Big Yogurt vs. Big Coal

By CHARLES M. ARLINGHAUS

In the biggest political grudge match of the year, Big Yogurt is taking on Big Coal, with hundreds of millions of dollars hanging in the balance.

A few years ago, the Legislature passed a law requiring the state's largest utility, Public Service of New Hampshire (PSNH), to install a mercury scrubber on its coal-fueled power plant in Bow. Because the cost of construction is rising, the expected cost of the multi-year project rose from about $250 million to about $450 million.

Because PSNH is a public utility, the cost of operating the plant is borne directly by ratepayers. Think of public utilities not as private companies but as quasi-government departments. We provide electricity to every citizen and contract over the long term with a single company in the service area. PSNH is the provider of that service for the largest part of the state. Its costs and profits are strictly regulated in filings before the Public Utilities Commission.

This is a double-edged sword for ratepayers. For many years, we had among the highest electric rates in the region because we were paying off the building costs of power plants. Recently, that has turned into an advantage as the large plants have been paid off. Think of it as finally paying off the mortgage on your house.

In addition, we reap the cost benefits of coal being among the cheapest power sources. Rather than paying the much higher market rate for power, ratepayers benefit from the current low cost of coal being produced at a plant that has finally been paid for.

Adding pollution control equipment is expensive and raises the cost of providing that electricity. The cost of the mercury scrubber will be spread over 15 years. It will add a little less than a third of a cent to the electric rate.

Because PSNH is a regulated utility, its rate of return on capital is strictly regulated as well. Investors putting up the capital know that there is a limited positive gain from their investment, but also very limited risk because return is guaranteed. Because PSNH is guaranteed a return on capital, it has come under attack. Opponents now call PSNH 'Big Coal,' as if the company officers weren't locals sitting in a refurbished mill in Manchester but evil, greedy executives secretly plotting to strip-mine half of West Virginia, turn mountains into valleys, and generally be mean to birds and puppies.

This is where debate has gone in America. Our opponents are never people with a different idea. Instead they are Big Something, and we're the little guy fighting the good fight against them. Stonyfield Farm CEO Gary Hirshberg is leading the opposition against the new mercury scrubber. He asks us if we're going to let Big Coal push us around.

Unfortunately for the cheap electricity side, Hirshberg is an organic yogurt maker. It's hard to attack Big Yogurt or Big Enzyme. Are you going to let Big Enzyme digest you? See, it doesn't work.

The financial argument for the project needn't degenerate into name calling. We spent decades paying off the mortgage, and now the plant is cheap to run. As long as the plant is cheaper than buying the electricity elsewhere, it makes sense to run it. When it isn't, it should be closed.

To run it, we need to install a mercury scrubber. If we install a scrubber, will electricity still be cheaper than buying it and bringing it into the state? The price increase under the scrubber will be .31 cents. According to testimony before the Public Utilities Commission, the comparable cost of buying electricity would be an additional .73 cents. That price difference sounds small, but it means scrapping the scrubber would cost more than twice as much -- more than $1 billion in total.

So while the cost of a scrubber sounds like a lot, it's actually $500 million less than the only alternative.

One scenario that would make the scrubber more expensive is if President Obama pushes through a tax on coal, and only coal, to try to shut down some of the coal plants around the country. That seems unlikely. The President's stimulus package actually includes money for a new coal plant. In a difficult economy, adding taxes to hike the price of electricity isn't exactly stimulus.

In addition, the scrubber project adds about 1,000 jobs to the current economy, especially in the hard-hit construction area. No one should support the scrubber as a jobs program, but think of it as a side benefit.

At the end of the day, we've finally paid off a plant. It has a long life yet, and we should save ourselves the $500 million.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.