STATE OF NEW HAMPSHIRE

PUBLIC UTILITIES COMMISSION

DE 11-250

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

Investigation of Merrimack Station Scrubber Project and Cost Recovery

Order Granting Temporary Rates

O R D E R N O. 25,346

April 10, 2012

APPEARANCES: Sarah B. Knowlton, Esq. and Robert A. Bersak, Esq., on behalf of

Public Service Company of New Hampshire; Orr & Reno, P.A. by Douglas L. Patch, Esq., of on 

behalf of TransCanada Power Marketing Ltd. and TransCanada Hydro Northeast, Inc.; Zachary 

M. Fabish, Esq., on behalf of the Sierra Club; N. Jonathan Peress, Esq., on behalf of 

Conservation Law Foundation; Jim and Sandy Dannis, pro se; the Office of Consumer Advocate 

by Rorie E.P. Hollenberg, Esq., on behalf of residential ratepayers; and Suzanne G. Amidon, 

Esq. and Matthew J. Fossum, Esq., on behalf of Commission Staff.

I. PROCEDURAL HISTORY

On November 18, 2011, Public Service Company of New Hampshire (PSNH or 

Company) filed a petition for temporary rates to recover costs associated with the installation of 

a wet flue gas desulphurization (Scrubber) system at the Merrimack Station located in Bow, New 

Hampshire. PSNH made the filing pursuant to a Secretarial Letter issued on November 15, 2011 

in Docket No. DE 11-215, PSNH’s petition to establish a default service rate for effect January 

1, 2012.1 

In its motion, PSNH requested that the Commission establish temporary rates pursuant to 

RSA 378:27 and RSA 125-O:18, for effect January 1, 2012, to allow the Company to begin 

 

1

PSNH offers default service under the name Energy Service (ES). On October 14, 2011, PSNH amended its filing 

in Docket No. DE 11-215 to seek recovery of Scrubber costs through the 2012 ES rate. The October 14 filing also 

sought to amend the petition in DE 11-216, PSNH’s proposed default energy (ADE) service rate, to recover a 

portion of Scrubber costs through rate ADE. In a Secretarial Letter dated November 11, 2011 in Docket Nos. DE 

11-215 and DE 11-216, the Commission stated that the Scrubber costs would not be considered in those dockets, 

and that the Commission would open a separate proceeding for consideration of the Scrubber costs and PSNH’s 

recovery of those costs. Further background on this matter can be found in Docket Nos. DE 11-215 and 216.
DE 11-250 - 2 -

recovery of costs associated with the Scrubber. PSNH asked that the Commission either 

establish a temporary rate for the recovery of Scrubber costs at 1.18 cents per kilowatt-hour 

(kWh) or allow the existing ES rate, then 8.89 cents per kWh to remain in effect beyond 

December 31, 2011 on a “temporary rate” basis until the Commission determined the appropriate 

recovery of Scrubber costs. The petition included the joint testimony of Robert A. Baumann, 

Director, Revenue Regulation & Load Resources for Northeast Utilities Service Company 

(NUSCO), and William H. Smagula, Director of Generation for PSNH and reports that provided 

updates on the status of the installation of the Scrubber Project.2 

On December 7, 2011, TransCanada Power Marketing Ltd. and TransCanada Hydro 

Northeast Inc. (collectively, TransCanada) filed a petition to intervene in the proceeding. On 

December 8, 2011, the following parties moved to intervene: the Sierra Club, New England 

Power Generators Association, Inc. (NEPGA), and Conservation Law Foundation (CLF). On 

December 12, 2011, the OCA submitted a letter stating that it would participate in the docket on 

behalf of residential ratepayers consistent with RSA 363:28.3

A prehearing conference was held as scheduled on December 13, 2011 followed by a 

technical session. On December 15, 2011, Staff filed a report of the technical session that 

included a proposed procedural schedule for the temporary rate portion of the proceeding. The 

Commission issued a Secretarial Letter on December 15, 2011 approving the proposed 

procedural schedule and addressing the motions to intervene. The Commission determined that 

although NEPGA, TransCanada, Sierra Club and CLF did not demonstrate affected rights, 

 

2 The joint testimony of Messrs. Baumann and Smagula was originally filed on October 14, 2011 in Docket No. DE 

11-215, the proceeding to establish PSNH’s ES rate for effect beginning January 1, 2012. The attachments to the 

testimony included reports filed in Docket No. DE 08-103, a proceeding to monitor PSNH’s actions in constructing 

the Scrubber project. The Commission kept Docket No. DE 08-103 open for purposes of receiving progress reports 

from PSNH regarding the Scrubber installation. See Order No. 24,898 (September 19, 2008) at 13 in Docket No. 

DE 08-103.

3

For additional procedural history in this proceeding, see Order No. 25,342 (April 3, 2012) in the instant docket.
DE 11-250 - 3 -

duties, or privileges that mandate their intervention, given the particular circumstances of this 

docket their intervention requests would be granted pursuant to RSA 541:32, II. Further, to 

promote the prompt and orderly conduct of the proceeding, the Commission directed NEPGA 

and TransCanada to combine their discovery and cross-examination and directed Sierra Club and 

CLF to combine their discovery and cross-examination. The Commission did not require the 

OCA to combine its efforts with any other parties. 

On January 20, 2012, Staff filed certain reports provided to Staff by Jacobs Consultancy, 

Inc. (Jacobs) in Docket No. DE 08-103, the docket which the Commission had kept open for 

purposes of receiving progress reports on the Scrubber Project.4 Also on January 20, PSNH filed 

a motion for confidential treatment of certain information in the Jacobs reports. On January 30, 

2012, the OCA filed an objection to PSNH’s motion for protective order on behalf of itself, CLF, 

Sierra Club, TransCanada, and NEPGA. On February 6, 2012, the Commission issued Order 

No. 25,332 in Docket Nos. DE 08-103 and DE 11-250 granting in part and denying in part 

PSNH’s request for confidential treatment.5 

Staff filed the direct testimony of Steven E. Mullen, assistant director of the

Commission’s electric division, on February 24, 2012. On March 9, 2012, Commissioner Robert 

R. Scott filed a letter recusing himself from participation in this docket.

On March 9, 2012, residential ratepayers Jim Dannis and Sandy Dannis (Dannis) filed a 

motion to intervene out of time, stating that this proceeding will directly affect their costs for 

electric energy supplied by PSNH. The hearing on temporary rates was held as scheduled on

March 12, 2012. At the hearing, the Commission granted the Dannis’s late-filed motion to 

 

4

See Order No. 24,898 (September 19, 2008) at 13 in Docket No. DE 08-103.

