HB 0787

I. Establishes a forest products utilization program to make payments to certain wood-fired power production facilities.

II. Establishes per-kilowatt-hour charges on electric distribution to fund the forest products utilization program.

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 Findings. The general court finds that the New Hampshire forest products industry is a significant component of the state's economy. As such, an economically healthy forest products industry is important to the economic well-being of the state. The low-grade forest products market is a key part of the forest products industry, therefore every effort should be made to promote viable uses of low-grade forest products.

2 Intent. It is the intent of the general court that the program established under sections 4-10 of this act, and funded from system benefits charges and other electric charge revenues, shall serve as a temporary means to assist in maintaining the low-grade forest products market by providing payments, within a restricted amount of funding, to make it economically feasible for eligible wood-fired generation facilities to operate during the term of the program. It is also the intent of the general court that a more permanent solution to sustaining the low-grade forest products market be developed by all concerned parties in the near future.

3 Forestry; Policy, Definitions, and Administration; Forest Products Promotion. Amend RSA 227-G by inserting after section 3 the following new section:

227-G:3-a Forest Products Promotion. The department shall develop a program to promote the New Hampshire forest products industry. The department's program shall support the operation of viable existing or new industries and companies in New Hampshire that use low-grade forest products.

I. "Average rate" means the sum of all revenues received or to be received by an eligible facility for eligible kilowatt-hours produced and sold during a production period, whether from sales to the New England Independent System Operator, sales under any contract, or sales pursuant to statutory mandates other than this act, divided by the eligible kilowatt-hours produced and sold during that production period.

II. "Billing cycle" means the regular period for which the eligible facility was paid for its electrical output for sales under its rate order.

III. "Capacity rating" means the output potential of a wood-fired, qualifying small power production facility as set forth in the commission Docket DR 89-148 settlement agreement of August 5, 1992 by and among Public Service Company of New Hampshire, the commission, and 6 therein listed New Hampshire wood-fired power facilities which, among other matters, settled the amount of capacity and energy output which could be produced under their respective rate orders.

VI. "Eligible facility" means any wood-fired, qualifying small power production facility for which the commission issued an order between November 1, 2001 and November 30, 2001 releasing the facility from all or part of its obligation under a rate order to sell energy or energy and capacity from the facility at specified long-term rates.

VII. "Eligible kilowatt-hours" means the number of kilowatt-hours produced by an eligible facility in a production period, up to the facility's kilowatt-hour limit, reduced by those kilowatt-hours required to be produced under a privately-negotiated legal obligation existing on December 31, 2001, or then existing and later amended, and produced during the production period.

VIII. "Forest products utilization rate" means $0.06 per kilowatt-hour, unless adjusted by the commission under section 8 of this act.

IX. "Fund" means the forest products utilization fund established under section 10 of this act.

X. "Kilowatt-hour limit" means the number of kilowatt-hours that an eligible facility could produce during a production period if operated at 100 percent of its capacity rating.

XI. "Participant" means the owner of an eligible facility that has been enrolled in the forest products utilization program in accordance with the provisions of this act.

(a) The participant's reasonable and prudent fuel, maintenance, operation, and administration costs incurred by or properly chargeable to the participant, without duplication, for the operation and maintenance of the eligible facility, including, without limitation, payments for fuel, additives or chemicals and transportation costs related thereto, salaries, benefits to employees, taxes other than those based upon the participant's income, insurance, consumables, payments under any lease, payments pursuant to agreements for the management, operation, and maintenance of the eligible facility, legal fees and expenses paid by the participant in connection with the management, operation, and maintenance of the eligible facility, fees paid in connection with obtaining, transferring, maintaining, or amending any permits or otherwise complying with any requirements or any local, state, or federal governmental authority with jurisdiction over the eligible facility, and general and administrative expenses, depreciation, utilities, transmission costs, ash handling and disposal, expenditures or reserves for repairs, capital replacement, and major maintenance, and all other costs properly allocable to the eligible facility.

(b) A return on investment, at the rate determined by the commission pursuant to paragraph V of section 8 of this act, on the eligible facility's depreciated net book value of plant in service.

