PUC Ruling Threatens Self-Generation Options for Electric Customers

By Steven V. Camerino and Timothy W. Fortier

A ruling issued by the New Hampshire Public Utilities Commission (PUC) recently is likely to have an adverse impact on electric customers exploring their options for self-generation of electricity.

In a case filed by 5 Way Realty Trust, the PUC ruled in October that a company that builds an electric generating facility to supply a single customer must collect certain stranded cost charges for Public Service Company of New Hampshire if the electric customer remains connected to PSNH's system for purposes of receiving back-up service.

If the decision stands, it is likely to threaten one significant avenue for self-generation in New Hampshire. One request for reconsideration has already been submitted to the Commission, so further developments may yet occur in the case.

The Issue

In recent years, a number of New Hampshire electric consumers have been exploring their options to either own their own electric generating facilities or contract with a third party to build a generator on or near the customer's location.

In some cases, customers have considered remaining connected to the local utility's distribution system in order to be able to receive back-up service (also known as stand-by service) as a means of ensuring reliability.

Until now, it appeared that a customer receiving back-up service from Public Service Company of New Hampshire was responsible for paying stranded cost charges only when, and to the extent that, the customer actually received power from the utility or in the unlikely circumstance that the customer received service from a competing electric utility providing distribution service in PSNH's territory.

The Impact

Under the PUC's recent decision, customers who choose to finance self-generation by using a third party to install and own the generator for them will be obligated to pay PSNH's stranded costs merely because they elect to remain connected to PSNH's system as a form of back-up supply. In particular, these customers will be responsible for paying those stranded cost charges regardless of whether they actually take power from PSNH. The decision is certain to have a significant adverse impact on the economics of self-generation for such customers.

The PUC's decision appears to be in direct conflict with the directives of RSA 369-B, which provides that "all existing opportunities shall be continued for retail customers to generate or acquire electricity for their own use...without an exit fee." RSA 369-B specifically provides that the term "exit fee" includes any charge that is based on the amount of electricity a customer obtains from a generator that is directly connected to the customer's load if there are no intervening facilities of a regulated entity. In this case, there was no indication that any facilities of PSNH or any other public utility would be used to connect the proposed generator to the customer.

By ignoring the statute's prohibition on exit fees, the Commission effectively expanded PSNH's authority to collect stranded costs beyond what the Legislature intended when it gave final approval for PSNH's restructuring. Instead of focusing on whether the customer in this case was going to be connected to PSNH for back-up service, the Commission should have examined the critical issue of whether 5 Way Realty was a public utility. It is clear from the statutory history of the legislation at issue that stranded costs were intended to be collected only in those instances where a customer receives electric service from a utility.

Instead, the Commission jumped over this important issue and decided that any entity that sells electricity to another party in PSNH's service territory, regardless of whether the seller comes within the statutory definition of public utility, is obligated to collect stranded cost charges if the customer remains connected to PSNH's system.

Ironically, the Commission could have avoided ruling at all on the case as presented. The original filing by 5 Way Realty had requested a ruling on an evolving set of hypothetical facts, a point that PSNH itself argued to no avail.

At this point, unless the Commission finds a procedural means to revisit its decision in the near future, the only way to remedy the ruling will be through an appeal to the State Supreme Court or through future legislative action. It is unlikely, however, that potential suppliers of self-generation services will be interested in doing business in New Hampshire while the matter is pending.

Steven V. Camerino is a director and shareholder in the law firm of McLane, Graf, Raulerson & Middleton, PA, and focuses his practice on energy and public utilities law. Timothy Fortier is governmental relations advisor with the firm. They can be reached at 603-226-0400 or at steven.camerino@mclane.com or tfortier@mclane.com.