5

See Order No. 25,332 (February 6, 2012) in Docket Nos. DE 08-103 and DE 11-250 for the parties’ arguments and 

the Commission’s ruling on the motion for confidential treatment. On February 7, 2012, PSNH filed a request 

pursuant to Puc 203.08 (i) that information for which confidential treatment was denied not be disclosed until all of 

its rights to request rehearing and/or appeal have been exhausted or waived.
DE 11-250 - 4 -

intervene. Also on March 9, 2012, Dannis filed a motion to disqualify Commissioner Michael 

Harrington from hearing or otherwise participating in the docket. On April 3, 2012, the 

Commission issued Order No. 25,342 denying the motion for disqualification.

At the March 12, 2012 hearing on temporary rates, the Commission ruled that parties 

would have until March 19, 2011 to file legal memoranda addressing whether PSNH had all 

necessary permits to operate the scrubber. Hearing Transcript of March 12, 2012 at 166-167. 

PSNH filed a legal memorandum on March 19, 2012. CLF filed a legal memorandum on March 

20, 2012. On March 22, 2012, PSNH filed an updated progress report for the Scrubber 

installation at Merrimack Station. The progress report included, among other information, 

correspondence from The Air Compliance Group, LLC and a related attachment which depicted 

the mercury test results for mercury measurement tests conducted in January and March 2012.

II. POSITIONS OF THE PARTIES AND STAFF

A. Public Service Company of New Hampshire

PSNH said the Legislature required PSNH to install Scrubber technology pursuant to the 

passage of 2006 N.H. Laws, Chapter 105, and Act Relative to the Reduction of Mercury 

Emissions.6 Exh. 1 at 3. PSNH explained that it conducted the tie-in of the Scrubber with 

Merrimack Unit 1 in September and that the Scrubber became operational for Unit 1 on 

September 28, 2011. The tie-in outage for Merrimack Unit 2 began October 12, 2011. 

According to PSNH, the Scrubber became used and useful as of September 28, 2011 

when it began functioning in connection with the operation of Merrimack Unit 1. PSNH testified

that the various Scrubber functions were all successfully operating and the Project was fulfilling 

its statutory purpose of reducing mercury, and also significantly reducing sulfur dioxide 

 

6

See RSA 125-O:11-18.
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emissions, rendering the equipment used and useful in the provision of service to customers. 

Exh. 1 at 4-6. In addition, PSNH claimed that continuous emissions monitors (CEMs) at 

Merrimack Station, which has been certified in accordance with federal regulations and 

monitored by the New Hampshire Department of Environmental Services (DES), shows the 

scrubber is achieving sulfur dioxide (SO2) reductions of 90 percent or greater. Exh. 3.

PSNH testified that RSA 125-O:18 authorizes the Company to recover all prudent costs 

of complying with the requirements of the Scrubber law through ES rates. Exh. 1 at 2. PSNH 

said that the primary costs associated with the Scrubber to be included in rates are (1) the 

depreciation costs, which are the recovery of the Company’s capital investment expenditures 

associated with the project; (2) a return on the capital investment or ratebase; and (3) additional 

operating costs associated with the Scrubber. Exh. 1 at 3.

PSNH attested that as of November 18, 2011 $359.1 million in capital investments

associated with the Scrubber had been placed in service. PSNH Motion for Temporary Rates at 

2. PSNH requested that, similar to past capital investments in its generation assets, the 

Commission immediately allow cost recovery of the investment and associated operations and 

maintenance (O&M) expense related to the Scrubber Project in its ES rates under RSA 378:27, 

the statute authorizing temporary rates, and RSA 125-O:18. PSNH said that the temporary rate 

statute authorizes the Commission to “immediately fix, determine and prescribe” “reasonable 

temporary rates” and that RSA 125-O:18 provides the Company “shall be allowed to recover all 

prudent costs of complying with this subdivision in a manner approved by the Public Utilities 

Commission.” Id. at 6

PSNH originally requested the inclusion of Scrubber costs in its October 14, 2011 filing

in Docket No. DE 11-215, PSNH’s petition to set an ES rate effective January 1, 2012. In that
DE 11-250 - 6 -

filing, PSNH estimated that the recovery costs associated with the Scrubber would add 1.18 cents 

per kWh to the Company’s ES rate. Exh. 1 Attachment RAB-5. PSNH calculated the 1.18 cents 

per kWh value based on the assumption that it would begin recovery of Scrubber costs with rates 

effective January 1, 2012. Id. at 2.

The Company later recalculated the rate assuming recovery of Scrubber costs would 

begin on April 1, 2012 following the hearing on temporary rates. Hearing Transcript of March 

12, 2012 (3/12/2012 Tr.) at 54. At the temporary rate hearing, Mr. Baumann testified that the 

recalculated temporary rate for recovery of Scrubber costs would be 1.58 cents per kWh, 

assuming recovery began on April 1. Mr. Bauman testified that the 1.58 cents per kWh attempts 

to collect the Scrubber costs for calendar year 2012 in the months April through December. 

PSNH also proposed to amortize approximately $13.1 million associated with the operation of 

the Scrubber in 2011 over a three-year period and that the rate included recovery of these 

amortized costs attributable to 2012. Id. at 54-55. Mr. Baumann said that the Company intended 

to add the Scrubber costs to the updated ES rate of 7.77 cents per kWh. Id. at 107.

Mr. Baumann said that he had reviewed Mr. Mullen’s testimony and noted that Mr. 

Mullen had proposed a rate of 0.98 cents per kWh to begin recovery of a portion of Scrubber 

costs on April 1, 2012. Mr. Baumann posited that the spectrum of options for the Commission to 

consider in setting temporary rates for recovery of Scrubber-associated costs are as follows: no 

recovery, a rate of 0.98 cents per kWh, or the Company’s updated request of 1.58 cents per kWh. 

