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  • Staff photo by Bob Hammerstrom

    Gary Long, president of PSNH, speaks with members of The Telegraph editorial board Wednesday, February 15, 2012.
  • Staff photo by Bob Hammerstrom

    Gary Long, president of PSNH, speaks with members of The Telegraph editorial board Wednesday, February 15, 2012.
  • Staff photo by Bob Hammerstrom

    Gary Long, president of PSNH, speaks with members of The Telegraph editorial board Wednesday, February 15, 2012.
Thursday, February 16, 2012

Natural gas leads to cheap electricty now, threats of higher rates in the future, says PSNH

The historical accident that left Public Service of New Hampshire virtually unique among utilities, because it still owns some power plants even after its state deregulated electric markets, has become a sort of insurance policy against future rate spikes caused by a dependence on natural gas – or so argues PSNH, which wants to keep those plants.

“What is happening in the (natural) gas market is not sustainable,” said PSNH President Gary Long during a meeting Wednesday with The Telegraph’s editorial board.

“But what do you do when times change?” Long said. “PSNH has a huge hedge against that.”

Opponents, including private power generators and some environmental groups, argue that PSNH needs to be pried away from the three fossil-fuel and nine hydropower plants that it still owns in order to create a more nimble and open electricity market.

PSNH’s rates are the highest among New England utilities, partly the result of costs associated with those power plants.

Long’s appearance at The Telegraph was prodded by a House bill (HB 1238) that would force PSNH to sell its power plants, thus completing a process that was started well over a decade ago. The bill is being considered by the House Science, Technology and Energy Committee.

Traditional regulated power utilities own power plants as well as the lines and equipment that carries the electricity, which opponents say gave them a monopoly that provided no spur to lowering costs or improving efficiency.

States that deregulated power production split those two functions, leaving regulated utilities to own lines while private companies owned the power plants, and gave customers more ability to choose their power provider.

New Hampshire stopped in the midst of deregulation, partly because of concern about enormous price spikes in California after it deregulated its market. This bill seeks to start the process up again.

“The only way to ensure that consumers can not only continue to enjoy electric supply choice and have access to the lowest-cost electric supply available is to complete the restructuring,” said Dan Donal, president of the New England Power Generators Association, which represents private power generators, during testimony before the committee Feb. 2.

Donal said the bill would “transfer the risk of capital investment … to the shareholder and investors of competitive generation owners, not on ratepayers.”

Long argues the decision should be driven by the overriding factor in energy markets: The explosion of new natural gas supplies, particularly in the eastern U.S., and the resulting plunge in the price of natural gas.

That fuel is so cheap it is now used to generate roughly half of all electricity in New England, compared with 15 percent a decade ago.

Some are concerned this exposes the region should gas supplies become curtailed or, more plausibly, if prices should triple, heading back to levels they were at in 2007. ISO-New England, which oversees the region’s power grid, identified overreliance on natural gas as an area of possible concern in its Strategic Planning Initiative in October 2011.

Long argued that PSNH’s mix of power plants burning other fuels is good for New Hampshire by providing a buffer against future price spikes.

At the moment, however, that mix is bad for PSNH’s finances, since the open electricity market allows customers to leave it for cheaper electricity bought on the open market.

Large corporate users were the first to leave. Last year, the company said more than three-quarters of its biggest potential customers – those with peak loads greater than 1 megawatt – had signed with competitors.

Now, at least one company, Resident Power, has started signing similar power contracts with homeowners. The low price of natural gas-fueled electricity means it can guarantee that it will beat PSNH’s price by at least 5 percent.

If this trend continues, with customers leaving for lower power produced by low natural gas prices, it could produce a real financial bind. One way PSNH wants to get out of that bind is by getting permission to pass some of its costs onto people who don’t buy its power but still use its power lines.

The Public Utilities Commission, which regulates PSNH, last year rejected this so-called “non-passable” charge, calling it “unfair cost shifting to customers that have taken advantage of competitive supply” and saying it “does not address the underlying cause of the condition.”

All this means that many plants that burn fuels other than natural gas – including PSNH’s biggest, the Merrimack Station coal-fired plant in Bow – sit idle much of the time because it’s so much cheaper to buy power elsewhere. Further, the recession has reduced the need for electricity.

Long cautions that this situation is short term, that the price of natural gas is certain rise again and that an economic recovery will push the need for electricity back up.

“It’s the best of both worlds for customers right now … but it won’t last,” he said. “The question is whether we plan for the long term.”

David Brooks can be reached at 594-6531 or