Will New Hampshire finally deliver on the promise of cheaper electricity?
Without a data platform, getting basic and standard information about energy usage from utilities is a huge undertaking. (Dana Wormald | New Hampshire Bulletin)
Expensive electricity is not a new problem in New Hampshire.
It’s one that has rankled lawmakers for decades, aggravated customers, and hindered the state in its efforts to advance clean energy initiatives. Twenty-five years ago, lawmakers thought they were on to something: allowing for market-driven solutions to bring down prices and create customer choice.
Restructuring the utilities was supposed to be that solution, moving away from utilities that were vertically integrated and handled all elements of the electric supply from generation to distribution. In practical terms, this meant utilities had to sell off power plants.
But nearly three decades later, New Hampshire’s electricity remains among the most expensive in the country. The state ranks eighth in the country for the most expensive average retail price of electricity in the residential sector. Efforts to promote greater customer choice have stalled. And the state has lagged in the region when it comes to cleaning up electric generation.
So why has restructuring failed to deliver on its promise?
Clifton Below was working to solve these issues in the 1990s, and he’s still trying to solve them today. Below is currently the assistant mayor of Lebanon, but over the decades he has also been a part of the Clamshell Alliance that protested the Seabrook nuclear power plant, and has served as commissioner of the Public Utilities Commission and as a state representative who helped pen legislation that he and others thought would bring down the price of electricity.
Anyone who knows Below will tell you that he can talk about energy for hours. In fact, he’s been talking about it for well over 30 years, and his memory of that time is encyclopedic.
“The real point in restructuring, as we said in New Hampshire in 1994 when we embarked on this in earnest – we had the highest electric rates of any state in the nation, bar none,” he said. “Costs spun out of control.”
It was higher than even Hawaii or Alaska.
“We could attribute a lot of that to the combination of the regulated monopoly and the regulators screwing things up through administrative processes,” Below said.
In New Hampshire, that mainly meant the state allowing the largest utility, then Public Service of New Hampshire and now known as Eversource, to charge ratepayers for the construction of Seabrook. It was a huge project that became more and more costly, in turn translating to excessively expensive electricity rates for Granite Staters.
The regulated monopoly was the traditional model for electric utilities. Back then, utilities were vertically integrated: They owned the power plant, the poles and wires, and handled transmission and distribution to the customer. Regulators were supposed to ensure that prices were fair, but a series of bad investment decisions in New Hampshire meant that prices escalated.
The promise of restructuring
Restructuring set out to fix that.
“So we said, the fundamental essence of New Hampshire’s restructuring is, let’s take the parts of this business that can be subject to competitive markets,” Below said. “Maybe the market could provide some lower-cost generation options.”
Poles and wires are a natural monopoly – you don’t need multiple wires serving the same house – but competition could be introduced in other parts of the process, such as generation, where cheaper power could beat out more expensive production.
The vision of restructuring was to bring costs down by using competitive markets. It was about customer choice, but it was also about sustainability – having more diverse and cleaner electric generation.
When the restructuring law was written, it was only the second time the word sustainability was put into New Hampshire law, Below said.
“There was a recognition that continued environmental improvement was important,” Below said. “There was this awareness that we needed to clean up our act in terms of electric generation.”
Below and others thought that customer choice and market forces could help drive the movement to cleaner energy.
The vision of restructuring was to harness the power of competitive markets – to drive down costs but also to drive innovation and allow new entrants into the market.
In 1996, Below was serving as a state representative. He worked with Sen. Jeb Bradley, a Wolfeboro Republican, on the restructuring legislation. It was signed into law that year.
“Cliff and Sen. Bradley had a vision, and they opted to move toward deregulation because they knew that was the foundation, the underpinning of how we would get to a clean energy economy,” said Rep. Kat McGhee, a Hollis Democrat who serves on the House Science, Technology, and Energy Committee. Deregulation is another term for restructuring because the utilities were moving away from the regulated monopoly model. Below dislikes the term; utilities are still regulated, so it can be misleading.
“We had leadership then to help us deregulate, to get the heavy lift of getting us to a foundation,” McGhee said.
But the foundation alone wasn’t enough.
After the bill was signed into law, it stalled at first due to legal challenges from Public Service of New Hampshire. Even once those challenges had been resolved in a negotiation brokered by Below and Bradley, among others, it became clear that restructuring alone wasn’t going to deliver on its lofty and comprehensive promises.
“You have to follow up on all of these other steps to foster the market,” McGhee said. “Figure out what the incentives are, figure out how to work the supply and demand side.”
But that hasn’t exactly happened. Enacting the legislation hasn’t solved the problems with cost and customer choice. The answer about what went wrong depends on whom you ask.