Mr. Baumann said that the positive aspect of Mr. Mullen’s proposal from a customer perspective 

is that Mr. Mullen’s recommended revenue requirement provides for a more graduated increase 

to rates. Id. at 56. Mr. Baumann testified that the Company believes Mr. Mullen’s proposed rate 

falls reasonably within the band of recovery options, between no recovery and the Company’s 
DE 11-250 - 7 -

proposed rate of 1.58 cents per kWh. According to Mr. Baumann, the Company felt that Mr. 

Mullen’s proposal to begin partial recovery on a temporary basis pending final review is 

positive. Id.

Mr. Baumann asserted that the Company was concerned that the lower rate proposed by 

Mr. Mullen would leave about $31 million unrecovered as of December 31, 2012. The 

Company’s proposal would leave about $9.8 million unrecovered as of December 31, 2012, all 

attributable to costs associated with the operation of the Scrubber in 2011. PSNH said that while 

Mr. Mullen’s proposal provided rate smoothing in proposed temporary rates, Mr. Mullen’s

recommendation would create rate strain in the future. Id. at 57. In summary, the Company said 

that it did not object to Mr. Mullen’s recommended revenue requirement. Id. at 119.

At hearing, CLF directed questions to Mr. Smagula to explore whether PSNH had all 

necessary permits to operate the Scrubber as required by RSA 125-O:13, I. Id. at 60. Mr. 

Smagula stated that the Company had supplied the information in a response to data request 

OCA Set 1 No. 2 (Exh.4). Id. at 62. Mr. Smagula affirmed that the response provided listed all 

of the necessary permits and approvals. Id. at 63. In addition, Mr. Smagula said that agreements 

between the Company and certain municipalities that allowed PSNH to dispose of wastewater at 

publicly owned treatment works (POTWs) were included in Exhibit 4; however, he maintained 

that those agreements were not permits necessary to the operation of the Scrubber. Id. at 70. 

CLF also questioned whether PSNH was familiar with the Environmental Protection 

Agency’s (EPA) Industrial Pretreatment/Indirect Discharge Program. Id. at 73. According to 

CLF, the program is implemented by the DES and requires certain industrial applications and 

permits as a prerequisite for allowing industrial waste to be disposed of by POTWs. Id. at 75. 

Mr. Smagula replied that it was his understanding that DES had provided the authorization to the 
DE 11-250 - 8 -

municipal POTWs to receive wastewater from the Scrubber and that, to the best of his 

knowledge, PSNH did not receive any approval other than the approval to allow the POTWs to 

receive the waste. Id at 76. 

CLF also inquired whether PSNH had obtained a National Pollution Discharge 

Elimination System (NPDES) permit under the Clean Water Act to allow it to discharge 

Scrubber wastewater. Id. at 82-83. Mr. Smagula stated that the Company had applied for such a 

permit and had worked with the DES in its review of the Company’s design for Scrubber 

wastewater treatment and disposal. Id. at 85. He said that the EPA, as part of the NPDES 

process, did not provide PSNH with any permit modifications to allow discharge of the Scrubber 

wastewater and, as a result, PSNH does not discharge any wastewater from the Scrubber 

installation. Id. at 85. Mr. Smagula said that the Company developed an alternate means to 

manage the Scrubber effluent. Id. at 86.

Sierra Club asked PSNH to describe the functional mercury removal rate of the Scrubber 

Project. Id. at 92. Mr. Smagula responded by stating that the purposes of requiring the 

installation of the Scrubber was to reduce mercy emissions by 80 percent across its fleet of 

generation assets, and to achieve that reduction, the Scrubber has to “over-comply” to 

compensate for two small mercury-emitting units located in Portsmouth. Id. at 93. 

Sierra Club inquired how Mr. Smagula knew the mercury reduction rate of the Scrubber. 

Mr. Smagula said that initial tests were conducted by DES and that PSNH had received verbal 

information on the results of the tests indicating that the reduction of mercury by the Scrubber is 

“well over” 80 percent. Mr. Smagula said that the Company was waiting for final 

documentation to substantiate the verbal information. Id. at 95. Mr. Smagula further testified 

that, while there are CEMs at Merrimack that measure SO2 reduction, there are no CEMs for 
DE 11-250 - 9 -

monitoring mercury. As a result, mercury reductions are measured and monitored through stack 

tests. Id. at 96. Mr. Smagula said that he would be able to provide the documentation of 

mercury reduction in the near future but insisted that the Scrubber was functioning consistent 

with its intended purposes to reduce mercury emissions. Id. at 97-98. Mr. Smagula said he 

would be able to provide the documentation next month. Id. at 99. 

Sierra Club inquired what additional costs would result from delaying temporary rates for 

one month. Id. at 99. PSNH said that if temporary rates are delayed, the Company would 

continue to incur costs associated with the Scrubber that are not in rates and those costs would be 

deferred for recovery in future rates, along with a carrying charge. Id. at 100. PSNH said that 

the deferral amount would accumulate at a rate of about $5 million per month with an associated 

annual carrying charge of about $500,000 which would increase over time as long as recovery 

was deferred. Id. at 101-102. PSNH said that the carrying charge would be calculated as either 

the allowed cost of capital from its last distribution rate case, or the stipulated costs of capital 

used in the ES rate, between 9% and 10%. Id. at 102. 

Mr. Dannis asked how the Company funded the Scrubber project as between debt and 

equity. Mr. Baumann replied that the Scrubber project was funded through the entire cost of 

capital on the Company’s books based on a weighted capital structure that is approximately 50% 

debt and 50% equity. Id. at 110-111. Mr. Baumann explained that the Company did not have 

any specific funding, equity or debt, associated with the Scrubber project and did not issue debt 

for the specific purposes of funding the Scrubber. Id. at 115-117.

In its memorandum filed March 19, 2012, PSNH reaffirmed that it had all permits and 

approvals necessary to operate the Scrubber and that the Scrubber is used and useful in the 

provision of service to the Company’s customers. PSNH Memorandum at 1. PSNH observed 
DE 11-250 - 10 -

that the General Court had mandated the installation of the Scrubber when it enacted RSA 125-

O:11 et seq. and found that it was in the public interest to significantly reduce mercury 

emissions. RSA 125-O:11, I required the installation of a Scrubber at Merrimack Station no later 

than July 1, 2013. Id. at 2–4. To incent the expeditious installation of the Scrubber technology, 

RSA 125-O:16 provides economic performance incentives for mercury reductions which are 

achieved prior to July 1, 2013. Because the Scrubber was placed in service in September 2011, 

PSNH said that Company will earn the incentives, all of which will inure to the benefit of 

customers based on the in-service date. Id. at 4.

