Seacoastonline.com: Power plants get little-known subsidies
By Chris Dornin
October 28, 2007 6:00 AMWhile paper mills close and Cabletron spins off its remnants out of state, power plants from the Seacoast to Whitefield enjoy the perks of a poorly understood, $100-million subsidy program just for energy producers. It has a bureaucratic name: the forward capacity market.
There are two economies, folks. One plays by the strict rules of business. You know about those. In the other, you will find the so-called deregulated merchant power jungle. It turns out to be more protected and regulated than anyone dreamed.
The Federal Energy Regulatory Commission came up with its little-publicized energy incentive to prevent California-style price spikes and rolling brownouts after the feds capped the price of electricity artificially low. That revenue supplements what a power plant earns by selling electricity into the daily New England spot market or by contracting with large customers.
That corporate aid program, funded by customers on their electric bills, strikes some people as especially ironic this month.
Dave Atkinson, the vice president of operations for Wausau paper in Groveton, has some emotional work to do this week — hammer out severance packages for 300 members of the steelworkers union. The mill will close by Dec. 31, along with its 13-megawatt power plant.
Meanwhile, the 1.2-megawatt Lochmere hydroelectric dam in Tilton, the 20-megawatt wood-fired Pinetree Power facility in Tamworth, and the 1,244-megawatt nuclear reactor in Seabrook all get $30,000 or more per megawatt per year under a complex payment formula to keep them in business. A megawatt can power about a thousand homes.
This kind of bailout propped up the 720-megawatt Granite Ridge plant in Londonderry during its amicable foreclosure three years ago on a $300 million investment. The similar natural gas-fired Con Edison plant in Newington was on the selling block a couple of years ago amid rumors of financial stress.
Nobody held down the cost of natural gas when the feds capped the price of electricity. If Junior Whoppers had to sell for 50 cents, somebody might have to subsidize Burger King, too.
The collective dole for dozens of New Hampshire energy producers, if that is the right word for it, dwarfs the state’s $30 million Temporary Aid to Needy Families program to keep single parents and their kids out of homeless shelters. The power plants just have to maintain their boilers and turbines in working order to claim their money.
Those forward capacity payments will change after an auction on Feb. 4-8, conducted by the ISO-New England power grid, based in Holyoke, Mass. The stakeholders will rehearse the event in a pair of daylong, online mock auctions.
The quasi-governmental regulatory agency wants to ensure New England has at least 32,305 megawatts of power by 2010. All the plants will bid for their stay-in-business payments in a marathon competition, round after round, until the subsidy they accept per megawatt falls enough to ensure the target capacity. That’s 60 megawatts more than today.
Ellen Foley, a spokeswoman for the grid, said energy-saving projects that reduce demand can enter the auction, too. For the purposes of keeping the lights on, demand reduction is just as good as supply.
“And I wouldn’t call the payments subsidies,” she said. “For quite some time, we’ve had limited investment in traditional power plants. Interest has picked up considerably since the forward capacity payments.”
Sandi Hennequin, of Constellation Energy, works out of Portsmouth and heads up the company’s government relations for New England. Her firm buys electricity and sells 220 megawatts of it to New Hampshire customers. She doesn’t see the power plant payments as subsidies either. They emerged, she said, from a settlement agreement that followed litigation over those price caps.
“The natural gas plants were having so much trouble,” Hennequin said. “Some of them would have gone out of business under the price caps. The ISO told them, ‘We really need you.’ Otherwise, there could have been a power reliability crisis.”
Rockingham County project
An unidentified 600-megawatt, gas-fired power plant project somewhere in Rockingham County is blocked behind half a dozen North Country renewable energy projects in the ISO-New England regulatory queue. The waiting list policy is first-come, first-served. A plant like that would typically pay its host community $4 million or more in property taxes, with few smokestack emissions.
But those wind- and wood-fired projects at the front of the line are all in limbo. The Public Service power lines in the region are too small. Most of the players can’t even bid into the upcoming ISO auction, because yet-to-be-built plants have to ante millions of dollars as a sort of performance bond. And the ISO doesn’t make forward capacity payments for transmission line upgrades.
State Sen. Martha Fuller Clark, D-Portsmouth, leads the energy policy in the Senate and has gotten all the stakeholders brainstorming this fall about ways to upgrade those lines. She’s looking at the wait list policy. She’s watching the big subsidy.
“If you need a solid commitment on your renewable energy project before you can get this (ISO-New England) funding, clearly that’s a huge barrier to building it,” she said.
She suggested some new criteria for a project’s place in the regulatory wait list. It should matter if a future plant will pay significant taxes, create a lot of jobs or use renewable fuels.
“I don’t know who is talking about those issues,” she said.
Grid spokeswoman Foley said no reporter had ever called her office before trying to learn how the forward capacity market works. A Google search for news stories on the topic drew a blank.
Speaking of California
Gov. Arnold Schwarzenegger is rounding up hundreds of sex offenders all across California in a rush to put them behind bars before that state’s Supreme Court overturns Proposition 83. It bans these ex-cons from living near a school or day-care center.
The law is similar to a Dover ordinance several towns in the Lakes Region have copied. The California high court recently imposed an injunction against the residency ban for four sex-offender plaintiffs, but their suit was not a class action representing all parolees in the same situation.
Rockingham County Attorney Jim Reams opposes these bans, but said they have withstood constitutional challenges in other states so far.
“The federal circuit court in Iowa upheld it,” Reams said. “The county attorneys opposed it because there were literally towns where those people could not live. There just isn’t any research to suggest it’s an effective way to protect children.”
Hudson and Manchester are considering the same restrictions. So is Newmarket.
“Newmarket called me the other day and asked about it,” Reams said.
Defense attorney Patrick Fleming of Portsmouth said huge numbers of people are getting ruined for no good reason.
“The few really horrible people will refuse to register as offenders. They’ll fly under the radar,” he said.
State Rep. Lee Quandt, R-Exeter, is a retired parole officer who believes the monitoring system worked pretty well prior to these ordinances.
“Arnold is still playing the terminator,” Quandt said. “I choose not to live in California. Communities can’t dictate where people should live.”
Cost of health care
State Sen. Maggie Hassan, D-Exeter, sits on a commission to identify the drivers in the rapid medical cost inflation. She also heads a group looking into the escalation in health-insurance premiums for small businesses. It’s a fascinating window into an industry in some ways as turbulent and oddly regulated as the energy sector.
State and federal policymakers have tried for years to control and pay for the rising health care costs of an aging population.
Their main solution? Pay less than actual cost under Medicare and Medicaid, knowing full well that hospitals and other providers have to stay in business. They can only do it by shifting their unfunded costs onto private insurance. Hence, the double-digit premium hikes despite a series of health insurance reform laws.
Hassan has supported some recent government mandates generally unpopular with the insurance carriers. Cover college kids on their family plans until age 26, for example. She’d like to see better coverage for rehab for stroke victims, too.
“Who pays for that cost if the employee becomes disabled instead of getting back to work?,” she asked.
Stat Sen. Jackie Cilley, D-Barrington, sits on the small business insurance costs study.
“Covering 26-year-olds increases the size of the risk pool with healthy young people and lowers the premiums for everyone,” Cilley said.
Palmer Jones, the executive director of the Medical Association, said 40 percent of its member doctors and small practices are using health savings accounts. That’s up from 13 percent in 2006.
An HSA shifts some cost burden onto employees and gives them incentives to save money on their care. Those plans have high deductibles and co-payments in exchange for low premiums.
“It’s affordable,” Jones said. “It makes the patient ask if I can wait until tomorrow instead of going to the emergency room tonight.”