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9 May 2000
Testimony on SB 472
First, I want to thank you for your tireless effort throughout this entire ordeal. Dealing with this settlement has surely taken you away from your families, your careers, and other important issues. The same should be said for the PUC and your respective staffs. You have been determined, open, and inclusive throughout the process.
As part of the lonely opposition in 1989, CRR has been as skeptical as any since this settlement was announced. However, we have set aside our disagreement with the foundation of this settlement, and joined the discussion. We had hoped that the financial gain for consumers would outweigh the risks we accept and the opportunities we give away. They do not.
The securitization amount is too high, and improperly applied.
Since this bill is written with the intent of giving bondholders a virtual 100% guarantee of being repaid, we should only securitize those costs that we are 100% certain of having to pay back in the future. Without a settlement, we are certain that we will pay some of these costs:
We are certain that we will pay the costs we have already deferred. But we have no certainty at all that we’ll have to pay the leftover acquisition premium. In fact, your consultants told us that there is a very good chance we don’t owe even half of what the company is claiming. That’s why those are the costs that will be written off- it’s probably cheaper for the company to just write it off now than to lose it in court.
This securitization is not acceptable because in exchange for a few percentage points of rate cuts, the company gets tremendous financial gain at the expense of our opportunity to shrink the number later.
We look back now at 1989 and say our rates are so high because projections about inflation, oil prices, and load growth were wildly inaccurate. We still use the same variables to project the future price of energy. Guessing the future price of energy is how we calculate today’s so-called “stranded” costs.
By locking in a value for those costs now, we make today’s guess permanent, ignoring the likelihood that the costs will go down.
In fact, the level of PSNH’s stranded costs has already gone down since the settlement calculations were made. Over and above the $6 million a month we pay down with artificially high rates now, there have been changes in the marketplace that reduce stranded costs.
· When those costs were calculated, the wholesale market price of power was 3.2 cents/kWh. The current price is around 4.7 cents. This increase would translate into a decrease of so-called stranded costs by tens or hundreds of millions of dollars, but no recalculation has been made. · Second, as the regional market deregulates, and as more efficient plants replace less efficient ones, the basis for determining energy prices (and therefore stranded costs) we continue to change. · We also learned from the PUC that some of the costs that were ‘stranded’ weren’t really stranded at all.
If we follow the definition of stranded costs in the original restructuring law, the level changes from day to day and year to year. But this settlement and legislation lock the number in now—a number that’s too high already and will likely continue to fall. Our machinations today about tenths of cents of transition service look trivial compared to the money we will lose because of this fundamental flaw in the settlement.
Years from now, we will be looking at neighboring states and other service territories in NH and asking why our rates are still higher than everywhere else. The answer will lie in the Stranded Cost Recovery Charge—a few extra bucks from which no law, no court, and no economic condition will free us from paying every month. And when this is all over, PSNH will be worthy of a Nobel Prize in Accounting.
Still, it could have been worth it, if the difference in rates in time were significant. It is not. Using Dr. Silkman’s projections for this bill, and the PUC’s most conservative benchmarks, the difference is barely noticeable. For an average 500 kWh consumer, the difference between your yes vote and your no vote will be about a dollar a month just four years from now.
About a dollar a month—and that does not even reflect the substantial savings we could see from a more successful rate case, the savings from stranded costs shrinking over time, the savings from all the other dockets surrendered by this settlement, or a likely victory regarding the breaking of the 1989 agreement.
We share everyone’s desire to do something about the outrageous prices we are paying today, and understand the inertia that builds in a process that takes so long. But the final product is not in the best interests of New Hampshire consumers. We would be better served if the legislature set it aside.
Call on the PUC to immediately make a 10% rate reduction based upon their benchmarking, complete a full rate case, adjudicate a true level of stranded costs, and fight for the hundreds of millions we are owed because of the contract violation. That strategy will provide comparable rate relief without the risk. We would then be in a better position to talk about securitizing for further rate reductions.
In the event that you do pass this bill, we ask that you include further protections for consumers.
First, reinstate the additional stranded cost reductions that were contained in earlier versions of the bill. We have heard much about the leverage that the state has as a result of the company’s need to solve these issues, but consumers will be hard pressed to find evidence of that leverage on their electric bill.
Second, provide fair rate design guidelines by equalizing the SCRC across rate classes and preventing cost shifting from special contracts to other customers.
We would also support any changes that ensure the rights of customers or groups to exit the system, or limitations on any acquisition premiums paid to NU.
These changes are relatively small in the final analysis, but they do provide added value and long-term security for consumers.
This has come a long way from where it started. From a stalemate broken with a settlement, through substantial improvements by the PUC and this committee, to the final product in this bill. But comparing the start and end points is a comparison about process and politics.
We should compare the incremental rate savings to our lost opportunity to reduce costs.
When we compare the dollars and the risks, we see that this is not our best option.
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