PSNH acknowledged that the Company would have to obtain all necessary permits and 

approvals to install and operate the Scrubber according to RSA 125-O:13, I. PSNH noted that 

the legislature included language in the law urging regulatory agencies and bodies that would be 

issuing permits to give due consideration to the finding that the installation of the Scrubber is in 

the public interest. Id. 

According to PSNH, the statutory references to July 1, 2013 relate to the mandatory 

operational date of the Scrubber system and not to the Commission’s determination whether the 

Scrubber is in operation and used and useful in the provision of service to PSNH’s customers, 

citing In re Stonyfield Farm, Inc. et al., 159 N.H. 227, 229 (2009). Id. at 4-5. PSNH said that 

the Scrubber was declared in service on September 28, 2011 and continues successful operation 

in accordance with all permitting and approval requirements. PSNH argued that all of the 

traditional requirements for an asset to be placed in service have been met, that the Scrubber is 

used and useful and providing customer benefits, and cost recovery should commence. Id. at 5.

PSNH pointed out that Exhibit 4 lists at least 97 permits that the Company obtained from 

federal, state and local entities to construct and operate the Scrubber. Id. at 5-6. PSNH claimed 
DE 11-250 - 11 -

that the record contained substantial evidence demonstrating that the Company has all permits 

and approvals necessary to dispose of scrubber wastewater. Id. at 6. 

PSNH said that the Company initially planned to discharge wastewater from the Scrubber 

into the Merrimack River, a plan approved by the DES and which also required the approval of 

the EPA. According to PSNH, the EPA decided that it would deal with the necessary approval 

as part of the overall NPDES permit process. The Company claimed that the NPDES permit 

process has been delayed by the EPA for over 14 years and still will not be resolved for years 

following any EPA action. Id.

Based on the inability to obtain a timely approval from the EPA, PSNH said it developed 

an alternative solution to dispose of the wastewater to allow the Scrubber to come online as soon 

as possible. The agreements with POTWs allow PSNH to operate the Scrubber and use 

established industrial wastewater treatment facilities to dispose of Scrubber wastewater. PSNH 

said this information is contained in Exhibit 2 and, therefore, is contained in records on file with 

the Commission. Id. at 7.

PSNH referred to CLF’s examination of Mr. Smagula regarding the Company’s receipt 

of permits or approvals from NHDES to dispose of Scrubber wastewater. PSNH said that Mr. 

Smagula repeatedly testified that the Company had filed documents with DES to support the 

Company’s intent to take Scrubber wastewater to New Hampshire POTWs. Id. at 7. PSNH 

referred to Exhibit 10, the Company’s response to a record request to provide information 

regarding the Company’s application for an Industrial Wastewater Indirect Discharge Permit. In 

Exhibit 10, PSNH explained that on May 11, 2011 it had submitted an Industrial Wastewater 

Indirect Permit Application to allow the municipalities of Allenstown, Concord, Hooksett and 

Manchester to accept Scrubber wastewater. Also attached to Exhibit 10 were recently approved 
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agreements to dispose Scrubber wastewater with the DES facility in Franklin and the POTW in 

the City of Lowell, Massachusetts. Id. at 8. PSNH said that the Company also had agreements 

with two privately operated wastewater treatment facilities located outside of New Hampshire 

for the disposal of Scrubber wastewater.

The Company said that there was confusion at the hearing about the terminology 

associated with the documents, whether they were “agreements”, “approvals” or permits; but 

regardless of what the documents are called, the fact remains that the Company has obtained 

appropriate permission to dispose of wastewater and has so informed the Commission in books 

and records on file. Id. at 9. PSNH stated that the Company is not obligated to bring wastewater 

to any of these facilities and, in fact, has not brought any wastewater to some of them. PSNH 

further asserted that no permits or approvals are required for disposal at the privately operated 

water treatment facilities. Id.

PSNH averred that CLF was aware that the Company had received the necessary 

approvals from DES. Id. at 10. PSNH said that in the course of discovery, the Company had 

provided CLF and the other parties copies of DES’ approval for the Hooksett discharge, the 

Hooksett Hauled Waste Disposal Agreement, and the City of Concord’s Permit to Discharge 

Industrial Wastewater Transported Waste (Response to Tech Q-008). PSNH said it provided the 

documents from Hooksett and Concord but insisted that those documents regarding wastewater 

disposal are not relevant to temporary rates. Id. 

PSNH argued that RSA 378:27 permits the Commission to prescribe temporary rates and 

that the standard for temporary rates is less stringent than the standard for permanent rates, citing 

Appeal of Office of Consumer Advocate, 134 N.H. 651,661 (1991). PSNH said it has presented 

unrebutted testimony on the start-up of the Scrubber operation, how it was placed into service 
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and how it was tied to Merrimack Units 1 and 2. Id. at 11. PSNH said it also provided 

information regarding the Company’s work with DES on the specification, installation, operation 

and maintenance, and new reporting of CEMs and the SO2 reductions achieved by the Scrubber. 

Id. at 12. PSNH pointed out that Mr. Smagula offered testimony about the mercury emissions 

stack testing. PSNH emphasized that Mr. Smagula had testified that all indications pointed to 

the Scrubber performing as it was designed in the reduction of mercury emissions. Id. at 13. 

PSNH further claimed that regardless of the timing of mercury results, there is no 

statutory requirement that mercury reductions be demonstrated prior to placing the Scrubber in 

service. According to PSNH, RSA 125-O13, II merely provides that beginning on July 1, 2013, 

total mercury emissions from affected sources should be at least 80 percent on an annual basis 

from the baseline mercury measurement. PSNH asserted that there is no statutory requirement 

that those reductions occur sooner or that the commencement of cost recovery (RSA 125-O:18) 

is contingent on those results. Id. 

