Minimizing distribution charges



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I do not take any position on prudence for the purpose of the following discussion.  I will assume that 

customers are responsible for full book value. 

 

Minimizing distribution charges  



Currently, distribution charges are quite high and may continue increasing as more efficiency measures 

and distributed generation reduce power consumption.  A stranded cost surcharge, in addition to its direct 

economic effects, will increase pressure for more efficiency and distributed generation, as well as increase 

the prospect of larger commercial customers leaving the territory, all of which may cause a new “death 

spiral” in distribution service.  It is essential that we try to limit new distribution rate adders while we 

seek improvement in actual distribution costs. 

                   

Alternatives to absolute auction 

The current settlement assumptions are that an absolute auction is the best way to maximize ratepayer 

value.  We will take what we can get.  This implies that there is no other way to extract value from these 

assets.  There are, however, other options that have not been adequately considered.  An example would 

be securitization of the full book value of an asset with operating income used to support the 

securitization payments.  In this structure, the utility would be made whole and would be separately paid 

to manage the asset for the benefit of the ratepayers.  In the event that the utility doesn’t want this job, 

someone else could be hired to do it.  This would be similar to the situation that occurred during the 

earlier years of restructuring, when a number of power plants that were under construction went bankrupt, 

leaving the financial entities with the need to hire outside plant operators to manage the assets. 

If we decide to sell an asset we should at least set a reserve price equal to a few years of income. 

To explore the thought a little further, in the current case the book value of assets may be $700 million 

and the stranded cost in the divestiture might be $500 million.  Net income might be $100 million a year.  

Annual securitized payments might be 12%.  Full book value securitization for 15 years would result in 

an obligation of something like $84 million a year while the divestiture option would be around $60 

million.  The net income applied to the book value option would very quickly pay off the difference.  Or 

put another way, simple payback might be as little as seven years. 

Proposal   

Securitize the total book value of PSNH’s generating assets, minus any amount that might be disallowed, 

with the agreement that PSNH would continue to operate these facilities for a management fee until such 

time as other arrangements can be made for long term management.  All income net of operating costs 

would be applied to securitized obligations. 

Default service would be provided from the market, as it is with other utilities.   

If it is decided to sell some of the plants, then I would propose that they would be sold in a reserve 

auction, with the reserve price being set at perhaps three years projected income.   




 

Qualifications 

My professional work has been at the interface between technology and policy.  While at Antioch College 

in Ohio I decided to focus on energy issues.  I quickly learned that technological development in energy 

was strongly constrained by policy and regulation.  After graduation I continued my work and study in a 

number of areas including alternative sources of energy, district heating, heat pumps, cogeneration 

systems, and industrial research and design.  The following is a list of some my projects and experience 

since the early seventies. 

Design of a back pressure steam turbine induction generator set at Antioch College.  The design was later 

applied at a Massachusetts Hospital. 

Work with Arthur Morgan who had been the first chairman of the TVA, on a number of projects to apply 

university research and development to industry.  The experience provided a profound exposure to 

national energy policy issues. 

I took part in the founding of the New England Solar Energy Association, now the Northeast Sustainable 

Energy Association. 

 I studied the integration of small wind and hydro power into the grid in a number of early projects. 

I went on a study tour of district heating systems in Finland. 

I initiated a project that became the Governor’s Commission on Cogeneration in Massachusetts and then 

served the Commission in its DOE funded work in support of the National Energy plan and PURPA. 

I worked on a project with the Institute for Local Self Reliance on a project for NYSERDA on issues with 

the grid interconnection of small distributed generation systems. 

I worked on a number of DOE funded innovative research projects applied to district heating.  These 

included use of plastic piping for district heating systems, and warm wet air conversion of building steam 

systems to be able to use heat from a hot water district heating system. 

I was active for a number of years with the International District Heating and Cooling Association 

research committee. 

I worked with Pequod Associates, now part of United Technologies, on a wide variety of district heating

cogeneration, heat pump and other energy efficiency projects. 

I helped develop the New England Cogeneration Association now the Northeast Energy & Commerce 

Association and have been active on its board.  The association was very involved in the electricity 

restructuring process and still represents the many disparate interests in the competitive era. 

Since the nineties, I have been active with electric industry restructuring issues in the northeast and 

nationally.  My main technical interests have been in the practical application of Second Law efficiency 

concepts to the supply of heat and power in a market oriented environment.  



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