Town braces for a jolt of higher electric rates
By Dan Tuohy, Globe Correspondent | July 30, 2006
Belmont's municipally owned utility expects to pay up to 80 percent more for power when its supply contract ends late next year, raising the prospect of a surge in electricity rates for residents.
As part of a rate-stabilization effort, the Belmont Municipal Light Department increased rates 20 percent in January to create a smoother transition to still higher rates. The increase brought the average monthly residential bill, based on 500 kilowatt hours, to $64.07 in June from $53.52 last year.
Though rates are 35 to 40 percent less than those charged by investor-owned utilities in the region, general manager Ron Lunt said the increase is nevertheless steep.
The department will not estimate the size of future increases, but Lunt said, “We hope to minimize any ups and downs. The wholesale power market is in the neighborhood of double what we're paying now.”
The department and the Municipal Light Advisory Board are conducting a public outreach this summer to alert ratepayers to the challenges and supply options, and to warn of the possibility of higher rates.
Belmont buys its electricity from Dominion Energy Inc. of Richmond, Va., then supplies it to residents. Under the contract signed in 2002, the town this year is spending an average of 4.4 cents per kilowatt hour, according to an industry review that La Capra Associates of Boston provided for the Belmont department.
La Capra forecasts that costs will soar after the contract expires in late 2007 because of higher fossil fuel prices, particularly natural gas; regulatory changes in the electricity market; and an eroding surplus of power plant capacity.
Problems of supply and demand are nothing new to the region, though war in the Middle East is adding to concerns. ISO New England Inc., an independent operator of the bulk power system and wholesale electricity market, has repeatedly called for additional investment in new and diverse energy sources.
Gordon van Welie, ISO's president , sounded a similar alarm in newspaper commentaries this year. As New England supplies of electricity decrease, the price of wholesale electricity will increase and reliability will be threatened, he wrote.
In this region, demand has steadily increased while supply has increased only minimally. The Massachusetts Municipal Wholesale Electric Co., a representative for municipally owned utilities, is projecting a power-supply deficit of about 500 megawatts for its 26 member utilities by 2012.
Municipal utilities that own their own power supply can significantly reduce their exposure to New England's volatile spot energy markets, said David Tuohey, communications manager for the Massachusetts Municipal Wholesale Electric Co.
The company, which also owns a share of Seabrook and Millstone nuclear power plants in New England, is seeking to expand and diversify its energy offerings to limit fluctuations and to spread risk. “What it boils down to is it's important that you have a diversified energy portfolio,” Tuohey said.
When Belmont's current contract ends, Lunt expects to enter agreements with several providers, thus creating a more diversified energy portfolio. He said the department may add “green” energy sources, such as wind power, to the mix. Sustainable Belmont, a group dedicated to alternative energy sources, is also encouraging the utility to promote conservation measures and add some renewable energy to its portfolio.
Power demand in Belmont is 30 megawatts at its daily peak, according to Lunt. The department has 10,750 customers, about 9,500 of which are residential. McLean Hospital is the largest customer, followed by Filene's and Shaw's, according to the department.
The Belmont utility dates to 1896. No new municipal electric utility has been formed in Massachusetts since 1926, partly because of a restrictive regulatory format that favors investor-owned utilities, according to the Massachusetts Alliance for Municipal Electric Choice, a group advocating for Lexington to establish a municipal utility.
Municipally owned utilities offer lower rates, efficiency, local control, and responsiveness to customer concerns, according to the American Public Power Association. In its 2004 study, the association reported that rates were 10 percent higher for residential customers of investor-owned utilities.
In the residential rate comparison report issued for June by the Massachusetts Municipal Wholesale Electric Co., the average 500-kilowatt hour residential customer in Belmont paid $64.07 a month, compared with $106.56 for a residential customer for Boston Edison.
Belmont Municipal Light Department, which realizes about $14 million in revenue a year, seeks to be revenue-neutral, Lunt explained. The utility also cuts a $650,000 check to the town each year as payment in lieu of taxes. The Belmont Municipal Light Department and the Municipal Light Advisory Board will meet to discuss supply issues again at 6:30 p.m. Aug. 2 at the department's office, 40 Prince St.