PSNH concluded that cost recovery should begin now because the Company constructed 

the Scrubber as it was required to do so. PSNH said that the legislature granted the Commission 

some discretion regarding the manner in which cost recovery would occur underscores the 

Commission’s authority to approve a temporary rate in an amount and at a time it deems 

appropriate. Id. at 14.

PSNH concluded that because all of the traditional requirements for an asset to be placed 

in service have been met here, cost recovery should begin. The Company repeated its assertion 

that its books and records on file with the Commission demonstrate that the Scrubber is in 

service, is used and useful and provides benefits to customers. Id. at 14.
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B. Sierra Club

Sierra Club said that absent some sort of documentation regarding the performance of the 

Scrubber in the reduction of mercury emissions, the goal of the Scrubber law, the PSNH petition 

does not carry the burden of establishing that the Scrubber project is both in use and useful 

sufficient to warrant temporary rates. Tr. 3/12/2012 at 108-09.

C. Conservation Law Foundation

At hearing, CLF did not offer any comment on temporary rates, but, as noted, questioned 

the Company extensively about compliance with permitting requirements, particularly for 

wastewater treatment. On March 20, 2012 CLF filed a memorandum addressing whether PSNH 

had all necessary permits and approvals to install and operate the Scrubber. In its memorandum, 

CLF argued that PSNH was unable to demonstrate that the Scrubber wastewater treatment 

system is used and useful and ripe for cost recovery. CLF Memorandum at 1. 

According to CLF, the Commission has considerable discretion in deciding whether a 

rate base change qualifies as used and useful, and the used and useful determination is factbased, citing Appeal of Conservation Law Foundation of New England, Inc., 127 N.H. 696, 637 

(1986). Id. at 4. CLF said that the wastewater treatment system constructed by PSNH is 

designed to treat Scrubber wastewater prior to it being discharged into the Merrimack River. 

According to CLF, PSNH was unable to obtain authorization from EPA for its initial wastewater 

treatment plan. Consequently, the Company began to install additional equipment at its 

wastewater treatment facility site reduce to the waste stream volume. CLF said that the new 

equipment will not only reduce the discharge but will eliminate it, and that PSNH is in the midst 

of modifying the wastewater treatment system into a zero liquid discharge (ZLD) system. 
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CLF claimed that PSNH is experiencing difficulty in tying the ZLD system into the 

already-constructed Scrubber wastewater treatment installation. Id. at 5. CLF argued that this 

development suggests that PSNH is in the midst of reengineering and reconstructing the 

Scrubber wastewater disposal system. CLF conceded that issues related to the prudency of 

PSNH’s actions regarding wastewater disposal will be addressed during the permanent rate 

portion of this proceeding, but expressed concern that PSNH is seeking to recover through 

temporary rates for the cost of the new existing wastewater treatment system even though it is 

now being modified. CLF also said that PSNH is seeking the cost of disposing of wastewater at 

private out-of-state facilities during times that the Scrubber wastewater treatment facility is not 

operational due to the ongoing reconstruction and re-engineering of the facility. Id. at 6.

CLF said that it appears that PSNH has obtained permits necessary to dispose of the 

Scrubber wastewater at nearby POTWs. CLF argued that the Company must nonetheless

conform with federal pretreatment standards and the water pollutant constituents and 

concentrations set forth in PSNH’s Industrial Discharge Request Application. CLF also asserted

that PSNH should explain why it is necessary to ship wastewater for treatment and disposal at 

private, out-of-state facilities, the amount of wastewater being disposed at such facilities, and the 

cost. Id. 

In conclusion, CLF claimed that PSNH concealed the arrangements that it had to make to 

dispose of Scrubber wastewater including the details of its trucking wastewater to out-of-state 

private disposal facilities; and that PSNH continues to withhold information regarding the 

quantity of the wastewater being disposed of at various facilities and the cost. Id. at 7. CLF 

argued that these circumstances raise questions regarding the extent to which the Scrubber 

wastewater treatment facility is being used and whether the public interest is served by providing 
DE 11-250 - 16 -

recovery in temporary rates for such costs. CLF said that its allegations provide reasonable 

grounds for questioning the figures in the reports filed by PSNH with the Commission under 

RSA 378:27. Id.

D. TransCanada

TransCanada took no position on temporary rates. Tr. 3/12/2012 at 170.

E. Jim and Sandy Dannis

Mr. Dannis said that he had no closing statement. Id.

F. Office of Consumer Advocate

The OCA said that it had no position on temporary rates. Id.

G. Commission Staff

Mr. Mullen testified regarding Staff’s recommendation for an appropriate level of 

temporary rates during the pendency of this proceeding. Staff defined temporary rates, which are 

specifically allowed pursuant to RSA 378:27, as a means for a utility to begin recovery of certain 

costs pending the outcome of a full proceeding to investigate those costs. Exh. 9 at 5. Mr. 

Mullen said that the issue of the prudence of the Scrubber project and its related costs would not 

be addressed in its position for purposes of this order, and that those issues will be more fully 

explored during the “permanent rates” portion of this proceeding. Id. at 4.

Mr. Mullen presented four options for the Commission to consider in determining 

whether to implement temporary rates: (1) denying the request to implement temporary rates; 

(2) establishing temporary rates at the current non-scrubber ES rate level, excluding PSNH’s 

2011 under-collection; (3) establishing temporary rates at the current non-scrubber ES rate level 

of 8.31 cents per kWh, including PSNH’s 2011 under-collection; or (4) establishing temporary 
DE 11-250 - 17 -

rates at a level in excess of the current ES rate. Mr. Mullen then explained the potential impacts 

of each option on the Company and its customers. Id. at 5-6.

Mr. Mullen stated that PSNH is seeking recovery for operation and maintenance costs, 

fuel costs, avoided SO2 costs, property taxes, depreciation and return on rate base. The total 

annual revenue requirements for 2012, as reported in PSNH’s November 18, 2011 filing, are 

$57.2 million. Id. at 10. Staff indicated that, consistent with PSNH’s position that the Scrubber 

was placed in service in 2011 and that 2011 Scrubber costs have to date not been recovered, 

PSNH proposed amortizing the 2011 Scrubber-related costs over three years and including onethird of those costs with its 2012 costs. This would bring the total proposed 2012 recovery to 

$61.8 million. Id. Mr. Mullen noted that not all of the capital costs for the Scrubber were 

included in PSNH’s request for temporary rates and that certain plant items either had not been 

placed into service at the time of PSNH’s filing, or would not be placed in service until later in 

2012 or early 2013. Id. at 11.

