Power costs yield little Yuletide cheer
Most ratepayers to see hikes in 2015 from 12% to 62%
By Hiroko Sato, firstname.lastname@example.org UPDATED: 12/21/2014
If you're on a tight budget this holiday season, you could be thinking twice about turning on the Christmas lights.
Electricity rates are skyrocketing and are expected to climb even higher in the new year.
How much more consumers will have to pay will be determined by the supplier.
Littleton Electric Department customers, in Littleton and Boxboro, will see a $1.99 monthly increase, one of the lowest around. Rates, on average, will increase from $86.18 to $88.17 for using 750 kilowatt hours of power per month.
Groton Electric Light Department linemen Rob Blood, front, and Ryan Andrews work on Burnt Meadow Road in Groton on Thursday. Most area electricity customers will see double-digit rate increases next year. SUN / BOB WHITAKER
The biggest increases will be felt by customers of both Fitchburg Gas and Electric, part of Unitil, and National Grid, where monthly costs are rising 25 percent and 62.3 percent, respectively, based on data compiled by the Massachusetts Municipal Wholesale Electric Co.
This winter Fitchburg Gas and Electric, which distributes electricity to Fitchburg, Lunenburg, Townsend, Ashby and a handful of homes in Leominster and Shirley, will see average monthly costs rise $43, from $161.10 to $214.99, according to Alec O'Meara, the company's media relations manager. However, starting Jan. 1, O'Meara said, customers will see an average $16.35 reduction on the non-supply cost part of the monthly bill, lowering the overall cost to $198.64. That translates into an overall 23 percent increase from last winter's average monthly cost. The new rate change will remain in effect until May 31.
National Grid customers will see the average monthly bill of $125.76, based on data from a 12-month period ending Sept. 30, climb $78.34 to $204.10 a month. The rate change took effect in October and runs through April 2015.
Groton Electric Light Department rates have increased about 12 percent from the rates of the previous two years.
Reason for disparities
In general, municipal electric departments charge less than investor-owned utilities such as National Grid and Fitchburg Gas and Electric. That doesn't mean customers of investor-owned utilities are stuck with higher bills; they have choices to contract with competitive suppliers.
But shopping around for better rates isn't easy.
Many competitive suppliers offer flat rates locked in for a year or so, which may be lower than winter rates of investor-owned utilities, but higher than their summer rates. Also, there is no website listing all suppliers and rate information -- a problem the state Department of Public Utilities is trying to correct by creating its own list.
Bigger isn't always cheaper
Some municipalities, such Lowell and Lunenburg, have contracts with suppliers that offer dual options: Customers can opt out of the flat-rate program and sign up with investor-owned utilities or other suppliers. Hampshire Power currently provides power in Lowell for 10.8 cents per kwh. ConEdison Solutions does the same in Lunenburg for 13.99 cents per kwh.
But a key question remains: Why the big variation in costs among municipal utilities, investor-owned utilities and competitive suppliers?
It all has to do with how suppliers buy power, experts said. Under the Electric Industry Restructuring Act of 1997, investor-owned utilities are required to purchase their supply every six months. The market rate at the time of the purchase gets passed on to customers as is, according to O'Meara.
Investor-owned utilities must buy power from others because the Restructuring Act required them to sell their own generating plants in order to encourage marketplace competition. Many of the 40 municipal electric departments in Massachusetts, on the other hand, own or have a stake in power-generating facilities, said David Tuohey, a spokesman for MMWEC, which helps municipal departments with power supply planning and bidding.
For example, in 2018, power costs for Groton Electric Light Department should drop dramatically when it pays off debt associated with its ownership of the Seabrook (N.H.) nuclear power plant. Power generated from the plant will be distributed for 3.5 cents per kWh, said Groton Electric Manager Kevin Kelly.
MMWEC is a joint owner in two nuclear power stations -- the Seabrook Station and the Millstone Unit 3 plant in Waterford, Conn. -- and the sole owner of the Stony Brook Power Plant in Ludlow, which runs on natural gas and coal. It also owns a share of W.F. Wyman Station in Yarmouth, Maine, which runs on oil, and has an ownership interest in the Berkshire Wind Power Project. Many municipal electric departments get supplies from these sources through the MMWEC.
MMWEC's power portfolio management and hedging program saved member municipal utilities $26 million over the past two years, compared to what they would have spent if they had to buy their supply at real-time market rates, Tuohey said.
Most important in holding costs down, according to industry experts, is that municipal utilities usually sign long-range power supply contracts of 10 years or more, which serves to keep rates stable.
Competitive suppliers do not do business in communities served by municipal utilities. Having a "captive customer base" allows municipal utilities to negotiate long-range deals, said Stuart Ormsbee, New England chairman of the Retail Energy Supply Association. Competitive suppliers, on the other hand, often trade in the spot market and use fixed-term hedge contracts to "make smart purchase decisions to allow it to offer some of the best prices," Ormsbee said.
Tuohey said power prices in the marketplace have soared for this winter in anticipation of a repeat of last winter's severe natural gas shortage amid the extended cold snaps. The growing demand for natural gas partly stems from more customers converting heat systems from oil-operated to gas-operated, he said.
The biggest cost-driver, however, is the closure of oil and nuclear power stations due to stricter federal and state environmental regulations that make it difficult for them to compete against counterparts that run on inexpensive natural gas, Kelly said. The Mt. Tom coal power plant in Holyoke has recently closed, following Salem Harbor Power Station in Salem. Vermont Yankee Nuclear Power Station is also scheduled for a shutdown this month.
"All of that has to be made up by natural gas," Kelly said.
New England has a limited pipeline infrastructure. By law, natural gas must first be used for heating, leaving limited supplies for electricity generators to use during cold months.
In response to the larger rate increases, Patrick Mehr of the Massachusetts Alliance for Municipal Choice said the state should amend its law to make it easier for towns to start their own municipal utilities. He said the Legislature should also give IOUs more flexibility for supply procurement.
Still, no matter who the supplier is, rates will continue to rise.
"We are starting to see (price hikes for natural gas) more often during the normal course of the year because the demand is escalating so much," Tuohey said.
Kelly said the problem is so serious that if anything goes wrong with any power plant in winter, it could result in a disaster.
"Last week, a line in Quebec (that provides power to the New England region) tripped. We were very close to a rolling blackout. And it's not even cold (enough to have a peak load) yet," he said.
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