(c) The cost to the participant of participating in any proceedings before the commission, including the reasonable and prudent fees and expenses of its counsel and experts.

XIII. "Production period" means a period corresponding to a billing cycle during which the electrical output is produced.

XIV. "Rate order" means a commission-approved long-term power sales order respecting a particular eligible facility and issued as part of the state's implementation of the Public Utility Regulatory Policies Act of 1978.

5 Forest Products Utilization Program. There is hereby established a forest products utilization program in which eligible facilities may be voluntarily enrolled. The term of enrollment shall be through midnight, December 31, 2006, unless earlier terminated pursuant to paragraph IV of section 8 of this act. Eligibility verification by the department and acceptance by signature under section 6 of this act shall be a legally enforceable obligation upon both the department and the participant for the foregoing term to abide by the provisions of sections 4-10 of this act and the terms of the enrollment approval document, to the extent the enrollment approval document is in conformance with sections 4-10 of this act. An eligible facility may terminate its participation in the forest products utilization program at any time by providing written notice to the commission and the department.

I. An owner of an eligible facility, or the owner's agent or designee, may apply to the department to enroll the eligible facility in the forest products utilization program by providing, to the satisfaction of the department, the following information:

(a) A statement of the eligibility of the facility, as determined solely by the definition of eligible facility under paragraph VI of section 4 of this act;

(b) The billing cycle and associated production periods of the eligible facility;

(c) The capacity rating, kilowatt-hour limit, and the kilowatt-hour production requirements of any privately-negotiated legal obligation existing on December 31, 2001, or then existing and later amended, including a copy of such, to be used to compute the eligible kilowatt-hours for the eligible facility;

(d) A statement of the fuel required to be combusted at the eligible facility under any agreements associated with the termination of its rate order and copies of all such agreements; and

(e) Adequate credit security to ensure payment of any payments required pursuant to paragraph II of section 7 of this act and section 9 of this act.

II. The department shall expeditiously verify the eligibility of the facility based on the definition of eligible facility under paragraph VI of section 4 of this act. If eligibility cannot be verified, the department shall expeditiously notify the applicant in writing and provide a reasonable opportunity for the facility to respond to the department's determination or remedy the basis of any such determination. If eligibility is verified, the department shall expeditiously issue an enrollment approval document for signature on behalf of the eligible facility that details the following:

(a) The enrollment period is through midnight, December 31, 2006, unless earlier terminated pursuant to paragraph IV of section 8 of this act;

(c) The composition of the fuel to be burned based on any agreements the applicant was required to submit under subparagraph I(d), or as modified due to termination, modification, or expiration of an agreement;

(d) The method by which eligible kilowatt-hours and the average rate shall be calculated in accordance with this act;

III. Enrollment in the program shall commence upon receipt by the department of the document signed on behalf of the eligible facility. The document shall become void if not returned to the department within 30 days of issuance, unless an extension is granted by the department. The department shall forward a copy of the signed document to the commission within 3 days of receipt.

IV. Subparagraphs I(e) and II(f) of this section, subparagraph I(d)(2) of section 7, paragraphs I-V of section 8, and paragraph II of section 9 shall not apply to any eligible facility that certifies to the department and the commission that:

(a) Assuming continual operation at the kilowatt-hour limit, the eligible facility will pay a minimum price of $18 per ton of whole tree chips, 50 percent moisture content, delivered for wood fuel purchases;

(b) On an annual basis, at least 95 percent of the wood combusted and attributable to eligible kilowatt-hours during the period will be obtained from businesses or individuals engaged in logging, processing, or transporting timber, stumpage, or sawmills in this state or sawmills processing stumpage from New Hampshire and of that 95 percent at least 75 percent shall be from in-state stumpage;

(d) Staffing levels at the eligible facility will not increase over those for calendar year 2002, except for the addition of a fuel handler position and the reestablishment of a team leader position; and

(e) The eligible facility or its corporate parent has entered a written guarantee of the payment of real property taxes to the municipality in which the eligible facility is located, at least through calendar year 2006.