Taking into account various temporary rate options, the rate and cost implications of each 

option, and a balancing of customer and shareholder interests, Mr. Mullen recommended that the 

Commission establish temporary rates effective April 1, 2012, at a level of 0.98 cents per kWh 

for the Scrubber-related costs. That rate level assumes a twelve-month temporary rate period 

and was calculated using the projected 2012 annual ES kWh sales. In addition, Staff 

recommended that the Commission adjust the non-Scrubber ES rate to 7.77 cents per kWh as 

proposed by PSNH, then add the temporary Scrubber cost recovery rate 0.98 cents per kWh, 

resulting in a total ES rate of 8.75 cents per kWh effective April 1, 2012. Staff explained that the 

result is a net increase to the ES rate of 0.44 cents per kWh above the current 8.31 cents per kWh 

rate. Id. at 12. Staff stated that this ES rate would remain at 8.75 cents until at least July 1, 
DE 11-250 - 18 -

2012, at which time the non-Scrubber portion of the rate would be subject to change through the 

normal mid-year review of the ES rate. Id. at 12-13. The 0.98 cents per kWh portion of the ES 

rate related to Scrubber costs, however, would continue through the conclusion of this 

proceeding. Id. at 13.

Mr. Mullen said that he calculated the rate using the updated “Total Forecasted 

Merrimack Scrubber Cost” of $55,500,000 per year provided in response to technical session 

data request identified as TECH Q-001, a copy of which was attached to Exhibit 9 as SEM-1. 

He took into account earlier publicly-stated cost estimates for the Scrubber project as well as 

potential questions to be raised about the actual cost, and calculated a percentage, which he 

called the “Temporary Rate Cost Percentage” of 66%. To calculate the Temporary Rate Cost 

Percentage, Mr. Mullen used $250,000,000 (the original estimated cost of the Scrubber

installation) as the numerator, and $378,773,000 (a figure derived by taking the average of the 13 

monthly gross plant balances for 2012, including December 31, 2011) as the denominator. Mr. 

Mullen said that the percentage was calculated solely for the purpose of developing a temporary 

rate recommendation and that it has no other significance. He explained that the percentage 

represents what he views as a reasonable balancing of the various interests and concerns. 

Mr. Mullen then applied 66% to $55,500,000, resulting in a product of $36,631,000. To 

that sum, he added the total 2011 under-collection of $13,101,000, deriving a total of 

$49,732,000 to be collected through temporary rates. Mr. Mullen testified that any decisions 

regarding prudence and potential cost allowances and disallowances should be made in the 

permanent rate portion of the proceeding after all evidence has been examined. Id. at 14. 

Based on his recommendation of a temporary rate of 0.98 cents per kWh, Mr. Mullen 

calculated that the monthly bill impact to a residential customer using 500 kWh per month would 
DE 11-250 - 19 -

be an increase of $2.20, or 2.5 percent, over the $86.86 total bill using rates in effect today. 

Because ES is charged to all customer classes on a cents per kWh basis, for every 1,000 kWh 

used on a monthly basis, customers taking ES from PSNH would see an increase to their bill of 

$4.40. Id. at 15.

In conclusion, Staff stated that in its assessment the Company had records at the 

Commission sufficient to show that the project is used and useful. Staff said that temporary rates 

should be set not as requested by the Company, but in line with the Staff proposal to reduce the 

ES rate to 7.77 cents per kWh and then add 0.98 cents per kWh to that rate to recover Scrubber 

costs. Staff said that the rates should take effect April 1, if possible, to allow the Company to 

begin recovery and to smooth the rate change for customers. Tr. 3/12/2012 at 170-171.

III. COMMISSION ANALYSIS

Pursuant to RSA 369-B:3, IV (b)(1)(A), the price of PSNH’s ES shall be “PSNH’s actual, 

prudent and reasonable costs of providing such power, as approved by the commission.” To 

comply with the statute, the Commission has authorized a two-step process to set PSNH’s ES 

rate. In the first step, PSNH makes a filing where it proposes an ES rate for the following 

calendar year based on projections of costs and revenues. Following review of the filing, and 

after notice and hearing, the Commission establishes an ES rate to take effect January 1 of the 

following year.7 In May of each year, PSNH files a reconciliation of its actual default service 

costs and revenues. Any adjustments arising from review of that reconciliation are incorporated 

into the following period’s ES rate setting process. See, e.g., Order No. 25,060 (December 31, 

2009) in Docket No. DE 09-091, PSNH’s 2008 Reconciliation Proceeding.

 

7 The rates are subject to a midyear adjustment to minimize the effect of any over or under-collection on customers’ 

rates. See Order No 24,579 (January 20, 2006) in Docket No. DE 05-126, Public Service Company of New 

Hampshire, Transition and Default Energy Service Rate.
DE 11-250 - 20 -

In addition to PSNH’s annual ES ratemaking process, the Scrubber statute provides that 

“[i]f the owner is a regulated utility, the owner shall be allowed to recover all prudent costs of 

complying with the requirement of this subdivision in a manner approved by the public utilities 

commission...such costs [to] be recovered via the utility’s default service charge.” RSA 125-

O:18. 

PSNH initially filed its request to include the revenue requirements associated with the 

capital and operating costs of the Scrubber in its proposed 2012 ES rates. Given the fact that this 

capital project is unique, in that it is the most costly single capital addition to an existing 

generation plant in recent Commission history, and that it is made pursuant to a specific 

legislative mandate, the Commission stated that it would consider the costs associated with the 

Scrubber project in a separate docket to allow for a more extensive review of the issues 

presented. See DE 11-215, Secretarial Letter, Nov. 15, 2011. PSNH filed its request for 

temporary rates in this docket in order to begin recovering the costs of the Scrubber installation, 

pending the Commission’s review of the Scrubber project and final order on PSNH’s rate 

request.

