DOWN ON THIS PROPOSAL FURTHER FOR A BETTER UNDERSTANDING:
Q – What is the significance of the current NHPUC practice of shipping New Hampshire small producer power out to ISO-NE?
Ans: Due to an agreement (not a law) made between our NH electric utilities and the NH Public Utilities Commission (NHPUC) during the deregulation of the electrical industry circa 2000, small generator facilities were no longer offered new power purchase contracts with their local utility once their original contract expired. The utilities only had to “wheel” (on paper only, the electrons actually stay in the local distribution system) the power to ISO-NE as wholesale energy supplies. The small generator then received the same day (spot market) wholesale clearing price, the lowest compensation that ISO-NE offers to producers.
Because of this agreement, NH consumers lose any benefits that could have been accrued to them if the power was purchased by the utilities and remained in the local distribution system. Not only did consumers lose the ability to benefit from lower cost power entering into the “default service” power supplies, they also lost out on savings from lines losses; savings on capacity costs; and savings on transmission costs due to power having to come back into NH from ISO-NE. The New Hampshire economy also lost out on tens of millions of “energy dollars” every year that could have remained in New Hampshire.
Now with the divestiture of the PSNH generating assets, we estimate that without the passage of this bill, over $65 million electrical energy dollars will needlessly flow outside of the New Hampshire economy annually from existing in-state small projects alone, and some of these projects will stop operating due to insufficient revenues coming from ISO-NE.
Q– How would this proposed rate structure differ from the old long term contracts offered in the 1980’s?
Ans: After the original passage of PURPA in 1983, long term contracts in the range of 15 to 30 years were offered to small generators in New Hampshire. Rates were based upon the long term avoided costs determined by the connected utility, and approved by the NHPUC. Often these rates were written as “levelized” or constant rate contracts, where it was anticipated that these rates would be higher than avoided costs in the early years, and lower in the out years. Sometimes, the utilities and regulators got it wrong, and these long term rates were overstated in the ‘80’s………..costing consumers millions in over market contracts. This problem was clearly present when the projected higher costs were to coincide with the anticipated higher nuclear energy plant costs at that time.
Under this new proposal for short term small power rates, there is no possibility to create over-market contract pricing, as the “standard offer” rate available to all existing in-state small generators would be determined every 6 months based upon the distribution company’s actual bidding of its “default service” supplies. Small generators choosing to sell under these tariffs would be required to remain under “contract” for the full 6 month term, and would have no hand in determining the actual rates paid to them.
Q– How much power do we already have in the state from existing independent small power or ex-utility owned small power projects that would now be used to decrease purchases through ISO-NE?
Ans: We have approximately 100 MW of wood fired projects, 50 MW of independent small hydropower projects (like the City of Nashua’s projects) and another 66 MW of small hydro now owned by PSNH but soon to be owned by the winning bidder of their auction, Hull Street Energy LLC (if they are included). We also have one 14MW waste-to-energy project in Concord that will be added in 2018.
The combination of these existing projects alone are capable of generating about 10% of the kwhs typically purchased by NH customers on an annual basis. NH electricity consumers have already paid for the majority of the costs for the original construction of these assets. In the case of the former PSNH assets, it was paid for through the normal utility rate base process (costs plus a guaranteed R.O.I). In the case of the PURPA created wood, hydro, and trash projects, it was through their original long term power supply contracts.
All of these existing projects can serve to be NH’s “behind-the meter” projects or “load reducer” projects from a utility grid perspective, to keep our own energy and energy dollars inside of New Hampshire ………….if our laws allowed it. They already are built and are fully interconnected to our distribution systems …………..and currently sending their power outside NH ………… because no current law automatically allows them to sell it inside of NH unless they are < 1MW in size and can serve as a group net metering host. To keep that power in New Hampshire now, one of our four electric utility distribution companies would have to voluntarily “choose” to purchase it as part of their default service power mix. Only the NH Electric Co-op currently has “chosen” to do so. As a co-operative utility whose default service is not approved by the NHPUC, they are exempted from this bill.
Indeck Energy Biomass Plant Alexandria, NH – 16 MW
Concord Waste-to-Energy Plant Concord, NH – 14 MW
Minnewawa Hydro (under repair) Marlborough, NH – 930 KW
Lower Village Hydro Claremont, NH – 1.35 MW
Q– What would be the construction cost be to replace these existing small power projects in-kind with new ones today?
It’s safe to say that it would be somewhere between 2.5 to 4 times their current values.
Q – Who currently gets to use the power generated by these NH small power generators now, and how would that change under this bill?
Ans: The generator themselves can use all the power they need behind the meter. It is only the power that flows out the meter to the grid that currently gets “wheeled” (on paper only, the electrons actually stay in the local distribution system) to ISO-NE as wholesale energy supplies. The small power generator currently receives the same day (spot market) wholesale clearing price, the lowest compensation that ISO-NE offers to producers.
Under this proposed bill, their power could instead be sold to their local distribution company to be used as part of their “default service” retail energy supply for their own retail customers, not to ISO-NE.
Q- Will this new rate structure serve to increase supply competition and lower prices for consumers?
