Baker officials tout hydro contract benefits

BAKER ADMINISTRATION OFFICIALS said a massive purchase of hydro-electricity from the Canadian province of Quebec will be priced at a levelized flat rate of 5.9 cents a kilowatt hour for 20 years, resulting in a 2 to 4 percent reduction in Massachusetts customer bills over that period and total direct and indirect savings of as much as $4 billion.

In a letter to the Department of Public Utilities accompanying separate contracts negotiated by the state’s three utilities, two officials in the Baker administration said the price breakdown was 4.8 cents per kilowatt hour for the energy and 1.1 cents per kilowatt hour for the transmission line needed to carry the power from the border of Quebec through Maine to the regional power grid. The prices were expressed in 2017 dollars.

The letter from Robert Hoaglund II and Ben Dobbs, legal counsels at the Department of Energy Resources, also disclosed some of the behind-the-scenes infighting behind the contract award. The letter said Massachusetts received 53 distinct proposals to provide clean energy to Massachusetts and two emerged as superior to the rest. Both of the preferred projects delivered hydro-electricity from Hydro-Quebec. One project, developed by Eversource Energy, brought the power into New England via a transmission line through New Hampshire. The other, developed by Central Maine Power, brought the power into the region through Maine.

“All other evaluated individual projects and portfolios of combined projects that met the legislative requirement of approximately 9,450,000 megawatt hours of clean energy generation were considerably more expensive and provided less benefit to Massachusetts customers,” the two officials said in the letter.

The state’s three utilities – Unitil, National Grid, and Eversource – couldn’t agree on which of the two projects was best, with Eversource and Unitil backing the Eversource project and National Grid supporting the project put forward by Central Maine Power. The letter did not identify which utilities supported which project, but that information was contained in separate utility filings with the Department of Public Utilities.

With the utilities divided, the letter said, the final decision on which project to select fell to the Department of Energy Resources, working in consultation with an independent evaluator hired to monitor the contracting process. The department said it selected Northern Pass because its projected in-service date was 2020, two years earlier than the Central Maine project. But that decision soon became moot when New Hampshire regulators refused to provide Northern Pass a key permit, putting its timetable and even its ability to deliver the project in doubt. The contract was subsequently awarded to Central Maine Power.

According to the letter from the Department of Energy Resources, bringing the hydro-electricity project online will mean 47 percent of the electricity consumed in Massachusetts will be generated from clean energy. The letter also noted that the project will supply 17 percent of the state’s electricity and reduce greenhouse gas emissions significantly – the equivalent of taking 413,000 cars off the road annually.

The letter said the state is forecasting a price of 7.5 cents a kilowatt hour over the next 20 years to procure a similar amount of wholesale energy and cover the cost of compliance with Massachusetts emission targets. Using that forecast as a measuring stick, the state officials said the hydro-electricity contract represents savings of roughly 1.5 cents per kilowatt hour over the 20-year period.

“This contract represents extraordinarily aggressive pricing, particularly with respect to the transmission component,” said Dan Dolan, president of the New England Power Generators Association.

Dolan said the energy price of 4.8 cents a kilowatt higher over the 20-year term of the contract is 1.4 cents higher than the 3.4 cent-per-kilowatt average wholesale price of electricity in New England in 2017. He said he had never seen a number as low as the 1.1 cent-a-kilowatt-hour price for the transmission.

Dolan said the state’s claims about savings on consumer electric bills are hard to verify because they include a number of assumptions about the cost of meeting greenhouse gas emissions targets in other ways.

The state’s claim of $4 billion in direct and indirect savings over the life of the contract is also hard to verify because it includes a number of assumptions about ripple effects throughout the region’s energy markets.

According to the hydro-electricity contracts, Hydro-Quebec has promised to deliver the same amount of electricity all year long or face financial penalties. The firm delivery of power could have significant benefits for the region during winter months when most of the region’s natural gas pipeline capacity is diverted toward heating, leaving little fuel left for power generators. The boost in hydro-electricity imports should dampen demand for natural gas during the cold winter months, and lessen demand during periods of intense cold for power plants that run on oil, which emits more greenhouse gases, and liquefied natural gas, which is more expensive.

The letter from the Baker administration officials could play a role in deliberations on Beacon Hill over clean energy legislation. Lawmakers are considering boosting the amount of renewable energy that electricity sellers in Massachusetts must support through the purchase of renewable energy credits.  The letter said the hydro-electricity contract should reduce demand for the renewable energy credits, and help bring their price down. Boosting the requirements for renewable energy could bolster demand and drive prices for the credits up.