Leveraging Relationships and Resources in New Hampshire

1. Leveraging Relationshipsand Resourcesin New Hampshire Gary A. Long President 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

4. 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

5. By 1990, Eight Privately-Owned Biomass Power Plants Were Operating in NH(Most Rate Orders Were For 20 Years) Pinetree Power - Tamworth 1988 1986 Pinetree Power - Bethlehem 1987 Hemphill Power Bridgewater Power 1987 1985 Bio Energy Early Termination: Contract Buyout 1988 Whitefield Power Early Termination: Contract Buyout 1987 Bristol Energy Closed (Buyout) Closed (Buyout) 1985 Timco 2010 1990 1995 2000 Operating Burning Wood-Chips Closed or Contract in Transition

6. Wood-Chip Market is an Important Piece of the Overall Forest Products Industry in NH Source: 2001 NH Division of Forests and Lands

7. Biomass Energy Provides About 8 Percent of PSNH’s Energy Requirements 7.7 Million MWHs Delivered to Retail Customers in 2003

8. The Wood-Chip Market in NH Peaked at About 1.8 Million Tons Annually in 1992 Peak Today Buyouts Begin Tons

9. 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

10. 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

11. State Officials and Forestry Groups Focus on a Potential Collapse of the Wood-chip Market Peak Today Tons Buyouts Begin

12. 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

14. 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

15. Schiller Station, Portsmouth, NH

16. 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

17. 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