Cheaper electricity touted
NStar questions savings in 'munis'
By Brenda J. Buote, Globe Staff / January 20, 2008
Long before the price of oil hit record highs, sending energy bills into the stratosphere, local advocates were supporting state legislation that would make it easier for communities to establish their own municipal electric companies, arguing that more competition would mean lower electric bills and improved service.
Now, in hopes of prompting legislators to move on the measure, the Lexington Electric Utility Ad-hoc Committee is touting its review of electricity costs at 12 area high schools from July 2006 through June 2007, which found that schools served by a municipal electric company, or muni, paid about half of the average 18 cents per kilowatt hour of electricity that those served by NStar were charged. NStar is an investor-owned utility.
"The study clearly shows that it's not just residential users who would save money with munis," said Patrick Mehr, a longtime advocate for municipal electric companies and member of the ad hoc committee. "Cities, towns, and the state would also save hundreds of thousands of dollars per year - money they could be put to much better use."
The study included a review of electricity costs at public high schools in the Acton-Boxborough, Belmont, Brookline, Concord-Carlisle, Lexington, Lincoln-Sudbury, Newton (Newton North and Newton South), Wellesley, Weston, Westwood, and Winchester districts. Nine of the high schools in those 11 districts are served by NStar; Belmont High, Concord-Carlisle Regional High, and Wellesley High are served by municipal utilities.
NStar officials said they could not comment directly on the study's findings because they had not seen a copy of the report. Company spokesman Michael Durand said the comparison "is not a new discussion."
"It's been pointed out in the past that current rates from existing munis tend to be lower than the rates of private companies," he said. "What gets lost in that discussion, though, is a stark reality: The existing munis were all set up over 80 years ago. The fact is, the costs that would be associated with setting up a new municipal electric company, with all of the financial challenges that process would involve, would be prohibitive for most communities."
In the study, Acton-Boxborough High spent the most for electricity among the communities northwest of Boston. It was charged, on average, 19.1 cents per kilowatt hour, second in the study only to Newton South, which spent an average of 20.5 cents per kilowatt hour. Lexington High spent an average of just over 17 cents per kilowatt hour during the one-year study period, while Winchester High paid an average of 16 cents, and Concord-Carlisle Regional High spent an average of 9.6 cents.
"Lexington's public schools use about 8 million kilowatts of electricity each year," said Mehr. "If the district were served by a muni, rather than NStar, it would save over $600,000 annually, enough to hire eight more teachers without spending another dime of local or state taxpayer money."
Mehr attributed the cost savings to operational efficiencies at municipal electric companies and their ability to negotiate lower-priced electricity supply contracts. However, other factors may also contribute to the cost differences: Investor-owned utilities must pay property taxes; munis do not. Munis also enjoy tax-exempt financing and are not required to contribute to the state's renewable energy trust.
For more than a century, state law has allowed local communities to set up their own munis, an undertaking that requires a substantial investment. But cities and towns that wish to establish their own utility companies would not only have to acquire the requisite infrastructure and equipment, they would also have to hire and train workers, establish operations and call centers, and all of the back-end departments that go along with them "at a time when local governments are having difficulty paying for basic services," said Durand.
He also said that, in addition to startup costs, communities would have to shoulder ongoing maintenance costs. NStar spends about $300 million a year to maintain its system, he said, "and yet our delivery rates remain stable and our reliability has improved year to year."
Statewide, there are 41 munis, which collectively serve roughly 15 percent of Massachusetts' residents. Five of the municipal utilities are in this area: Belmont, Concord, Groton, Littleton, and Reading.
Proponents of House Bill 3319, which would make it practical for municipalities to buy the local assets of a major company like NStar and form their own utilities, are pushing legislators to act on the measure. Voters in Lexington, at a Special Town Meeting in October, endorsed the legislation; the town is one of five statewide that have expressed interest in forming a muni. The others are Cambridge, Newton, Plymouth, and Worcester.
However, most communities are simply not willing to foot the bill to prepare an infrastructure for a muni for fear that the money invested in such an endeavor would be wasted. With the exception of the redevelopment of Fort Devens - a special situation - there has not been a municipal electric company formed in Massachusetts since 1926, in part because communities fear the state Department of Telecommunications and Energy could block their efforts.
Lexington's state representative, Democrat Jay R. Kaufman, lead sponsor of House Bill 3319, has been trying for five years to garner support for a legislative remedy. Little has changed in that period, save for the growing number of lawmakers who support the bill.
Today, 53 legislators endorse the measure, including representatives and senators for cities and towns including Andover, Concord, Burlington, Somerville, Waltham, and Watertown.
The bill also has the support of the Massachusetts Municipal Association, the Mass. Climate Action Network, and the Franklin Regional Council of Governments, among other organizations.
Opponents of the bill have expressed what Kaufman has called a "legitimate concern" - that the formation of new munis could have a detrimental economic impact on investor-owned utilities and their ratepayers. Opponents also question whether communities have the expertise needed to manage a municipal electric company, and wonder what would happen if a muni were to fail.
To address those concerns, Kaufman is calling for a state study to assess the risks and rewards of forming new munis.
The report issued last week by Lexington's ad hoc committee "seems to be compelling evidence that a comprehensive study should be commissioned to determine whether substantial cost savings could be realized on a municipal level," said Sean Fitzgerald, Kaufman's chief of staff.