RSA 378:27 requires the Commission to set temporary rates that are:

sufficient to yield not less than a reasonable return on the cost of the 

property of the utility used and useful in the public service less accrued 

depreciation, as shown by the reports of the utility filed with the 

commission, unless there appears to be reasonable ground for questioning 

the figures in such reports.

See also Appeal of the Office of Consumer Advocate, 134 N.H. 651, 661 (1991). The analysis “is 

‘less stringent’ than the standard for permanent rates, in that temporary rates shall be determined 

expeditiously, without such investigation as might be deemed necessary to a determination of 

permanent rates.” Id. at 660 (citation omitted). Moreover, the effective date of temporary rates 
DE 11-250 - 21 -

“fixes and determines the period during which the rates allowed in the underlying permanent rate 

proceeding may apply.” Appeal of Pennichuck Water Works, 120 N.H. 562, 564 (1980). Any 

collection under temporary rates is reconciled against the rate ultimately approved for permanent 

rate recovery. 

Because of the unique nature of the Scrubber project and the related rate request, the 

Commission must consider both PSNH’s books and records and evidence proffered at the 

temporary rate hearing, as well as the terms of the statute mandating the Scrubber installation, to 

ascertain PSNH’s need for temporary rates. We first address the issue raised by CLF with 

respect to PSNH’s permits to operate the Scrubber. Pursuant to the express language in RSA 

125-O:11, the Legislature required that PSNH install the Scrubber by July 1, 2013 because, 

according to DES, it was the best known commercially available technology for the reduction of 

mercury. RSA 125-O:11, I and II. The achievement of the directive to install the Scrubber, 

however, is made contingent upon the obtaining of “all necessary permits and approvals from 

federal, state, and local regulatory agencies and bodies.” RSA 125-O:13, I. CLF alleged at the 

March 12, 2012 hearing on temporary rates, both through direct argument and cross examination, 

that PSNH did not have the required permits for the disposal of wastewater produced by the 

Scrubber and, therefore, did not have “all necessary permits” as required by the statute. 

At the March 12, 2012 hearing, PSNH acknowledged that it attempted to secure an 

NPDES permit that would allow it to discharge the Scrubber wastewater directly to the adjacent 

Merrimack River. Tr. 3/12/2012 at 84-85. When it was not able to obtain an NPDES permit that 

would allow such discharges, PSNH sought alternative means to dispose of the Scrubbergenerated wastewater. Id. at 85-86. On March 15, 2012, in response to the Commission’s 

request that PSNH provide evidence that it had sought and obtained any needed industrial 
DE 11-250 - 22 -

wastewater indirect discharge authorization, PSNH stated that it had initially sought approval 

from DES for indirect discharges in May 2011. See Exhibit 10. Accompanying its response, and 

included in the record as Exhibit 10, are copies of documentation showing that PSNH obtained 

authority to bring partially treated wastewater to municipal treatment facilities in Concord, 

Allenstown, Hooksett, and Manchester, New Hampshire and Lowell, Massachusetts, as well as 

to a DES operated facility in Franklin, New Hampshire. Mr. Smagula testified that the Company 

had brought shipments of wastewater to some but not all of those facilities following primary 

treatment on site. Tr. 3/12/2012 at 69. In its memorandum, CLF conceded that “[b]ased on 

recently provided Exhibit 10, it appears PSNH has obtained permits necessary to dispose of” the 

Scrubber wastewater. CLF nonetheless contends that “PSNH should explain why it is necessary 

to ship wastewater for treatment and disposal at private, out-of-state facilities, the amount of 

wastewater being disposed of at such facilities and the cost.” Memorandum of Conservation 

Law Foundation at 6. 

PSNH has already provided an explanation for its decision to manage Scrubber 

wastewater by obtaining authorization to ship partially-treated wastewater to the facilities 

identified by the Company in Exhibit 10. We do not agree that, for purposes of temporary rates, 

PSNH must also explain its selections of disposal locations or provide bills of lading of 

wastewater shipments to determine whether the Company held all permits needed to place the 

Scrubber into service.8 Certainly the prudence of costs incurred for such shipments will be an 

element of the permanent phase of this proceeding. For purposes of temporary rates, however, 

we conclude that the evidence produced by PSNH and on file with the Commission, including 

the documents contained in Exhibit 10, is sufficient to demonstrate that PSNH obtained the 

 

8 We recently reached the same conclusion in response to CLF’s motion to compel certain responses from PSNH in 

this docket. See Public Service of New Hampshire, Investigation of Merrimack Station Scrubber Project and Cost 

Recovery, Order No. 25,334 (Mar. 12, 2012) at 10.
DE 11-250 - 23 -

required wastewater permits for operation of the Scrubber facility as required by RSA 125-O:13. 

Whether the Company is in compliance with those permits may be determined by DES, the 

agency with jurisdiction over the wastewater permitting issues. 

In its argument against temporary rates, Sierra Club contended that the Company is not 

entitled to establish temporary rates to recover Scrubber costs because, in Sierra Club’s 

estimation, PSNH has not shown that the Scrubber is used and useful. According to Sierra Club, 

the purpose of the Scrubber was to comply with RSA Ch. 125-O, which requires that the 

Scrubber reduce mercury emissions by at least 80 percent. RSA 125-O:11, III. Sierra Club 

argued that PSNH has not provided documentation of the mercury reduction and without such 

documentation, the Company’s petition does not meet the burden to establish temporary rates. 

We disagree.

RSA 125-O:11 requires PSNH to build the Scrubber to reduce mercury and states that it 

is in the public interest to “achieve significant reductions in mercury emissions at the coalburning electric power plants in the state.” RSA 125-O:11, I. The statute directed the 

construction of the specific technology PSNH installed at Merrimack Station, stating, “[t]he 

department of environmental services has determined that the best known commercially 

available technology is a wet flue gas desulphurization system, hereafter ‘scrubber technology,’ 

as it best balances the procurement, installation, operation, and plant efficiency costs with 

projected reductions in mercury and other pollutants from the flue gas streams of Merrimack 

Units 1 and 2.” RSA 125-O:11, II. According to RSA 125-O: 13, I, the Scrubber at Merrimack 

Station is to be installed no later than July 1, 2013 and the mercury emitted from the plant is to 

be “at least 80 percent less on an annual basis than the baseline mercury input, as defined in RSA 

125-O:12, III, beginning on July 1, 2013.” RSA 125-O:13, II. 
DE 11-250 - 24 -

The Legislature anticipated that the Scrubber would have to operate for a period of time 

before the actual degree of mercury reduction is known. See RSA 125-O:15 (requiring stack 

tests or other methodology twice per year to determine mercury emissions levels). At hearing, 

Mr. Smagula testified that the initial tests show the Scrubber is reducing mercury as designed, at 

a level “well over” 80%. Tr. 3/12/2012 at 95. No evidence was introduced that contravened Mr. 

