Let's jolt the electric companies
By Patrick Mehr | March 12, 2005
When prices increased on March 1, most Massachusetts households were adversely affected. But some were more fortunate. Not only did their bills remain the same, but for decades, they have been paying less for electricity than most of us.
In the Greater Boston area, a typical household (using 700 kilowatt-hours monthly) paid NStar $103 per month until last month, an amount that increased 5 percent last week. But Concord (and 40 other communities in Massachusetts) has a municipal electric utility, or ''muni," instead of NStar. In Concord, a typical household pays $75 for its electricity -- 28 percent less than NStar charges -- with no increase last week.
Roughly half of a household's electric bill pays for electricity generation (power plants), the other half for distribution (poles, wires). Since 1997, The Commonwealth's two major utilities, NStar and Mass Electric, no longer own power plants; instead, they purchase their electricity on the open market and distribute it to end-users. Munis do the same.
But munis are accountable to the community. They pay attention to their infrastructure; they upgrade and maintain it. Concord uses more efficient distribution voltage than NStar (NStar's power losses are about 5.8 percent compared with 4.8 percent in Concord). While NStar employees serve large areas and are often unfamiliar with the streets, Concord's 11 linemen know immediately where a problem occurs, allowing more prompt and efficient repairs. Moreover, 40 percent of Concord's wires are already underground, which improves town aesthetics and makes power outages less frequent.
While NStar pays dividends to its stockholders, munis don't, and, as municipal entities, they enjoy low financing costs. Besides his $740,000 annual salary, the CEO of NStar received a bonus and stock options, for a total compensation of $4.1 million in 2003 (up from $2.2 million in 2000); the average muni general manager is paid $110,000 per year.
In Lexington, where I live, we suffer the consequences. There are frequent power outages, wires are a visual blight, double poles are not removed as required by law, and antiquated transformers occupy prime space in the center of town.
Few people know that besides providing better service than NStar munis consistently charge less. Boston-area munis in Concord, Belmont, Wellesley, Wakefield, Peabody, Danvers, Marblehead, Norwood, Braintree, Hingham, Hudson, Mansfield, Middleboro, North Attleboro, and Shrewsbury charged households 24 percent less than NStar during the 10-year period of 1992 to 2003. When NStar charged $100 per month, munis charged $76 for the same electricity, with better service.
Could other Massachusetts communities enjoy the benefits of a muni? Yes. To create a muni, Lexington (as an example) would acquire NStar's distribution assets (substations, transformers, poles, wires, etc) at fair value, as state law mandates. The transaction would be financed by a bond reimbursed by the Lexington muni, not the taxpayers. A muni would charge each Lexington household about 20 percent less than NStar, and commercial or municipal facilities about 10 percent less. Each household would save on average $250 per year, and electric bills across Lexington would be reduced by $6 million to $8 million annually.
State law spells out how new munis can be formed but needs clarification to avoid protracted litigation by the incumbent utility. Representative Jay Kaufman, Democrat of Lexington, has been joined by 40 representatives and senators to co-sponsor a bill to that effect. The bill has been endorsed by 110 cities, towns and organizations (including the Massachusetts Municipal Association, the Massachusetts Energy Consumers Alliance and the Massachusetts Public Interest Research Group).
It is time to curb the high costs Massachusetts residents and businesses bear from the inefficient operations of our major utilities. They now run into hundreds of millions of dollars, hampering the state's economic competitiveness.
The state utility regulator must investigate why munis consistently charge less for electricity than NStar and Mass Electric, and the bill pending on Beacon Hill must be enacted. This would create real incentives for our major utilities to lower their rates and improve service.
Patrick Mehr is a member of the Lexington Electric Utility Committee.