V. The accuracy of a paragraph IV certification shall be verified by an independent auditor, selected by and paid for by the eligible facility and acceptable to the commission. The independent auditor shall maintain the confidentiality of the eligible facility's data and records pertaining to the certification and shall file a report on the accuracy of the certification twice per year with the commission and the department. If the report identifies any noncompliance by the eligible facility with the paragraph IV certification, the commission may commence an investigative proceeding and the commission, after notice and hearing, may issue an order directing compliance. If the commission issues an order directing compliance, the commission shall notify the department of the order and any subsequent compliance.

I. The participant shall submit to the department, on a billing cycle basis, a statement containing:

(a) The calculation, in accordance with the method required by the enrollment approval document, of the number of eligible kilowatt-hours produced during the production period as taken from the eligible facility's meter reading and invoices to purchasers;

(d)(1) A statement that the fuel burned during the production period complies with all agreements the eligible facility may have on such fuel composition and a quantification of such fuel amounts.

(2) With each statement submitted, the eligible facility shall submit a certification documenting that at least 85 percent of the wood combusted and attributable to eligible kilowatt-hours during the period was obtained from suppliers, procurers, or sources located in this state. II. The department shall review and verify the calculations submitted. If the average rate is less than the forest products utilization rate, then the department shall make payment to the participant from the fund, to the extent moneys are available, in an amount equal to the positive difference between the average rate and the forest products utilization rate multiplied by the eligible kilowatt-hours. If the average rate is greater than the forest products utilization rate, then an amount equal to 50 percent of the positive difference between the average rate and the forest products utilization rate multiplied by the eligible kilowatt-hours shall be paid by the participant to the department. Any payment due under this paragraph shall be timely made using the same time for payment used under the eligible facility's terminated rate order.

I. Within 30 days of a participant's enrollment in the forest products utilization program, the commission shall commence a proceeding, that shall include an adjudicative proceeding, to adjust, if needed, the forest products utilization rate that shall apply to the participant's eligible facility, as provided for in paragraph II. The participant shall be subject to the same requirements that a public utility is subject to in a rate proceeding or an adjudicative proceeding before the commission, including, but not limited to, the provisions of RSA 365:6, RSA 365:10, RSA 365:12, RSA 365:14, RSA 365:15, RSA 365:16, RSA 365:17, RSA 365:18, RSA 365:21, RSA 365:29, RSA 365:38, 365:41-44, and RSA 366. Within 30 days of a participant's enrollment in the forest products utilization program, the participant shall file with the commission such information as necessary to comply with the commission's rules applicable to a public utility regarding rate case filing requirements, in the form and detail as specified therein, or as modified by the commission. Such filing shall include written testimony and all documentation in support of the participant's calculations of its average rate and production costs, along with such written attestation as required by commission rule.

II. The commission shall, as it can best determine and if needed, adjust the forest products utilization rate that shall apply to the participant's eligible facility to provide revenues that will be equivalent to the production costs for eligible kilowatt-hours during the term of enrollment, provided such adjustment does not increase the rate above the initial rate established in paragraph VIII of section 4 of this act. The commission may include an automatic adjustment mechanism to apply to the rate to account for future changes in productions costs, based on a generally recognized economic indicator that measures inflationary pressures in the region. Such automatic adjustment mechanism may increase the rate above the initial rate established in paragraph VIII of section 4 of this act. The commission shall conclude its responsibilities under this paragraph within 6 months of the participant's completed filing required by paragraph I.

III. As part of the proceeding, the commission shall make a public interest determination based solely on whether the following conditions are likely to occur:

(a) Payments received by the participant under the program will preserve New Hampshire jobs related to the low-grade forest products industry, not including those within the eligible facility; and

(b) The price of the fuel used by the eligible facility will be comparable to the market price as a whole for such type of fuel.

IV. If the public interest conditions in paragraph III are not likely to occur, then the commission shall notify the department of its determination and the department shall terminate the participant's enrollment in the program.

V. The commission shall, by order, establish a return on investment rate of up to 10 percent to be used for determining the participant's production costs.

