Eversource Makes Boo-Boo; Wants Customers to Pay

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Power to the People is a column by D. Maurice Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere.

By Donald M. Kreis, Power to the People

Eversource threatened to take its toys and go home the other day.  Its reason says a lot about the central issue confronting New Hampshire’s captive utility customers as we head into a winter of soaring energy prices.

If you dislike the state’s largest utility, don’t get your hopes up.  The region’s electricity and natural gas behemoth can’t just pull up stakes and leave the Granite State and shows no interest in doing so.

Rather, it’s one particular game that Eversource is threatening to quit:  the state’s Renewable Portfolio Standard (RPS).  Why?  Because in this realm, as in every other aspect of electric service these days, Eversource thinks its customers rather than its shareholders should shoulder the risk that things will go bad.

Maybe you’d prefer to file the RPS under “energy nerd trivia.”

But consider that the RPS – which requires sellers of retail electricity to obtain some of that energy from renewable sources – is one of only two energy policy initiatives (the other being our participation in the Regional Greenhouse Gas Initiative) that commits our electric industry to addressing the effects of climate change.  Every other New England state has enshrined a carbon reduction goal in its statutes.

The RPS is indeed a bit nerdy.  Retail suppliers of electricity don’t actually have to buy renewable energy.  Rather, they are required to purchase a certain amount of RECs – Renewable Energy Credits.

Those RECs come in four different flavors, each representing a different type of renewable energy.  Buying a REC conveys the renewable attributes of that energy – the green bragging rights, if you will.  The idea is that, for reasons of economic efficiency, the electric companies can buy their energy from wherever it’s cheapest and add the ‘renewable’ part separately.

In other words, for example, the electricity coming through your sockets may well have the Seabrook nuclear power plant or, occasionally, the coal plant in Bow as its chief source.  But that’s okay because your electric supplier is buying RECs produced at the wind farm in Antrim – or, for that matter, elsewhere in New England.

Eversource must buy RECs because it sells Default Energy Service – the energy you use if you are an Eversource customer who has not chosen a non-utility supplier.  Recall that another electric utility, Unitil, more than doubled the price of its Default Energy Service, effective December 1, to 17.5 cents per kilowatt-hour.  Expect Eversource to do something similar when it submits a Default Energy Service proposal in December for effect in February.

Ditto for Liberty, which will make it a Default Energy Service rate-shock trifecta.  The reason is that natural gas prices have gone haywire, and those prices drive the cost of producing electricity in New England.

Right now, all three of our investor-owned electric utilities get their Default Energy Service the same way – they seek bids from wholesale suppliers every six months.  But the utilities acquire the RECs themselves.  That’s the game Eversource is threatening to quit.

When the Legislature created the RPS 14 years ago, it was concerned that the market price of RECs could get too high.  So, for each category of REC, the Legislature established an Alternative Compliance Payment (ACP) – a sum of money that can be paid to the state’s renewable energy fund in lieu of a required REC purchase.

The intent, logically enough, was for the ACP to function as a cap on the price of RECs.

How do I know this, even though “price cap” is nowhere found in the legislation?  Because I was general counsel of the Public Utilities Commission (PUC) in 2007 and, to quote John Bolton quoting Lin-Manuel Miranda, I was in the room where it happened.

Now it turns out that, last year, Eversource made a $1.6 million boo-boo.  The company bought a bunch of Class III RECs above the price cap set by the ACP.

The utility wants the blessing of the Public Utilities Commission to recover that $1.6 milliion from ratepayers nevertheless.  The state’s new Department of Energy objects, correctly describing those purchases as per se imprudent.”

Imprudence is a no-no for public utilities.  Imprudently incurred costs get charged to shareholders, not customers. 

You might wonder:  How the heck did this happen?  Here’s the story that emerges from Eversource’s filing with the PUC.

Class III RECs involve the environmental attributes associated with generation using biomass (i.e., forestry junk) or methane (the stuff produced by landfills).  During the 2020 legislative session, the General Court passed a bill to raise the ACP – i.e., the price cap – for Class III RECs to $55.  July being REC buying season, Eversource made its purchases accordingly.

But then – oops! – Governor Sununu vetoed the bill on July 28, 2020.  The Legislature did not override the veto and, all of a sudden, Eversource had a bunch of Class III RECs on its hands that it bought for more than the ACP.  Specifically, $1.6 million more.

Eversource claims that it could not have anticipated this turn of events.  Baloney!  If Christopher Sununu has proven anything over his political career, going back to his days on the Executive Council, it is that he is skeptical about anything that looks like a subsidy for renewable energy.

Smelling defeat over this at the PUC, Eversource now threatens to stop buying RECs and, instead, require its wholesale electricity suppliers to do the buying.

That will drive up the already-escalating price of Default Energy Service as those suppliers will include an additional ‘risk premium’ to account for their exposure to the ups and downs of REC trading.  Alternatively, Eversource wants permission simply to make Alternative Compliance Payments in lieu of REC purchases and pass the cost along to customers.

“Eversource should not be required to continue an untenable practice that exposes it to risk without any offsetting benefit,” according to written testimony filed by Eversource wholesale energy wheeler-dealers James Daly, James Shuckerow, and Frederick White (all based out of state, by the way).

The idea that Eversource derives no benefit from buying and then reselling Default Energy Service – including the associated RECs — is also baloney.  Most household customers are still on Default Energy Service and keeping it that way perpetuates the company’s total dominance of the residential rate class.

Spread over most of Eversource’s residential customers in New Hampshire, $1.6 million is chump change.  But the principle is important.  Despite the New Hampshire Supreme Court’s infamous refusal to recognize it, the whole idea of electric industry restructuring (for which residential customers have paid hundreds of millions in stranded costs) was to transfer business risk from captive utility customers to profit-seeking utility shareholders.

It is always fashionable these days for policymakers involved with energy, myself among them, to proclaim an urgent need to keep rates as low as possible.  The next time you hear someone repeat that mantra, ask them where they stand on how much risk ratepayers should bear in the process.  Their answer will reveal how much they really have ratepayers’ best interests at heart.

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