Leveraging Relationships and Resources in New Hampshire

Gary A. LongPresident

The Northern Wood Power Project

USDA Conference Denver, CO

January 21, 2004

2

New Hampshire is a Small, Heavily Forested State in the Northeast

Covers 5.7 million acres, with about 1.3 million residents Second most forested state in the nation (80%) Home to one of the oldest, private forest conservation

organizations in the country (Society for the Protection of NH Forests: 1901)

Forest products industry in NH is a major employer and economic force

The White Mountain National Forest in NH attracts millions of visitors annually

3

PSNH is NH’s Largest Electric Utility

Founded in 1926 Serves about 75 percent of the residents in NH, or about

460,000 homes and businesses in over 212 communities Deregulated in 2001. System open to customer choice and

competitive energy suppliers PSNH-owned generation serves 80% of customer needs.

Includes hydro, oil, gas and coal-fired power plants Marketplace purchases for remainder. Includes purchases

from five independently-owned biomass facilities in NH

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In the 1980s, Biomass Power Facilities Were Established in Response to Federal Laws Seeking Less Reliance on Foreign Oil

Public policy seeking energy diversification created a new market for wood-chips (low grade wood products) in NH and other states

This new marketplace was strongly supported by the forestry, land conservation and wood products industries because it;

Encouraged good forestry practices Increased the value of land Provided a market for sawmill residue Created jobs and a supporting industry that helped forestry

and conservation movements generally

By 1990, Eight Privately-Owned Biomass Power Plants Were Operating in NH

(Most Rate Orders Were For 20 Years)

0 5 10 15 201990 1995 2000 2010

Timco

Whitefield Power

Bridgewater Power

Pinetree Power - Tamworth

Bristol Energy

Bio Energy

Hemphill Power

Pinetree Power - Bethlehem

Early Termination: Contract Buyout

Closed (Buyout)

Closed (Buyout)

Early Termination: Contract Buyout

1988

1986

1987

1987

1985

1988

1987

1985

Closed or Contract in Transition

Operating Burning Wood-Chips

Softwood Pulp 10%

High Grade Wood 35%

Fuel Wood 5%

Whole Tree Chips 30%

Hardwood Pulp20%

Wood-Chip Market is an Important Piece of the Overall Forest Products Industry in NH

Source: 2001 NH Division of Forests and Lands

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Biomass 8%

Biomass Energy Provides About 8 Percent of PSNH’s Energy Requirements

7.7 Million MWHs Delivered to

Retail Customers in 2003

0

500,000

1,000,000

1,500,000

2,000,000

1982 1986 1990 1994 1998 2002

The Wood-Chip Market in NH Peaked at About 1.8 Million Tons Annually in 1992

Peak Today

BuyoutsBeginTo

ns

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The NH Biomass Power Contracts Became Highly Controversial Due to the Need for Significant Public Subsidies

PSNH was required to buy long-term power contracts from NH biomass facilities at fixed, escalating prices (tied to forecasted oil prices)

Oil prices collapsed in the 1990’s leaving PSNH and its customers stuck with fixed high-priced biomass contracts

PSNH customers will pay over $1.3 billion in excess costs (over-market) for biomass energy (1985-2007)

The biomass facilities are privately owned, and not subject to state regulation or public scrutiny

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Electric Deregulation Efforts Further Isolate the Biomass Energy Industry in NH

High rates in NH prompt an aggressive push for deregulation and a public policy focus on lowering electric rates

The $1.3 billion subsidy to biomass facilities in NH becomes a major political target in the effort to lower rates

Buy-outs of high-priced biomass power contracts are pursued, but become messy and politically difficult

NH lawmakers also reject attempts by owners of the wood-fired power plants to pass new laws protecting their rates and renewing their subsidies

0

500,000

1,000,000

1,500,000

2,000,000

1982 1986 1990 1994 1998 2002 2006

State Officials and Forestry Groups Focus on a Potential Collapse of the Wood-chip Market

Peak Today

BuyoutsBegin

Tons

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The State of NH Explores New Market for Low-Grade Wood

Opportunities explored included: Oriented strand board businesses Medium density fiberboard businesses Export markets for wood chips Expanded pulp and paper industry

All of these market options faced significant economic challenges and were deemed not feasible

13

PSNH Partners with NH Forestry Groups to Explore Alternative Options for Using Low-Grade Wood

Opportunities explored included: Buying and operating existing biomass facilities Wood gasification Retrofit an existing PSNH boiler Build a new boiler at a new site Build a new boiler at an existing PSNH generating

facility

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A Creative Initiative is Born: The Northern Wood Power Project

PSNH develops a $70 million plan to build a new 50 megawatt wood-fired boiler at an existing company-owned power facility, that includes: The goal of having no impact on the rates of our customers Retiring an existing 50 megawatt coal-fired boiler Using a new boiler design and technology to maximize its

efficiency and minimize its environmental impact A plan to burn up to 400,000 tons of clean wood chips and debris

annually (about 20% of today’s NH market) Selling the Renewable Energy Credits (RECs) generated by the

new boiler to newly established marketplaces for green power in Massachusetts and Connecticut to off-set the investment cost

Schiller Station, Portsmouth, NH

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In August 2003, PSNH Filed a Plan for Approval by State Regulators, Which Included Support from Many Diverse NH Organizations, Including:

The Governor The Governor’s Office of Energy and Community Affairs The NH Legislature: Chairman of the House Energy Committee The NH Department of Resources & Economic Development The Business & Industry Association of NH The Greater Portsmouth Chamber of Commerce The NH Timberland Owners Association The Society for the Protection of NH Forests Audubon Society of NH The State Forester

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The PSNH Plan and the New Partnerships Set the Stage for Creating New, Viable Low-Grade Wood Markets in NH

Lessons Learned: Public Policy must be aligned with economic realities Never burn bridges on key relationships

Today’s adversaries are tomorrow’s partners Third-Party support works!

Actively engage diverse organizations in your initiatives