VI. If the eligible facility has provided the certification set forth in paragraph IV of section 6, the department, on each anniversary date of enrollment, shall increase the forest products utilization rate by the rate of change in the consumer price index for northeast consumers published by the Bureau of Labor Statistics, United States Department of Labor. If, on the anniversary date, the eligible facility is subject to an order directing compliance under paragraph V of section 6, the increase shall not take effect until the commission notifies the department that the eligible facility is in compliance.

I. The eligible facility shall provide written notice to its suppliers and procurers to seek to obtain such supply from in-state locations, where it can be done so in a commercially reasonable manner.

II. A participant shall, within reasonable and prudent business practices, maximize sales revenue for eligible kilowatt-hours produced during the term of enrollment. The commission may from time to time, up until 4 months after a participant's enrollment in the program ends, review the participant's sales revenue to determine compliance with this requirement. If the commission determines that a participant has not complied, the commission shall notify the department and shall require the participant to repay to the department any amount received in excess of the amount that would have been received had sales revenue been appropriately maximized. The participant shall make such repayment to the department in equal monthly installments over a period of 12 months, beginning on the date 15 days after the commission's determination. In any review before the commission under this paragraph, the participant shall be subject to the same requirements that a public utility is subject to in a similar review before the commission.

I. There is hereby established in the office of the treasurer the forest products utilization fund. This nonlapsing, revolving special fund shall be continually appropriated to the department only for the purposes specified in this act. The state treasurer shall invest the moneys in the fund as provided by law. Interest received on investments made by the state treasurer shall be credited to the fund.

II. Any payments made by the department to an eligible facility under this act shall be drawn from the fund. Any payments made by an eligible facility to the department under this act shall be deposited in the fund. The treasurer may accept deposits into the fund from other sources not specifically referred to in this act. This paragraph shall not apply to any transactions that occur under paragraph VII after closure of the fund under paragraph VIII.

III. Each public utility having a system benefits charge, including any public utility where authorization for such charges arises at any time during the existence of the program created under section 5 of this act shall pay to the department, by the 15th of each month for deposit in the fund, $0.00018 per kilowatt-hour distributed to its customers in the prior month; payments shall be made for all electricity distributed by the utility for the period that any eligible facility is enrolled in the program. Notwithstanding any other provision of law, the commission shall allow any such public utility to be reimbursed through that portion of revenues collected from its existing system benefits charge and allocated to energy efficiency programs by the commission.

IV. Each public utility not having a system benefits charge and each municipal electric system furnishing electric utility service shall assess a charge on the utility bill of their customers in the amount of $0.00018 per kilowatt-hour distributed to its customers during the period that any eligible facility is enrolled in the program created under section 5 of this act or until such time as a system benefits charge is authorized for the public utility. The public utility or municipal electric system shall collect such charge and forward the revenue to the department for deposit in the fund.

V. The provisions of paragraphs III and IV shall be suspended if the balance in the fund reaches or exceeds $1,100,000. The requirements shall be reinstated if the balance declines to $750,000 or less.

VI. The department shall not be obligated to make payments to any participant in excess of moneys available in the fund. In the event of insufficient funds, the department shall make partial payments, if possible, and shall make full payments for past due amounts, as expeditiously as possible, when sufficient funds are available.

VII. If, after all required payments have been made into the fund, there are insufficient funds available at the conclusion of the program created under section 5 of this act to pay all claims submitted by eligible facilities, the department shall prorate such claims on an equitable basis and make payment from the available funds. Any unpaid claims surviving the conclusion of the program will not be paid unless funds, which should have been paid into the fund prior to the program conclusion, are later paid to the department.

VIII. Moneys remaining in the fund after all payments due under sections 7 and 9 of this act have been made shall be returned pro rata to the public utilities and municipal electric systems. The public utilities and the municipal electric systems that assessed a charge under paragraph IV shall credit the returned amounts to the benefit of their ratepayers. Public utilities and municipal electric systems who made payments from the system benefits charge shall use the returned funds for any purposes for which a system benefits charge may be used under RSA 374-F:3, VI, as determined by the commission. The department shall disburse such remaining moneys as directed by the commission, at which time the state treasurer shall close the fund account.