Smagula’s statement. 9The extent to which mercury emissions are being reduced must be 

determined by DES to ascertain PSNH’s compliance with specific statutory reduction 

requirements. The Commission will consider any DES decision on mercury reduction in the 

permanent rate case portion of this proceeding. Because the statute requires an annual reduction 

in mercury (RSA 125-O:13, II) and contemplates a period of time to reach threshold removal 

levels (RSA 125-O:15--), we do not conclude that establishing temporary rates is contingent 

upon a determination that the Scrubber’s performance on the first day of operation had to have 

met the 80 percent requirement. 

Having found no impediment to the establishment of temporary rates, we will now 

determine an appropriate level for temporary rates. RSA 378:27 allows the Commission to set 

rates based on reports of the utility on file with the Commission unless there are grounds to 

question the reasonableness of the data in the reports. We find no reason to question PSNH’s 

records on file with the Commission, and will set temporary Scrubber cost recovery rates 

accordingly.

The Company initially sought to establish the ES rate at 9.57 cents per kWh. Exh. 1 at 2. 

PSNH calculated the rate by adding a proposed temporary Scrubber cost recovery rate of 1.18 

 

9

PSNH filed an updated Progress Report in the instant docket on March 22, 2012 which included correspondence 

and related material indicating that preliminary test results submitted by The Air Compliance Group, LLC, not yet 

subjected to discovery and cross examination, indicate that the Scrubber was reducing mercury emissions between 

97.38% and 97.99%, for an average of 97.63% in January and 97.51% in March, 2012.
DE 11-250 - 25 -

cents per kWh to the existing “base” ES rate. See Exhibit 1 RAB-5 at 1. The Scrubber-related 

“adder” was later revised to 1.58 cents per kWh. Tr. 3/12/2012 at 54. 

In setting temporary rates we are cognizant that the recovery should provide for not less 

than a reasonable return on the property being used. We find that Staff has used a logical and 

reasonable methodology to develop temporary rates in a manner that balances all interests and 

concerns. Mr. Mullen based his recommendation, in part, on a comparison of the costs originally 

estimated for the Scrubber ($250,000,000) and the average of the actual gross plant balances 

relating to the Scrubber of ($378,773,000). He used these two sums to calculate a “Temporary 

Rate Cost Percentage” to derive a total revenue requirement amount to be recovered through 

temporary rates. 

Using this methodology, Mr. Mullen calculated a temporary Scrubber cost recovery rate 

of 0.98 cents per kWh to be added to an adjusted ES rate of 7.7710 cents per kWh for an overall 

rate of 8.75 cents per kWh. Mr. Mullen calculated that his recommendation, if adopted, would

result in a net increase to the overall ES rate of 0.44 cents per kWh over the current rate for a 

total adjusted ES rate of 8.75 cents per kWh. Exh 9. at 12. PSNH testified that the amount 

proposed by Mr. Mullen “falls reasonably within the band of recovery options . . ..” Tr. 3/12/12

at 56.

The Staff proposal as a reasonably calculated revenue requirement associated with the 

Scrubber project for recovery through temporary rates. It is well considered, balances the 

interests of the Company and the ratepayers, and has the added benefit of smoothing rates for 

PSNH’s ES customers, thus minimizing rate volatility. In addition, Mr. Mullen’s analysis 

compares his proposal and that of PSNH, revealing that the Company will achieve a reasonable 

 

10In this proceeding, PSNH provided updated information to support a reduction in its ES rate to 7.77 cents per kWh 

from the current rate of 8.31 cents per kWh.
DE 11-250 - 26 -

return on the property, based on its current cost of capital. We therefore approve a temporary 

Scrubber cost recovery rate of 0.98 cents per kWh and an adjustment to PSNH’s ES rate to 7.77 

cents per kWh which yields a total adjusted ES rate of 8.75 cents per kWh. The adjusted ES rate 

will be effective for service rendered on or after April 16, 2012. 

For clarity, we reiterate that upon the determination of the permanent rates attributable to 

the Scrubber addition, any under- or over-recovery will be reconciled back to the establishment 

of temporary rates. Thus, while we establish temporary rates for the Scrubber addition on the 

basis of the information we have available, we anticipate that the parties will engage in a 

searching inquiry to investigate PSNH’s permanent Scrubber rates. The actual costs allowed to 

be recovered, as well as the time period during which those costs accrued for future recovery, 

will depend upon findings made at the conclusion of the permanent rate portion of this 

proceeding. In order to expedite the full examination of the permanent Scrubber-related rates,

we instruct Staff to convene the parties to develop a procedural schedule for completion of this 

docket. Discovery on issues relevant to permanent rates should continue even as a schedule is 

being developed. 

Based upon the foregoing, it is hereby

ORDERED, that Public Service Company of New Hampshire is hereby authorized to 

establish an Energy Service rate at 7.77 cents per kWh and establish a temporary Scrubber cost 

recovery rate at 0.98 cents per kWh for a combined Energy Service rate of 8.75 cents per kWh, 

effective April 16, 2012; and it is

FURTHER ORDERED, that after consultation with the parties, Staff shall report to the 

Commission a proposed procedural schedule; and it is
DE 11-250 -27-

FURTHER ORDERED, that Public Service Company of New Hampshire shall file 

tariffs consistent with this Order within 30 days hereof pursuant to New Hampshire Code 

Admin. Rules Puc 1603.02. 

By order of the Public Utilities Commission ofNew Hampshire this tenth day of April, 

2012. 

LL.__ I ....---~· 

~y ffi;atius 

Chairman 

Attested by: 

Lori A. Davis 

Assistant Secretary 

Michael D. Harrington 

Commissioner