Warning: A pillar of utility regulation may be about to topple

Public utilities require adult supervision.

I’m sorry if that sounds insulting to the many people with whom I am in regular contact at the state’s regulated electric, gas, and water utilities.  They are fine folks – all of them.

But these excellent professionals all work for investor-owned companies, which exist solely to maximize return on shareholder investment.  Every utility will tell you how much it loves its customers but ultimately the utility business is not about love.  It’s about money.

Adult supervision of the sort I am describing is the reason we have a Department of Energy and a Public Utilities Commission (PUC).  Water utilities are also pervasively regulated by the Department of Environmental Services.

For the investor-owned electric and gas utilities – Eversource, Unitil, and Liberty – New Hampshire has two pillars of regulatory oversight.  The one you probably know about is called a rate case.  The one you almost certainly don’t know about is called “integrated resource planning.”

Rate cases are fine things; everything about how the utility in question does its work is fair game for scrutiny.  But, even though rate cases are (obviously) for the purpose of setting new rates, a rate case is a backward-looking exercise.

What a rate case examines, fundamentally, is whether past investments and management decisions made by the utility under review were prudent.  Another requirement is that the assets placed into rates must be “used and useful,” which is another way of saying a utility can’t build or buy stuff and just leave it idle while recovering the cost of those items from customers.

Given the retrospective nature of rate cases, it only stands to reason that there ought to be some mechanism for regulators to take a look at how utilities are deploying their resources before the money is spent.  Well, at least for electric and natural gas utilities, there is such a mechanism.

Every two years, each such utility must file for PUC review and approval something known as a “least cost integrated resource plan.”  And the review must occur via an adjudicative proceeding, which means ratepayer advocates like our office and, indeed, anyone else with a legitimate interest, can participate in the process.

You can look it up.  RSA 378:38 describes what is supposed to be in an integrated resource plan; RSA 378:39 lays out how the PUC is supposed to review it.

This before-the-fact review of resource deployment decisions is the only way to control runaway utility investment.  Any individual utility spending decision – from the replacement of the wires on your neighborhood distribution circuit to the mass deployment of advanced meters to the construction of a $400 million seacoast-to-Manchester pipeline with a huge storage tank in the middle – can be made to look like a good idea when considered in isolation.

An integrated resource plan – specifically, because it is a least-cost integrated resource plan – requires the utility to explain the big picture and prove that the whole thing is being managed and built in a manner that saves customers as much money as possible.  The statute says the utility must do that while still advancing the official “New Hampshire Energy Policy.”

What’s that, you ask?  As set forth in RSA 378:37, it is “to meet the energy needs of the citizens and businesses of the state at the lowest reasonable cost while providing for the reliability and diversity of energy sources; to maximize the use of cost effective energy efficiency and other demand side resources; and to protect the safety and health of the citizens, the physical environment of the state, and the future supplies of resources, with consideration of the financial stability of the state’s utilities.”

As policies go, it’s pretty reasonable and moderate.  And requiring utilities to show, in advance, how they expect to do that in a least-cost fashion is likewise a fine idea.

That’s why I am so astonished that the House is about to vote on a bill to repeal the whole integrated resource planning statute and replace it with – well, nothing.  In fact, House Bill 281 has a reasonably good shot at passage, having been reported out of the Science, Technology, and Energy Committee on a tie, 10-10 vote on February 16.

In a way, the House’s interest in throwing the integrated resource planning statute into the recycling bid is understandable.  For one thing, the PUC has been deliberately avoiding any enforcement of the statute or, more recently, interpreting the law in a manner that renders it useless.

Further, the integrated resource planning statute is a bit of a relic.  It was originally adopted in 1990, before the state’s electric industry was restructured and the utilities forced to divest themselves of their generation assets.

That’s exactly why I was quietly working with the electric and natural gas utilities on a new version of the integrated resource planning statute.  The draft we worked up would have brought the process in line with the current realities of the electric and natural gas industries while opening up the actual planning process to at least a bit of public scrutiny.

I do not know why the House Committee on Science, Technology and Energy could not wait long enough to consider what we had drafted.  From my perspective the draft was far from perfect – not enough public involvement, too little regulatory scrutiny – but it was a marked improvement on the status quo with a clear directive to the PUC not to ignore the statute.

When I got wind of the repeal effort, I rang up the bill’s lead sponsor, Rep. Fred Plett of Goffstown.  He challenged me to think about what information I get from utilities via integrated resource plans that I could not obtain by other means in my capacity as the state’s ratepayer advocate.

The answer is probably “not much,” but it’s the wrong question.

New Hampshire does not need integrated resource planning for electric and gas utilities to feed the Consumer Advocate (or anyone else) with interesting information.  We need integrated resource planning to make sure utilities are doing their job without squandering our money.  It’s that simple.