Scrubber

Ken Colburn, Symbiotic Strategies, and Mary Beth Walz. This issue has been updated by LFDA editors.

In 2006, after negotiations among representatives from the Legislature, Public Service of New Hampshire (PSNH) and various environmental groups, New Hampshire enacted a law requiring PSNH to install pollution control technology known as a scrubber to reduce by 80% emissions of mercury at its coal-burning Merrimack Station in Bow, NH. In 2006, the cost of the scrubber was estimated to be $250 million.

By late 2008, however, the cost had nearly doubled to $457 million. There is a chance that federal requirements to reduce climate-altering carbon dioxide emissions through some form of carbon pricing could be implemented during the expected life of the plant. Some people estimate that carbon fees could significantly increase the cost of electricity from Merrimack Station during its projected life. Also, it is possible that additional pollution abatement requirements will be mandated in the future.

State authorities approved the scrubber project and construction began in March 2009. In 2009, certain commercial ratepayers asked the New Hampshire Public Utilities Commission (PUC) to review the scrubber cost increase. The PUC's authority is established and limited by state law. The PUC declined to review the costs of the scrubber before the project was completed. The PUC based its decision on the basis that state law mandated that the scrubber be constructed. The commercial ratepayers appealed the PUC's decision to the state Supreme Court. In August 2009, the court rejected the appeal on the basis of standing; ratepayers hadn't yet been charged for the scrubber. The commercial ratepayers also advocated for a law requiring a far-reaching study related to the scrubber, but the law was not enacted. Challenges by environmental advocates and merchant power generators, some of whom would like to see the plant retired, have subsequently been lodged under federal and state statutes and regulations. 

In November 2011, PSNH said the scrubber would come in $35 million under budget, chalking up the savings to a dip in the cost of materials and lower-than-anticipated construction costs. The total estimated project cost shrunk to $422 million for the scrubber, which started operating in September 2011. New Hampshire Business Review in November 2012 called the scrubber "a major contributor to PSNH's preliminary estimate of a January rate increase from 7.11 cents per kWh, to 8.97 cents." The sentiment was subsequently confirmed by PSNH spokesman Mike Skelton, speaking with New Hampshire Public Radio. 

In April 2012, PSNH announced that the scrubber had cut mercury emissions by 98 percent, though the announcement has hardly mollified critics of the company and its coal-fired plant in Bow.

Recent Developments

In 2014, the PUC evaluated whether PSNH could recover the cost of the scrubber through ratepayer increases.  PSNH argued that the Legislature clearly mandated the scrubber's installation, so ratepayer increases are fair.  Opponents argued that PSNH should have returned to the Legislature and/or shut down the Bow plant when the cost of the scrubber increased. 

In January 2015, the PUC agreed to let PSNH negotiate a settlement over scrubber costs with the Legislature.  In March 2015, PSNHnow part of Eversource Energyannounced a settlement to cover most of the costs of the scrubber.  First, Eversource Energy will sell all of its power plants.  It will also write off $25 million in scrubber costs.  In return, the state will allow ratepayer increases to cover the remaining costs of the scrubber and any other losses on the power plant sales.

The settlement agreement was approved by the PUC in July 2016.

PROS & CONS

"For" Position

By Mary Beth Walz

The 2006 law requires PSNH to install the scrubber and PSNH must comply with state law:

Businesses and homes need electricity on demand:

  • Base load generation, such as coal and nuclear plants, provide the backbone of our energy supply because they run when we need them, and can be put in service on demand. Emerging technologies, such as wind and solar power, will play an expanding role in meeting energy needs, but until they can be dispatched on demand the reliable generation from Merrimack Station is needed.

The scrubber is state of the art technology that will create important environmental benefits:

  • Mercury, a dangerous neurotoxin, will be reduced by over 80%. Less mercury in the air and water will be safer for people, and especially for pregnant women and children. Sulfur dioxide will be reduced by over 90%. Less sulfuric acid in the atmosphere reduces acid rain. Reduced mercury and sulfur emissions will promote healthier bodies of water, plant life and wildlife.

The scrubber project will create jobs:

  • The project will generate over 300 temporary construction jobs. It will also create 5-10 new permanent jobs and preserve 100 existing jobs during a time of economic recession.