Ans: Yes. Electrical energy was once only provided by a monopoly utility provider, but today we currently have retail options from multiple 3rd party providers. However, these 3rd party re-sellers are still very large national companies or simply “middle men” that stand between the producers and the consumer (much like we see in healthcare). Our existing Net Metering sales eliminate the out-of-sate middle men “re-sellers”, so that consumers can access better pricing and longer terms options for electricity directly from our own smaller in-state producers. However, this (net metering) option is limited under NH RSA 362-A to only 1 MW or less projects. Efforts are under way to increase this figure to 5 MW in 2018. However, there would still remain over 120 MW of in-state existing small power resources that would be excluded from selling on the retail market even with the proposed increase to a 5 MW net-metering project limit. The only outlet (currently by law) for this remaining large block of existing small power is to send it out to ISO-NE and lose all the benefits that could accrue to New Hampshire, which is why this legislation is needed. That figure would grow by at least another 100 MW if we fail to raise the net metering cap from 1 to 5 MW in 2018.
Q- How does this change also benefit consumers who decide not to buy this power under the distribution company’s “default service” rates?
Ans: This change helps to open the bandwidth of competition in the retail supply marketplace. Long term, we hope to see it create new in-state supplies as well. Short term, we expect that even this small (<10%) amount of in-state power sales from existing projects will help to lower the pricing curve for all retail customers by introducing greater competition in New Hampshire. Additionally, these in-state supplies will reduce line losses and reduce existing and future increases in Transmission charges & Capacity charges ….. all associated with purchases that come from ISO-NE, thereby helping all consumers. Expanding in-state power sources in this way (on the distributions systems) is one of the few actions New Hampshire can take to help New Hampshire consumers and our New Hampshire economy.
Q – How does this change benefit New Hampshire’s general economy?
Ans: By now, nearly every consumer understands that the Northeast region of the country, and New Hampshire in particular, has high electricity and fuel costs. Additionally, in many other parts of the country, the electrical grid is changing rapidly. Consumers are looking for more choices and large centralized power plants are no longer being constructed with the deregulation of both wholesale and retail energy supplies. Even though fuel prices are relatively low today in the country due to expanded sources of oil and natural gas, NH consumers have not experienced corresponding reductions in their electrical rates. With the final deregulation of PSNH and sale of their generating assets, there is now the opportunity for NH to manage itself in a new way to control some of its costs; use existing in-state resources differently; and keep more of its energy dollars in the state.
Changing our current practices as to how NH distribution companies use our in-state small generation, with direct benefits to NH, is another good step to the future. It is one more part of how we can lower costs through competition and keep tens of millions of our energy dollars in the state every year.
Q – Would this change help reduce Transmission and Capacity costs being paid to ISO-NE?
Ans: Yes, every KWH we can generate by in-state small power “load reduction” facilities on the distribution system, that stays on the distribution, directly avoids some of the higher Capacity and Transmission costs coming to us from ISO-NE.
Q – Would this change help reduce Transmission and Distribution System line losses?
Ans: Yes, we lose around 5% of our electrical energy on the grid due to extensive Transmission and Distribution line distances from large central power plants. Small power projects are referred to as DER (Distributed Energy Resources) supplies because they are smaller and scattered throughout the distribution systems of each electric utility.
Q- Are there other tangible benefits for NH in doing his?
Ans: Yes, more competition attracts more entrepreneurs and investors for new clean energy projects. Investing capital and growing jobs in NH is good for our economy. Clean energy projects also attract younger workers who have grown up in the more recent solar and wind power era. Access to lower cost energy supplies will specifically help our industrial base and assist NH companies to retain jobs and grow jobs in NH.
Q – How does this change benefit a municipality like the City of Nashua?
Ans: The City of Nashua owns two small hydro facilities, one of which is small enough (under 1MW) to participate in Net Metering, but the other is not at 3+ MW. They can’t presently net meter their own power to themselves on the second project or sell it to their local distribution company, they can only sell it to ISO-NE, or some other 3rd party who wants it.
Q- How does this change benefit other municipalities that don’t own projects themselves?
Ans: Our municipalities are large purchasers of electricity. They have the scale to leverage their buying opportunities on bulk commodities. Net Metering projects are not structured to sell to small purchasers on a retail level like homeowners, as their primary operation is to manufacture goods or produce power. Net Metering projects will seek out large buyers like municipalities. However, there is a limited amount of net metering projects available, even if the size limit increases to 5MW. The option to purchase more competitive “default service” energy, with less Capacity and Transmission charges coming from ISO-NE, is still a financial benefit to all municipalities.
Q– How does this change benefit our manufacturing base in particular?
Ans: Our manufacturing base represents our largest buyers of electricity on a single site basis. They also have the scale to leverage their buying opportunities on bulk commodities. Any increased access to lower cost energy supplies, along with any decreases in Capacity and Transmission charges, will specifically help our industrial base and assist NH companies to retain jobs and grow jobs in NH.
ReVision Energy – Wirebelt Company
Q- Is there a good reason for not making this change now?
Ans: No, making this change now at the same time as the liquidation of the PSNH generation assets, is the perfect time. New Hampshire needs the courage to stand up for New Hampshire’s own economic interests while still being part of the regional ISO-NE Other states (like MA) are already shifting ISO-NE costs to New Hampshire through the implementation of their “plans”. Doing nothing is simply not an option.
So, let’s get this done now; save all existing New Hampshire small power generators for own use; keep more of our energy dollars inside New Hampshire; reduce Transmission and Capacity costs coming from ISO-NE and help all NH electric customers lower their costs. We can do this in 2018 in New Hampshire!