Perhaps you’ve seen commercials on New England Cable News about the Northern Pass project. So far, I’ve seen two commercials – one that didn’t even say Northern Pass is an energy project, the other mentioned renewable hydro power but didn’t mention that the core of the project are massive new transmission lines. The pitch has been all jobs and greenness. At that rate, most people probably have no idea what it is, much less whether they are in favor of it.
Well, here’s the scoop: The Northern Pass project is a 1,200 MW transmission line from the U.S./Canadian border to Franklin, New Hampshire. It is being built in the U.S. by Northeast Utilities and NStar under a contract with Hydro Quebec. Under this contract, Hydro Quebec will put up the $1.1 billion in initial construction and other costs, including operating expenses. Once it becomes commercial, operating control is expected to be transferred to ISO-New England. As a side note, the project would then become part of the tariff under which all of the transmission companies are earning an excessive rate of return, as I wrote about in a recent blog.
There are many important implications about this project. First, is it even appropriate for a merchant transmission project to be subsumed into the grid that has been built to serve customers and is regulated under traditional cost of service rates? If the project’s sole purpose is to bring power into the wholesale competitive market, it really isn’t any different than a generating unit newly constructed in the region to enter the competitive electricity market. Hence, the transmission line is part of the cost of the power and should be entirely absorbed by the generator, i.e. Hydro Quebec. That’s the view of the generators in New England and who can blame them?
To add insult to injury, NU, NStar and Hydro Quebec have all argued that the hydropower should qualify as renewable under the various Renewable Portfolio Standards (RPS) in the New England states. This would provide Hydro Quebec with the added subsidy of renewable energy credits (RECs) on top of the price it receives in the competitive market for its power. They tout the greenness of its power but environmentalists will quibble about green power generated from flooding hundreds of thousands of acres of land to create large scale hydro. The real question is whether Northern Pass meets the objectives of the RPS. While yes, it may displace some fossil fuel use and thereby reduce emissions, that is not the only criteria for the RPS.
I would argue that when the Massachusetts RPS was enacted in 1997, emissions were not the primary concern on legislators’ minds. The RPS is intended to foster development of new energy technology. There is nothing new about large scale hydro. Indeed, there is nothing new about buying power from Hydro Quebec. NEPOOL purchased power from Hydro Quebec in the 1980s under 20-year deals. The technology is the same.
The RPS is designed to provide needed financial support for new technology. Hydro Quebec does not need that financial support. In fact, in order to justify approval of the project to the Federal Energy Regulatory Commission (FERC), they argued that it will reduce costs to the region by displacing higher cost generation in the market. By definition, that means it will be grid competitive. It does not need the added financial support of the RPS to be built.
Most importantly, if allowed to qualify for RPS, this project will crash the REC market, ruining the program so that all value from new technologies will be wiped out. Maybe that’s Northern Pass’ goal? The generators have asked the Department of Public Utilities to condition approval of the NU/NStar merger on the companies being banned from lobbying for a change in law to allow the project to qualify for RPS. We agree.
So, let’s be honest here, folks. This is a merchant generation deal disguised as a transmission project.
The utilities building it should be compensated solely by the entity selling the power into the market. It should not be rate-based and supported by consumers, and consumers should not pay for RECs they don’t need, especially since the effect of giving them RECs will ruin the good work the RPS has yielded after close to 10 years of progress toward a more diverse technologically advanced resource mix.