Letter to Legislators Regarding Clean Energy Resources Bill, H. 4187

I am writing on behalf of PowerOptions with concerns about the proposed Clean Energy Resources Bill, H.  4187 (previously H. 3968), which mandates electric distribution companies procure and sign long term contracts for a very large amount of  energy. The amount of electric energy (18,900,000 MWh or approximately 2,400 MWs) is so great that, from a practical standpoint, the contract will be for large scale hydroelectric power from outside the region, i.e. Canada. The proposed amount of increased energy to the region, coupled with the subsidization of both the purchase and the transmission infrastructure to deliver the energy, will flood the market and result in market distortion, driving competitors out of business and keeping new entrants, particularly other clean resources, out of the market. It will be very costly for ratepayers.

PowerOptions, a 15 year old non-profit, is the largest energy-buying consortium in Massachusetts and possibly the region. We work on behalf of our 500 members, all non-profit and public entities, to negotiate the most cost-efficient supply arrangements for our members, including very favorable terms and conditions. The success of our programs is proof positive that competition in the regional electricity market has been beneficial to consumers. We are concerned that the Clean Energy Resources bill, if passed, will threaten the competitive energy market in Massachusetts and bring significant risk and high costs to consumers.

New England is facing challenges because of our substantial reliance on one energy source – natural gas. Many proponents of H. 4187 boast that it will increase energy diversification in New England and facilitate economic competitiveness; however, this is not the case. In fact it may have opposite effects.

The proposed energy increase is so large that it will have serious unintended, adverse effects in Massachusetts for consumers. The bill encourages a massive amount of hydropower to be transported into Massachusetts for the next 20-25 years. Bringing in an amount of electricity equal to more than 1/3 of Massachusetts’ entire demand is unprecedented, unnecessary and will flood the competitive energy market

The generation mandated by the bill is going to result in a power purchase subsidy paid by energy consumers in Massachusetts. H. 4187 requires utility companies to undertake large solicitations and sign long-term contacts with specified suppliers. Therefore, the Canadian hydroelectric generators are guaranteed buyers for their power; they will have 100% cost recovery and no risk. This enables those generators to bid the hydropower into the market at an extremely low price or even no price. If hydropower is bid into the market low or zero, rather than a competitive bidding price reflective of its actual cost to produce, the result will be artificial price suppression driving some economically marginal generation facilities in Massachusetts and the region to close, exacerbating concerns about generation retirements.

This massive energy procurement and subsidization of the hydroelectric generation will upset the competitive market in Massachusetts, resulting in a cornered market with large scale hydropower as the favored source for clean energy generation. By favoring large scale hydropower, the bill will crowd out the existing power generators and make it impossible for new renewable and low-carbon energy in the region to compete.

Even if the strategy in the legislation did not have such a negative impact on the competitive market, it places an unacceptable long term risk on consumers because they are guaranteeing payment for the contract through the rates they pay their respective utility. Once signed, the costs of the contract cannot be avoided by the households and businesses in your district for the next 20 to 25 years. Compounding this risk is the fact that the costs of this bill have not been fully analyzed or considered, in part, because they are unknown. But they are clearly very substantial. We believe that the costs associated with this risk, the energy procurement, and necessary additional infrastructure will be very high for Massachusetts’ electricity consumers. To mandate such increased costs without knowing costs would be illogical and bad policy.

In addition to the energy costs, the additional infrastructure costs associated with importing hydropower into the region must be calculated to truly understand the bill’s financial effect on Massachusetts’ consumers. In her recent testimony, Susan Tierney, a well-respected national energy economist, pointed out such contracts for 20-25 years most likely will require new hydro infrastructure to be built in Canada. No doubt this new hydro will cost more than existing hydro. As a consequence, it cannot be assumed that this power will be inexpensive.

In addition to the Canadian infrastructure Massachusetts consumers will pay, transmission infrastructure must be built in New England to accommodate the huge amount of increased energy. Although it is not included within provisions of the bill, the New England Governors’ December letter contemplates that an ISO-NE electricity tariff be used as the mechanism for cost recovery of transmission costs. That tariff will create a second subsidy for Canadian hydroelectric generators.

Moreover, NESCOE, the regional office of the New England Governors on energy issues, recently unveiled the ISO-NE tariff design. But the NESCOE approach has too many unknown components to be considered a fair or reasonable mechanism for cost recovery. The tariff is not to be determined by thorough cost analysis, nor is it determined based on benefits of the increased transmission infrastructure for different states. Rather, the tariff will be determined through “negotiations”, which leaves no transparency to calculate how this cost is going to affect Massachusetts’ consumers.

In order to comprehensively understand the effects of the bill on Massachusetts’ energy consumers, a more thorough cost analysis must be completed. Until this bill and its implementation, including an ISO-NE tariff, have been intensively vetted and serious unknowns addressed, it should not be passed.

While we face issues of fuel diversity, low cost energy and reduced carbon emissions, there is time to address those concerns. They should not be drivers to enact this ill-conceived legislation in the last two weeks of formal sessions of the Legislature. A more analytical, transparent and disciplined process is needed before the Legislature acts. Rushed action today will have serious negative and costly impacts on our state, its consumers and our economy for decades.