Light company gets $42.5m settlement, avoids rate increase
Energy supplier went bankrupt
By Peter Martin, Globe Correspondent | May 11, 2006
The Reading Municipal Light Co. recovered $42.5 million last week from their former energy supplier, the Calpine Corp. of California, ensuring that the local company's 28,000 customers in Reading, North Reading, Wilmington, and Lynnfield will not see a rate increase because of the corporation's bankruptcy.
''I was pleased that it was settled this quickly. We got what was owed us," said Vinnie Cameron, general manager of the light company, which had filed a lawsuit against Calpine in order to bring them to the negotiating table. ''When somebody owes you millions of dollars, it's not easy to sleep at night. We had faith in the sanctity of the contract, but in a situation with bankruptcy, it's like dealing with a wounded animal -- you don't know what's going to happen."
Light company officials actually expect fuel charges to come down on May's bill because of the settlement, by about half a cent per kilowatt hour, or $3.50, on the average resident's bill. The monthly bill in April for a customer using 700 kilowatt hours, the average for the company, was $87.78.
The Calpine Corp. provided approximately 400 million kilowatt hours of electricity to the light company every year before declaring bankruptcy in December. Calpine channeled electricity from around the country to the Reading distribution center at rates established in a 2002 contract that was scheduled to run through October 2007.
The contract also required funds to be set aside in an escrow account in order to ensure rate stabilization if Calpine could no longer provide electricity and the Reading light company was forced to find new energy providers at higher rates. The escrow fund was approaching $50 million, said Cameron, but Calpine initially disputed the light company's claim on the fund.
''The amount is sufficient to cover the difference between Calpine's rates and the replacement contracts purchased," said Cameron. He said the $42.5 million lump-sum payment will help stabilize rates through 2007, when Calpine's contract would have otherwise expired. Attempts to reach Calpine officials were unsuccessful.
The municipal light company's new energy providers, Constellation Energy of Maryland and Dominion Energy of Virginia, have higher rates than Calpine, but Cameron said that the new pricing terms are confidential.
In February, the light company prepared to pass the rate increase on to customers by tacking it onto the monthly fuel charge as they fought Calpine for the frozen escrow funds.
But the light company balked at charging their customers extra and instead tapped their cash reserves. ''It was my decision," Cameron said. ''We tried to the hold the line as much as we could. We used some cash reserves and took advantage of lower costs in the energy market, due to the price of natural gas coming down."
Rate hikes could have resulted if the negotiations over the escrow account stretched out longer, officials said.
Reading Town Manager Peter Hechenbleikner called the settlement ''great news for customers, and good work by the light department for, first, getting the terms in the original agreement and then being able to quickly collect on the money.
''They're on the ball with this stuff," said Hechenbleikner.
William Gustus, the Lynnfield town manager, was also pleased by the settlement. Residents have already seen fuel charges go up about 60 percent in the last year because of the escalating fossil fuel market, said officials.
''They decided not to raise rates, and I'm grateful for that," said Gustus. ''Realistically, we're in much better shape than most places. Our rates are a lot lower than the general marketplace."