3 utilities seek $426m for negotiating hydro contracts
Firms say payments needed to recognize their ‘financial obligation’
THE THREE UTILITIES that negotiated hydro-electricity contracts on behalf of the state are seeking compensation equal to 2.75 percent of the deal, a total of nearly $426 million over 20 years or an average of roughly $21 million a year.
In a filing with the state Department of Public Utilities accompanying the contracts, officials from the three utilities said the payments – the maximum allowed under the legislation authorizing the hydro procurement – are needed to recognize the “financial obligation” borne by the companies. The officials noted the utilities have received similar payments in connection with past procurements.
“The obligations assumed by the [utilities] under these long-term contracts have increased substantially over time, i.e., longer contract terms, larger amounts of energy, and increasing contractual payments,” said the filing. “In addition, the commitment of time and resources to solicit, negotiate, and administer these contracts is considerable. Moreover, it is likely that additional procurement requirements will be imposed.”
The filing said the three utilities – Eversource, National Grid, and Unitil — estimate the total cost of the clean energy contracts they have negotiated so far on behalf of the state will soon exceed $22 billion. The utilities are likely to seek a similar level of remuneration on the offshore wind contracts they are currently negotiating with Vineyard Wind, the winner of an 800-megawatt procurement.
Attorney General Maura Healey declined comment on Wednesday, but her office in the past has been skeptical of utility bids for remuneration in connection with clean energy contracts. In early discussions about the procurement process, environmental groups raised concerns about the utility payments but objected mostly to the possibility that a utility would receive the payment even if another arm of the same firm won the bid.
In its filing on the hydro-electricity contract, the state Department of Energy Resources said the deal yielded a “levelized” flat rate of 5.9 cents a kilowatt hour for 20 years, which the agency said would result in a 2 to 4 percent reduction in Massachusetts customer bills, all things being equal. The filing said the levelized price attempts to remove the impact of future inflation and express the contract terms in terms of 2017 dollars.
Just looking at the contract terms alone without adjustments for inflation, prices do rise over the 20-year period. According to the fine print, the customer cost of purchasing the hydro-electricity from Hydro-Quebec will start at 6.6 cents a kilowatt hour in the initial year and rise to 10.3 cents a kilowatt hour in the final, twentieth year. The energy portion of the charge is the largest, starting at 5.15 cents in the first year and rising to 8.24 cents in the final year.
The average wholesale price for electricity in New England was 3.4 cents in 2017.
As part of the hydro-electricity procurement, an independent evaluator was hired to monitor the contracting process to make sure it was fair and no self-dealing occurred. Two of the utilities evaluating bidders – Eversource Energy and National Grid – were also bidding on the contract.
The independent evaluator, Peregrine Energy Group, filed its report with the Department of Public Utilities on Wednesday. The report took a broad view of the contracting process and didn’t provide too many details on the inner workings of the parties. Overall, Peregrine said, the contracting process was fair, but there were a couple of concerns.
For example, Peregrine said, officials from Eversource Energy working on the evaluation team appeared to favor a project put forth by Eversource and Hydro-Quebec called Northern Pass, identified as NPT in the report.
“Based on our observations, Eversource favored, or had the appearance of favoring, NPT in various stages of the evaluation and selection process, especially toward the end,” Peregrine said in the report. “It was perhaps even more apparent when Eversource sought to keep NPT in play for contract negotiations even after the required New Hampshire siting approval was denied, with a remote possibility for a prompt reversal in order for Northern Pass to be able to build the project anywhere near the timeframe proposed. However, the evaluation process conducted by the evaluation team, with the oversight of the independent evaluator, counteracted any favoritism on the part of Eversource, such that the independent evaluator was comfortable that the resulting evaluations were fairly conducted and not unduly preferential toward any bid nor unjustly discriminatory toward any bid.”
An Eversource spokeswoman issued a statement saying the evaluation process worked exactly as it should. “The three electric distribution companies and DOER adhered to a well-defined, exhaustive procedure for evaluating bids dedicating thousands of hours to the process,” the spokeswoman said. ” When there were differences of opinion, which can happen on large complex evaluations like this involving multiple parties, the evaluation team worked to build consensus. When consensus couldn’t be reached, DOER, in consultation with the independent evaluator, made the final calls. And, as the IE concluded in its report, all bids were evaluated in a fair and non-discriminatory manner. Eversource and the electric distribution companies are pleased to have presented a contract for review that advances our environmental goals and is good for our customers.”
The Baker administration boasted that 53 projects competed in the procurement, but the independent evaluator pointed out that an unusually higher number of them, 17, were disqualified early on in the process.There also appears to have been a debate, spurred by National Grid, about whether the hydro-electricity being procured would be new – meaning clean power that would result in a net reduction in greenhouse gas emissions rather than existing electricity that is simply being rerouted from another Hydro-Quebec customer to ratepayers in Massachusetts and New England.
The independent evaluator report said none of the other members of the evaluation team supported National Grid’s position, and it appears the electricity from Hydro-Quebec will not be new generation. In a separate document filed with the Department of Public Utilities, the three utilities noted the Hydro-Quebec “power sources … have already been developed and are operational, thus eliminating the risk that the generating resources will not be completed in a commercially reasonable time frame.”