11 Eligibility Under Nox Budget Trading Program. Notwithstanding the definition of "renewable energy projects" under administrative rule Env-A 3203.49, any multi-purpose set-aside account established under the NOx Budget Trading Program by the department for renewable energy sources shall include any eligible facility as defined in paragraph VI of section 4 of this act that is enrolled in the forest products utilization program. Any owner of such a facility shall file a request under the trading program for the allocation of NOx allowances. Any allowances received shall be sold by the owner with the intent of maximizing sales revenues. Such revenues shall be deposited in the forest products utilization fund established under section 10.

12 Task Force to Promote the Low-Grade Forest Products Market. The department of resources and economic development shall convene a task force to identify and develop means of promoting a sustainable low-grade forest products market in the state. The department shall work with all interested parties, including the New Hampshire business finance authority, the New Hampshire industrial research center, the community development finance authority, the office of state planning, county and municipal economic development agencies, and the governor's office. The department shall submit an interim report by November 1, 2003 and a final report by November 1, 2004, detailing its efforts, along with any recommendations for legislation, to the speaker of the house of representatives, the senate president, the house science, technology and energy committee, the senate energy and economic development committee, and the state library.

13 Repeal. Sections 4-11 of this act, relative to the forest products utilization program, are repealed.

The Public Utilities Commission states this bill will divert $0.0001 per kilowatt-hour collected through the efficiency service benefit charge (currently $0.0018 per kilowatt-hour) to a forest product utilization fund. The energy efficiency service benefit charge is obligated to fund energy efficiency programs, and the loss of the $0.0001 per kilowatt-hour is anticipated to divert approximately $1M to the newly established forest product utilization fund. In the energy efficiency program, $1M produces energy efficiency savings valued at $1.3M, so the program would experience a net loss of $300,000 in savings statewide as a result of the diversion of said funds. Lost savings would result in increased electric service costs, and as a result increase costs to state, county, and local expenditures. The Commission states municipal electric service distribution entities are not regulated by the Commission, and are not subject to the service benefit charge or to reporting requirements. Under this bill, each municipal electric system furnishing electric service must also assess a charge of $0.0001 per kilowatt-hour, thus increasing electric bills for county or local governments who purchase service from a municipal electric service system by a like amount. The exact fiscal impact cannot be determined at this time.

The Department of Resources and Economic Development states the agency currently promotes the forest products industry through day to day work of the Division of Forests and Lands, the Department of Economic Development, the Office of International Commerce, and through a contract with UNH Cooperative Extension Forestry and Wildlife Program. For the purpose of promotion under this bill, it is assumed a full-time position would be created to focus entirely on the forest products industry. The estimated impact is as follows:

FY 2005

FY 2004 & Thereafter

Salary $36,036 $36,036

Benefits 13,333 13,333

Vehicle 25,000 0

Vehicle Operation 2,000 2,000

Current Expense 2,900 2,900

Program Expense 500 500

Total Promotion Costs $79,769 $54,769

In regards to the Forest Products Utilization Program, there would be additional costs for program oversight and processing of payments. Processing of payments could be absorbed through the existing payment systems in the agency. Program oversight would require specific dedication of staff to ensure compliance with the requirements of this bill and accountability for the funds. The Department estimates a part-time position would be required, and estimates the fiscal impact as follows:

FY 2004

& Thereafter

Salary $15,000

Benefits 1,200

Current Expense 1,500

Total Utilization Costs $17,700

The Department states this bill will create a task force to promote the low-grade forest products market. The Department estimates the cost of the task force at $150,000 for a sixteen month period, which would increase state expenditures by $112,500 in FY 2004, and $37,500 in FY 2005. The combined fiscal impact on the Department is as follows:

FY 2006

FY 2004 FY2005 & Thereafter

Promotion Costs $ 79,769 $ 54,769 $ 54,769

Utilization Costs 17,700 17,700 17,700

Task Force Costs 112,500 37,500 0

Total $209,969 $109,969 $72,469