Friday, July 22, 2011

Thinking About Biomass As Heat Hits the Northeast

On a day of record heat, with Newark hitting its highest temperature ever recorded (108!), the last thing that you want to think about, probably, is burning wood. Fireplaces, wood stoves, and wood furnaces are supposed to be winter topics.  But today you may feel like you are in a furnace, and an interesting saga in northern New Hampshire involving climate change, electricity regulation, and changing small-town economies merits some attention. 

Berlin, New Hampshire--an old pulp and papermaking town--shut down its pulp mill in 2006.  Many other mills in the region permanently closed their doors around this time, apparently due to a combination of low global demand for paper and rising costs of wood and chemicals.  Investors have since proposed to convert the plant into a wood-burning power plant--the Berlin Station Biomass Plant--but they have run up against several legal hurdles.

New Hampshire has a mandatory renewable portfolio standard, which requires electric utilities to "obtain and retire" a certain number of renewable energy certificates through 2025. This creates both opportunities and complications for renewable generators like the proposed Berlin plant, partially due to New Hampshire's system of regulating retail electricity rates--a system that many other states also follow.

New Hampshire became enthusiastic about restructuring its retail electric industry in the 1990s.  Indeed, one of Enron's first projects to encourage deregulation was in Peterborough, New Hampshire, where the then-nascent company set up an office in this small town and sponsored a town picnic , among other events and give-aways, to tout its electric choice program for residents.  Although retail electric service in New Hampshire has been partially restructured throughout the state, allowing consumers to choose their supplier of retail electricity (the electric distribution company), the New Hampshire Public Utilities Commission still regulates the rates that the state's four electric distribution companies may charge in tariffs issued to each of the companies.  A tariff outlines the rules that an electric distribution company must follow (relating to providing service and cutting off service when customers fail to pay, for example), and it also includes a rate schedule that specifies the amount that the utility may charge customers per kilovolt-ampere or kilowatt-hour.  You can see the tariff for New Hampshire's largest electric distribution company, Public Service Company of New Hampshire (PSNH), here.

Because New Hampshire utilities operate under a Public Utilities Commission-approved tariff and must obtain PUC approval for recovering various costs through rates, they must follow certain steps in purchasing renewable energy as they attempt to comply with New Hampshire's renewable portfolio standard. One of these steps involves entering into a power purchase agreement (PPA) to buy power from a renewable source and having the Commission approve the PPA after determining that it is in the public interest.

And here, we finally return to Berlin, New Hampshire's retired pulp mill.  Cate Street Capital, a green technology investor, proposed to convert the pulp mill into a biomass plant, and Public Service Company of New Hampshire agreed in a twenty-year power purchase agreement to buy electricity from this new plant.  Where an electric generator and electricity supplier enter into a PPA in a state with a renewable portfolio standard, the PPA typically contains various provisions for renewable energy credits or certificates.  Predictably, the PPA included an "obligation to purchase renewable energy certificates," and the Public Utilities Commission approved the PPA.  Small, existing producers of electricity from biomass in New Hampshire objected to the Berlin biomass plant, and they challenged the PUC's approval of the PPA on several grounds.  One interesting argument was that the PUC could not approve a twenty-year PPA because the PPA included a renewable energy certificate obligation linked to a renewable portfolio standard that would only last through 2025--before the twenty years of the PPA were up.   For the "nine years beyond 2025," the producers argued, the PUC could not approve Public Service's cost-recovery obligations because renewable energy certificate requirements might be different for those nine years; costs might change.  The PUC rejected this argument, both at the motion to dismiss stage and on a motion for rehearing after the PUC had conditionally approved the PPA; the PUC determined that it had the authority to "levelize a projection of PSNH’s REC purchase requirements." 

The small biomass generators appealed to the New Hampshire Supreme Court and entered into negotiations with Cate Street Capital, where, according to the Manchester Union Leader, the small generators demanded their own long-term power purchase agreements with Public Service of New Hampshire in exchange for dropping their Supreme Court appeal.  The negotiations broke down for a time, but it appears that Cate Street may still attempt to move forward with the plant.

Underlying these legal skirmishes is, of course, the larger issue of whether wood-burning biomass plants are a good thing--whether they're good for combating climate change, reducing air pollution, and encouraging local jobs, among other issues.  Some environmental groups have argued that they are not carbon neutral.  On the other hand, they improve the quality of life in towns like Berlin, and they rely on a local, abundant, renewable resource (wood). On a hot day like today, I have trouble thinking clearly enough to decide where I come out on the issue.  Maybe I'll use it as a case study for my students this fall and let them decide.

-Hannah Wiseman

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