ENERGY / UTILITIES / TELECOM

New Hampshire Still Waiting for
Competitive Electricity Markets

May 2003

By Heidi L. Kroll

In May 1996, New Hampshire passed landmark legislation focused on restructuring the State’s electric industry, thereby setting the stage for competitive forces to replace monopoly supplied power. The Granite State looked forward to dramatic and immediate changes. However, seven years later, competition has yet to take hold. Recent events suggest that some members of the business community and the State’s Legislature believe that, given the current status of electric restructuring, they must choose between stable, reasonable power prices and developing competitive electric markets. This is not necessarily the case. Steps to advance the development of electric competition in New Hampshire, while at the same time providing customers with stable, reasonable prices, exist and should be taken. The Legislature’s finding in 1996 that “the most compelling reason to restructure the New Hampshire electric utility industry is to reduce [electricity] costs … by harnessing the power of competitive markets”¹ continues to be sound.

One indicator of New Hampshire’s current stance on electric competition comes from the results of the New Hampshire Business and Industry Association’s Issue Survey conducted in March 2003.² Sixty-one percent of the survey respondents indicated that a “lower [electricity] price is more important than pure competition” in electricity supply markets. Of course, the two are not mutually exclusive, but it is understandable why many New Hampshire businesses might have the impression that their local utility’s “transition service” is the only viable option for obtaining stable, relatively low electricity commodity prices. Such pricing is especially desirable during a time when there is ongoing uncertainty about the economy, continuing volatility in gas and oil prices, and lingering effects of the “California electricity crisis.” Transition service prices range from 4.6 cents per kilowatt-hour (¢kWh) to about 5.4 ¢kWh, depending on a business’ size and who their utility is. These retail power rates compare favorably to New England’s wholesale spot market prices, which averaged about 4.2 ¢kWh over the past year and 6.9 ¢kWh in the month of February. However, transition service is not necessarily the only viable option for obtaining such pricing, as businesses in both New Hampshire and neighboring states are discovering.

While the exact numbers are unknown, some New Hampshire businesses have successfully obtained favorable terms and conditions from competitive suppliers and left their utility’s transition service.³ In Granite State Electric Company’s service area, for example, less than 1 percent of businesses are taking service from competitive suppliers, but given that these businesses are very large consumers, they represent about 20 percent of electricity demand in the service area. In other New England states, the level of competitive activity has grown considerably in the last year or so. In Massachusetts, about 28,650 commercial and industrial customers (around 10 percent of the state’s C&I customers) have switched to competitive suppliers. Approximately 21 percent of businesses’ demand for electricity and about 10 percent of the whole state’s demand for electricity is served competitively.⁴ These figures reflect a successful initiative that Massachusetts utilities have undertaken to help put interested business customers in touch with the six competitive suppliers and nine brokers that are currently active in the Massachusetts market.⁵ In Rhode Island, approximately 2,100 business customers are taking competitive supply, representing about 12 percent of the total electricity consumed in the state. And in Maine, more than 2,700 medium and large businesses have switched to competitive suppliers, along with almost 6,000 homes and small businesses, bringing the amount of the state’s electricity demand served by competitive providers up to approximately 32 percent. ⁶ Customers of Maine Public Service Company have seen the greatest competition, with 100 percent of its large business customers now taking competitive supply (see table below).

Maine’s Electricity Load Served by Competitive Providers

Source: Maine Public Utilities Commission

New Hampshire businesses should keep in mind that the current transition service rates are only guaranteed for a limited period of time, as is the service itself. Absent any changes that regulators or legislators might make, transition service for PSNH’s and Unitil’s medium and large business customers is slated to end on January 31, 2005 and April 30, 2005, respectively, and other New Hampshire businesses will see their transition service end within a year later. After these dates, customers will likely face power prices that are more reflective of “pure competition” than those they pay today, regardless of whether they stay with some form of utility supply service or switch to competitive service. However, this does not necessarily mean that they will face power prices that are high or volatile. Through contracts with competitive suppliers, customers can increase their opportunity to secure stable prices under desirable terms. Such contracts are the same tools successfully used to secure stable prices for transition service and default service by local utilities that sold their power plants and used the proceeds to reduce their rates.

A second indicator of New Hampshire’s stance on electric competition is Senate Bill 170 (SB 170) which passed with broad bipartisan support in both the Senate and the House and was signed into law on April 23, 2003. The bill requires PSNH to delay the sale of its three remaining power plants until at least April 30, 2006. The power generated by the plants will continue to be used to supply PSNH’s customers who take transition and default service. According to advocates for the bill, the low production costs will reportedly help keep the transition service rates below market prices, perhaps saving PSNH’s ratepayers between $70 million and $100 million per year. In addition, SB 170 allows the utility to modify or retire any of the three plants and recover the associated costs from its ratepayers, subject to review and approval by regulators. Finally, SB 170 directs the Legislative Oversight Committee on Electric Utility Restructuring to submit a report and recommend legislation no later than November 2004 on the provision of transition and default service, taking into account market conditions at that time.

The Legislature’s endorsement of SB 170 indicates just how skeptical some lawmakers are about the ability of current electricity markets to serve customers more efficiently and effectively than regulation. They believe that requiring PSNH to hang on to its remaining power plants for several more years will help hold down PSNH’s transition service prices. However, PSNH officials are already indicating that large businesses’ transition service price of 4.67 ¢/kWh, which just took effect in February of this year, may be too low. In addition, by not completing the divestiture of all of PSNH’s generating stations, ratepayers will continue to pay higher stranded costs for a longer period of time than they otherwise would. The large majority of utilities in the region have sold most, if not all, of their plants and used the proceeds to reduce their stranded costs, and thus the overall rates, that customers pay. Finally, inherent in SB 170 is the risk to PSNH ratepayers that they will be burdened with even more stranded costs if the utility spends more money on the plants than the market will bear when/if the plants are ultimately sold. In short, SB 170 may not stave off increases in PSNH’s rates as expected.

In sum, it remains to be seen how long it will take for competitive forces to take hold in New Hampshire’s electricity markets. The Legislature wisely recognized that “the transition to competitive markets for electricity is a complex endeavor and requires the development of creative and flexible mechanisms to facilitate the movement from monopoly to competition.”⁷ It also wisely recognized that “market forces can now play the principal role in organizing electricity supply … instead of monopoly regulation” and that “New Hampshire must aggressively pursue restructuring … to provide electric service at lower and more competitive rates.”⁸ In light of this wisdom, New Hampshire must stay focused on completing the move to competition so that the State will reap greater benefits over the long term.

Notes:  

1. RSA 374-F:1, I.
2. The NH BIA reports that it conducted its survey online from March 6-14 and received 138 responses. While the BIA acknowledges that this survey is not statistically valid, it does indicate that it will consider the results in developing the Association’s positions on issues.
3. The New Hampshire Public Utilities Commission does not produce publicly-available data on the number of customers and amount of load served by competitive suppliers. However, the PUC’s website indicates that four competitive suppliers and eight buying groups are registered to sell electricity in New Hampshire.
4. Data vary by utility service territory.
5. For additional information, see for example Massachusetts Electric Company - New Choices Program, About WMECO - Supplier Training Schedule, and Unitil Customer Services - Competitive Electric Energy Suppliers.
6. Maine’s data is not broken out between residential customers and small business customers.
7. RSA 369-A:1, II.
8. RSA Chapter 129,Laws of 1996, 129:1, III and IV.

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