IS IT AFFORDABLE FOR NORTHERN PASS TO BURY ALL THE LINES?

 Yes!

  • But the case hasn’t been made politically or in the press, and is not ready to be made at the SEC
  • Will show affordability
  • Talk about process to make the case
  • Project cost w/60 miles buried:  $1.4 billion
  • No idea what changes went into that number, and no breakout of line burial costs
  • Assume (conservatively) full burial will cost $600MM more — $2 billion
  • This is roughly $5MM additional cost per additional buried mile (125 miles x $5MM)
  • Roughly same as DOE’s full burial cost estimate
  • How do we get $600MM more out of the Northern Pass transaction structure and still leave it “affordable”?

  • STEP 1:  SAVE THE $200MM BRIBE MONEY AND USE IT FOR CONSTRUCTION INSTEAD
    • $200MM fund for payouts to influence the process (“Forward New Hampshire”)
    • If the lines are buried top to bottom, should be no need to buy off stakeholders
    • Now all we need is $400MM

  • STEP 2:  PUT THAT $400MM IN TERMS A POLITICIAN CAN UNDERSTAND
    • Northern Pass is a 40-year transaction
    • It’s based on Hydro-Quebec’s credit
    • So let’s use HQ’s credit to get a family-style 40-year “mortgage” for the $400MM we need for full burial
    • HQ’s cost for 40-year debt would currently be around 3%
    • A 40-year mortgage for $400MM at 3% costs $17MM a year
    • So:  full burial “costs” the transaction only an additional $17MM per year
    • Now all we need to do is allocate that additional $17MM to HQ, Eversource and one other player

  • STEP 3:  HYDRO-QUEBEC
    • HQ stands to make $600MM a year over Northern Pass even at today’s low electricity prices
      • 2015 YTD average real time Hub price:  $50/MWh
      • 1090MW
      • Electricity sales = $475MM
      • Capacity markets (2015 $9.55/kWMonth) = $125MM
    • Impose a surcharge of 1.5% on HQ revenues:  generates $9MM/year
    • Half-way there!

  • STEP 4:  EVERSOURCE
    • $2 billion cost for Northern Pass
    • Under FERC’s approval, $1B is financed by debt, $1B by equity
    • E$ gets guaranteed 12.56% return (profit) on the $1B of equity
    • This means Eversource will earn $125 million per year
    • Let’s take just 9/10ths of 1% off that return — down to 11.7%
    • That frees up $9MM/year
    • Add that to HQ’s modest contribution, and we have more than we need to pay the $400MM for full burial

  • STEP 5:  EVERSOURCE EXECUTIVES
    • Tom May, CEO, made $19MM last year
    • If you pay him based on performance on Northern Pass, he should take a 25% hit, or $5MM a year
    • That’ll pay for another $100MM of “mortgage”, or enough to bury 20 more miles (all the way to Massachusetts!)
    • If we reach out to the other key E$ execs, we’ll have enough to bury to Boston

PROCESS

  • Full burial is almost certainly affordable
  • We’re not even considering other subsidies likely to come:  regional governors’ initiative, southern New England state RFPs
  • We need to work to get the message out:  full burial is affordable

  • FORCE THE POLITICIANS AND THE PRESS TO ENGAGE IN THIS — IT’S SO WRONG FOR THEM TO SELL OUT NH BEFORE UNDERSTANDING THE NUMBERS

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