The plant will produce reliable electricity:

  • Even with the cost of the scrubber factored in, ratepayers can expect the plant to produce energy at competitive rates over its expected life. Coal is a low-cost fuel for electricity generation, enabling PSNH to keep its rates competitive. To ensure price stability, our power supply should include a mix of fuel sources. Coal is less vulnerable to spikes in prices and fuel shortage than other fuels such as natural gas and oil and a proven, economical source of power.

All sides were represented in the decision to build the scrubber:

  • The decision to build the scrubber was the product of a collaborative process with a diverse mix of interested parties. When the law mandating the scrubber was enacted, environmental groups, such as the New Hampshire Audubon Society and the New Hampshire Lakes Association, helped draft the law. They, along with the Society for the Protection of New Hampshire Forests and the New Hampshire Timberland Owners, hailed the law as an example of the positive results that can be achieved when the environmental community and business interests work together to improve the environment.

Ratepayers could incur significant costs if the project is cancelled:

  • Ending the construction would leave ratepayers liable for claims by PSNH for costs incurred thus far, without receiving a corresponding benefit. Because law mandated that the scrubber be built, PSNH will seek to recover everything spent on the project. If the project were shut down now, that claim would be for approximately $250 million. 

"Against" Position

By Ken Colburn

The Bow plant is about out of steam and there are better solutions:

  • At 40 years old, the plant is nearing the end of its useful life. For the $457 million cost of the scrubber, a brand new, efficient natural gas power plant could be built instead. Gas pipelines exist near the Bow site and natural gas supplies are increasing while their costs decline. A mercury scrubber would be unnecessary. Future carbon costs for a gas plant would be half those of burning coal, and future environmental risks would also be reduced.

There are ample and better alternatives to produce power:

  • There is ample available additional generation capacity in the New England region today (about 8-10 Bow plants) to supply power to PSNH's customers.

Customers will potentially have to absorb more costs:

  • Competitive merchant generators are already under-pricing PSNH in energy costs by 10-20%. If this trend continues (and/or is exacerbated by carbon costs), the Bow plant could become uneconomic to dispatch, saddling ratepayers with $457 million more in "stranded costs." Commercial and industrial ratepayers are already starting to leave PSNH for other suppliers, loading greater fixed cost burdens on remaining companies and residential ratepayers.

Pursuing alternatives will create jobs:

  • Energy cost savings to commercial and industrial ratepayers by avoiding excessive and/or stranded costs from the scrubber project can be expected to create or retain more jobs. Further, renewable energy and energy efficiency initiatives typically create about twice as many jobs as traditional fossil generation on a MWh-by-MWh basis.

What is the harm of a study?:

  • Nowhere is the juncture between past and future more evident than in the way we generate and consume energy. Careful study of all options is thus warranted before ratepayers are asked to bear new expensive, long-term energy infrastructure commitments.

LEGISLATIVE HISTORY

Killed in the House

Prohibits divestiture of PSNH fossil fuel power plants until electricity prices overall stop fluctuating more than 10% each year.

Signed by Governor

Authorizes the Public Utilities Commission to proceed with a settlement with Eversource to sell its power plants.

Signed by Governor

Givies the Public Utilities Commission the power to force PSNH to sell its power plants. This bill also requires the state Site Evaluation Committee to address scenic impacts, sound impacts, fire protection plans, and more when evaluating wind farm proposals.

Killed in the Senate

Requires the Site Evaluation Committee to approve any changes or additions to energy facilities that include construction expenses of greater than 15% of an energy facility's value.

Should PSNH be allowed to bill customers for the cost of the scrubber?

Comments

grantb's picture
Grant Bosse
- Manchester

Mon, 06/17/2013 - 11:25pm

The intelligent and hard-working members and staff at the New Hampshire Public Utilities Commission are working hard to lower your electric rate. They’re from the government, and they’re here to help.

The PUC and the New Hampshire Legislature have been trying to reduce New Hampshire’s shockingly high utility bills for a while now and have even introduced a sliver of market competition into the bureaucratic, overregulated, micromanaged labyrinth of electric rates.

Last week, the PUC recommended Public Service Company of New Hampshire, the state’s largest electric utility and the only one to generate much of its own power, sell its remaining generation assets. The Merrimack Station coal plant in Bow is at the heart of the issue.

The PUC report claims that while PSNH, a wholly owned subsidiary of Northeast Utilities, has more than $600 million worth of power plants on its books, the actual value of those plants is closer to $200 million. That burden forces the PUC to set PSNH’s rate for power generation well above its competitors. And as large, industrial customers and eventually more and more homeowners switch to a different supplier, those extra costs are spread among a smaller and smaller base of customers, forcing rates higher and customers to seek other options. This is known as the Death Spiral.