For McGhee, it’s a lack of leadership, and the fact that with each administration comes a wildly different direction for energy policy.
“Nobody is going to invest if you don’t give them predictable policy,” she said. “You get a plan and someone undermines it.”
Just getting lawmakers to the table to agree on goals is hard, McGhee said.
“It’s a failure of leadership,” she said.
Below points to one main culprit: price signals. The success of restructuring depends on price signals for both generation and consumption. And Below says policy has lagged in establishing appropriate price signals for both.
“This kind of gets to where I think things broke down over the past 25 years,” he said. “We still don’t have those appropriate pricing models being translated from supply to demand.”
“Part of what has not really developed is a robust retail market in which appropriate price signals can be better seen,” Below said.
Customers pay a flat rate for electricity, and the price is set one time during the summer or winter when electricity is in highest demand. But the actual real-time cost of electricity varies greatly. When not many people are using electricity – in the middle of the night, for example – the cost is low. When everyone is using it, in the late afternoon and early evening, rates can increase dramatically.
Something like a time-of-use rate would mean that consumers see the different rates reflected in what they are paying for electricity. The idea is that people could then choose to charge their car after midnight, when rates are low. Instead of dramatic peaks and valleys in demand, this would make it more consistent.
Congress passed the Energy Policy Act in 2005 that said all states should consider interval metering – which would enable time-of-use rates. But New Hampshire utilities have resisted investing in the meters. Below said that while he was commissioner of the utilities commission, the utilities argued that customers didn’t care and were happy with flat rates.
“Metering and billing systems are woefully outdated and don’t really allow us to use the grid most efficiently,” said Henry Herndon, a consultant who is working on the Community Power Coalition of New Hampshire.
The outcome is that commercial and industrial customers have benefited the most from restructuring because they have interval meters, Below said.
Restructuring has had some success. Now, investors bear more of the risk of their investments and ratepayers less.
And as McGhee said, it’s laid the foundation that other policies can build on.
New Hampshire’s last best chance
A new generation of clean energy advocates say current legislation could be the state’s last best chance to deliver on the promise of energy policy reform that’s been nearly 30 years in the making.
Below said Senate Bill 91, a four-part bill dealing with renewable energy and utilities, could make strides toward establishing better price signals.
“Senate Bill 91 picked some big steps by saying, ‘people should have the right to interconnect storage and we really need to figure out what the appropriate price signals are,’” Below said.
The first part of the bill that’s now on its way to the governor’s desk deals with energy storage, such as batteries.
“If you look at the value of the storage in terms of avoiding transmission charges, and reducing the annual capacity charge, you can justify most of the cost of the battery storage,” Below said.
The bill also sets up a study commission to look at how small-scale energy production should be credited.
Below says those producing up to 5 megawatts could be treated as load reducers, receiving a credit for avoided transmission costs. “That sort of credit just doesn’t exist yet,” he said. But that would be an example of “a very strong price signal that it’s worth it, if you can design your system to produce more as a currency.”
“There’s value to that,” said Below, pointing to solar panels that track the sun and produce more energy as a result.
Below and others are looking at another legislative effort to deliver on the promise of restructuring: community power.
The idea is that communities could band together and choose what kind of power they are procuring, delivering on the long-promised customer choice. If a town wanted to procure more renewable energy, for example, community power would allow them to do that. They might be able to get better prices.
But so far, the state has effectively stalled this option from moving forward.
“The regulators have not done their job and put forward rules to enable this market to move forward,” Herndon said. “This legislative session has been part of that stalling.”
That’s because of House Bill 315, which would have gutted community power as introduced. It was completely rewritten during the session and the version that’s on its way to the governor’s desk contains technical clarifications that will actually be helpful to community power. But that legislative process meant a delay for those who want to stand up programs on the ground.
Programs are still waiting for regulators to pass the rules that will allow the market to operate in New Hampshire.
Still, Herndon and others are optimistic about what community power will mean for the state, when they are allowed to move forward.
“I think that community power is New Hampshire’s opportunity to demonstrate that markets are superior to top-down state mandates that we see in some of our neighboring states,” he said. “Community power is New Hampshire’s last best chance.”
“We want to create a real retail marketplace,” Herndon said. “We want that any individual customer who’s out there to be able to actually participate in a market where their usage and their generation is valued accurately.”
For Below, this has been the goal all along.
“I think that was really part of the original vision for restructuring that we have a much more participatory energy system,” he said.
“I’ve had the good fortune to be immersed in this stuff for 25 years,” he said. “But I kind of want to share that knowledge.”
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