New Hampshire's Clean Power Strategy Is On Hold

May 2001

By Heidi L. Kroll

Support for cleaning up New Hampshire's three oldest fossil fuel plants appeared to be strong at the start of the 2001 legislative session. Governor Shaheen had signed a Clean Power Declaration in October 2000, pledging to require the state's grandfathered plants to meet modern emissions standards. In January, the Department of Environmental Services released a draft for a first-in-the-nation integrated strategy to reduce multiple pollutants, which US Senator Bob Smith endorsed1. In addition, legislative leaders and environmental groups sponsored an air quality forum for NH policy makers. These actions set the stage for introduction of House Bill 2842, which was sponsored by a bipartisan team of NH legislators.

As introduced, HB 284 required reductions at three plants currently owned by Public Service Company of New Hampshire (PSNH): Merrimack Station, Schiller Station, and Newington Station. The emissions caps in the bill promised annual reductions of 70 percent in current NOx emissions, 70 percent in current SO2 levels, 75 percent in mercury from 1996/1997 levels, and 7 percent in CO2 from 1990 levels. The bill established a compliance date of no later than December 31, 2007, and allowed for banking and trading of emissions reductions as a means to comply with the caps.

Proponents of HB 284 believed that the bill struck the right balance between expected costs and benefits. Opponents, however, argued that HB 284 either went too far or not far enough. During the hearings and work sessions, several key issues emerged. The one that proved to be the most contentious was the trading program allowed for under the bill. Proponents of the "cap and trade" approach claimed it would ensure that significant reductions in the four pollutants were achieved in the most efficient and cost-effective manner. They submitted that a market-based trading system spurs technological innovation and lowers the cost of reducing emissions. Indeed, for some, the trading program was the key reason they supported the bill.

On the other hand, opponents of the "cap and trade" approach, including environmental advocates, alleged that it provided no assurance that emissions reductions would actually occur at the New Hampshire facilities. Without such assurance, the state might not enjoy any local environmental or health benefits. Mercury trading, in particular, was viewed as inappropriate because of that pollutant's high toxicity. Stakeholders who took this view promoted amendments to HB 284 to require that all mercury reductions, and at least a portion of SOx and NOx reductions, would be achieved on-site at the three plants.

While the trading provisions may have been the most contentious aspect of the bill, other issues arose as well. Some parties were concerned about the cost of compliance, even under a cap and trade approach, and the impact the cost might have on the value of the plants. Under PSNH's restructuring settlement approved by regulators and legislators in the summer of 2000, the utility is required to sell its fossil plants by July 2001. Proceeds from the sale are to be used to lower stranded costs owed by ratepayers. Those concerned about the cost of compliance argued that HB 284's requirements would reduce the value of the plants, resulting in a lower sale price and higher stranded costs than would otherwise be the case. Others argued that passage of the bill would actually increase plant value by providing potential buyers with certainty about future air regulations in New Hampshire. They asserted that if buyers did not know what the State might require or when the requirements might take effect, they would reflect the worst-case scenarios in their bids.

The impact of HB 284 on reliability and fuel diversity was another concern to some parties. They questioned whether one or more of the plants might be forced to run less or to shut down entirely if the cost of compliance put them at a competitive disadvantage in a restructured industry. Proponents of the bill countered that the proposed compliance date of December 31, 2007, would provide the plants' owner(s) with a fair opportunity to recoup their investment.

Interestingly, another issue that received a fair amount of attention was the value of environmental leadership. Supporters of the bill submitted that the most effective way for New Hampshire to secure upwind emissions reductions would be to lead by example with a cost-effective, multi-pollutant approach. They saw passage of HB 284 as a key means for the State to gain leverage in national debates and to support Senator Bob Smith's efforts as Chairman of the US Senate Environment and Public Works Committee to reduce emissions. Skeptics, however, remained unconvinced that the "first mover" advantage would be worth the cost to New Hampshire.

These are just a few of the issues that were raised in the context of HB 284. The bill launched spirited debates over the potential costs and benefits of emissions reductions in terms of the environment, public health, ecosystems, economics, and politics. But these debates only served to muddy the waters and reveal a lack of consensus among key stakeholders. This was compounded by two factors. First, NH's electric restructuring landscape was changing. Strong support was building in the Legislature for an amendment to the PSNH restructuring settlement that would delay the sale of its fossil plants for several years3. In addition, momentum at the national level for new emissions requirements had slowed.

In a final attempt to build consensus, amendments to HB 284 were introduced that would have removed the CO2 reduction requirements and allowed for inter-pollutant trading. This effort did not bring stakeholders any closer to a proposal with widespread support. In the end, the House Science, Technology and Energy Committee voted to retain HB 284 and to continue working toward an acceptable approach to cleaning up the state's grandfathered plants. Until then, New Hampshire's Clean Power Strategy is on hold.

Notes

1) The New Hampshire Clean Power Strategy is available as a PDF file.

2) House Bill 284 was introduced as "an act relative to additional emissions reductions from grandfathered fossil fuel burning steam electric power plants." The bill was referred to the House Science, Technology and Energy Committee.

3) Refer to House Bill 489, which passed in the House and Senate and now awaits the Governor's signature.

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