With natural gas prices below coal for the first time in history, PSNH runs Merrimack Station only 20 percent of the time, buying most of its power from natural gas plants.

The PUC wants PSNH to get out of the power generation business entirely and become solely a distributor. PSNH would still own and maintain the power lines, but it would get all of its kilowatts from someone else. It would still charge the distribution fees that are currently on your bill.

PSNH agrees that the costs drive its rates above the market, but faults the PUC for failing to point out why its assets are more expensive than they are worth. Here’s why: In 2006, the Legislature passed a sweeping mercury reduction law, which mandated that PSNH install a wet flue gas desulfurization system at Merrimack Station, known as a scrubber.

The scrubber removes sulfur and mercury from the plant’s smokestacks, greatly reducing pollution. It’s also incredibly expensive. In fact, the scrubber’s $422 million price tag accounts for the entire difference between the book value and market value of PSNH’s power plants.

When the Legislature mandated scrubber construction, it limited PSNH’s ability to recover the costs to customers who actually buy power from PSNH. If PSNH delivers someone else’s power to you, you’re not paying for it. In effect, the cost of the scrubber alone drives PSNH’s default service rate well above market value. If the company could recover scrubber costs from its distribution and transmission customers, its power charge would be quite competitive.

Etna Republican Jim Rubens fought PSNH’s effort to recover “stranded costs” from ratepayers following the initial move toward electric competition in the 1990s, and he’s opposed paying for the scrubber ever since. He says if the Legislature forces PSNH to sell off its power plants at a loss, it would lead to stranded costs,  Round 2.

“If PSNH were to divest, they would probably claim that ratepayers would be forced to pick up the differential,” Rubens explained.  “The sale price will probably be lower than the net book value.”

Rubens argues that if the Legislature had removed the mandate to build the scrubber, while requiring PSNH to meet the lower mercury emissions on its own, the company would have had a choice to retrofit Merrimack Station with a scrubber, buy power from other sources, or come up with another approach, without passing on the costs of complying on ratepayers.

This week, PSNH came back to the PUC asking to lower its energy generation charge by almost a full penny, from 9.54 cents per kilowatt hour to 8.62. This would bring is closer to its competitors, which currently advertise rates from 7.89 to 8.69 cents. The company says that a winter spike in natural gas prices has subsided, lowering its costs to acquire power. Scrubber costs make up 0.98 cents in both rates.

“It’s clearly a response to the marketplace. They’re bleeding customers,” Rubens responds. He sees the request as a tactic admission that PSNH’s default service charge is not competitive.

The Legislature spends a lot of time complaining about the high cost of electricity, but every move it makes drives that cost higher.  The Regional Greenhouse Gas Initiative, Renewably Portfolio Standards and a $400 million scrubber may be justifiable for many reasons, but they all make ratepayers pay for them one way or another.

The PUC report not only fails to mention why PSNH’s generation assets are so expensive, it also neglects to address how much ratepayers would be charged for the write-off if PSNH were forced to divest. It makes huge assumptions about the unstable and unpredictable natural gas markets years into the future to conclude that it’s not worth burning coal at Merrimack Station anymore.

The PUC recommendation is the latest example of well-meaning bureaucrats trying to micromanage us to lower electric rates. It hasn’t worked out well so far.

Grant Bosse is editor of New Hampshire Watchdog, an independent news site dedicated to New Hampshire public policy. He is a senior fellow at the Josiah Bartlett Center for Public Policy. Neither entity is affiliated with the Live Free or Die Alliance.

LEAVE A COMMENT

Log in or register to post comments

Issue Status

In July 2016, the PUC agreed to a settlement that would cover most of the costs of the Scrubber.  First, Eversource Energy will sell all of its power plants.  It will also write off $25 million in scrubber costs.  In return, the state will allow ratepayer increases to cover the remaining costs of the Scrubber and any other losses on the power plant sales.

CONTACT ELECTED OFFICIALS » 

Here in NH, your opinion counts. We make it easy to find and reach out to your elected officials about the issues that matter most to you. Click to search and contact your elected officials!

Join CCNH-LFDA

Join our constantly growing community. Membership is free and supports our efforts to help NH citizens become informed and engaged. 

JOIN TODAY ▸

©2017 Live Free or Die Alliance | The Live Free or Die Alliance is a 501(c)3 nonprofit organization.