old colony memorial
Plymouth Power Co.?
By Chris Nelson
PLYMOUTH (Sept 28) - When Massachusetts lawmakers approved legislation in 1997 opening the state electricity market to competition, they predicted consumers would soon benefit from lower rates and improved service.
After all, deregulation's supporters promised it would usher in an era when competing energy companies would flood the state with offers of discounted rates and NStar and Massachusetts Electric, the two investor-owned utilities serving the Greater Boston metropolitan area, would ramp up their service and drop their prices.
Consumers bought the promise and approved the legislation the following year. But the party ended almost as quickly as it began. Competition failed to materialize and electricity rates never dropped. In fact, they are likely to soar this fall NStar and MassElectric are seeking winter rate increases of 28 and 27 percent, respectively, to offset soaring wholesale energy costs. The rate hikes, if approved, will take effect Nov. 1 and last until April 30.
As a result, scores of Bay State communities say it's time for Plan B. More than 100 towns and cities from across the state, including Plymouth, have endorsed a legislative proposal that would make it easier for municipalities to form their own power companies.
"The present system makes it completely impractical for towns and cities to form their own power companies," Jim Sweeney, chairman of the ad-hoc Plymouth Energy Committee, said. "The new legislation makes it much more favorable and fair for that to occur."
State Rep. Jay Kaufman, D-Lexington, introduced a bill (H 3294) that would require investor-owned utilities (IOU's) such as NStar and MassElectric to sell their power distribution assets - the substations, poles and wires - to communities interested in buying them after state regulators have determined a fair market price for the assets.
Municipalities could then operate their own power companies.
More than 40 other legislators have co-sponsored the measure, which was heard before the state Committee on Telecommunications, Utilities and Energy Sept. 20. Supporters of the bill said it would allow communities to take control of their electric costs and lead to improved service, while putting the onus on the IOU's to reduce their rates.
"There are over 41 municipally-owned power companies in Massachusetts today, and most of them have lower rates by about 20 to 30 percent," Sweeney said. "This is because the munis are managed locally. When you call for service, they know exactly where you are and if they don't send someone to fix a problem soon, then the voters will send a message during town elections. Munis enjoy lower costs because they have less overhead."
According to the Massachusetts Alliance for Electric Choice, municipally-owned electric companies offer their ratepayers an average savings of 24 percent over the rates charged by NStar, which serves Plymouth. The MAEC was organized by Patrick Mehr, a member of Lexington's Electric Utility Committee.
However, no town or city has formed a municipally-owned power company since 1926 because the current law gives IOU's the right to set the fair market value for their assets.
"The present system says the town determines the fair market value, which is a very expensive to assess," Sweeney said. "But the IOU's can respond with a much higher figure if they don't like what the town has offered, and that's the price we have to take."
He said no utility will ever accept a community's assessment for its assets, and that any response is likely to be much higher, making the entire process impractical. But the proposed legislation changes that.
"Rep. Kaufman's proposal allows the two sides to offer their own assessments and then the negotiations are forced into arbitration," he said. "The arbitrator's price is binding, although the municipality doesn't have to proceed with the transaction."
Plymouth town manager Mark Sylvia said the town supports the legislation, though it has no plans to municipalize the local NStar power distribution system if the bill passes.
"Deregulation has not kept its promises of lower costs and improved service, and so we're looking at all of our options right now," he said. "But the municipalization process is expensive and very lengthy. I'm not sure if it's the best option for the town right now."
It is probable the cost to purchase an IOU's assets will price many communities out of munis. "It would probably cost the town $500,000 alone just to appraise a takeover of NStar's assets," Sweeney said. "That's why no towns have attempted it since the 1920s.
They didn't want to risk spending all that money and then have the utility respond with an unaffordable assessment to the town."
Purchasing the utility's distribution system would cost tens of millions of dollars. But Plymouth, if it attempted a takeover, wouldn't have to worry about generating its own power.
"The legislation allows for communities to buy their power supply from third-party vendors," Sweeney said. "Hull, which owns its own power plant, is different because it has the wind turbines."
Hull's town-owned electric utility began operating in 1894. Two years ago, the town of 12,000 people took the first step toward energy independence, when Hull Municipal Light flicked the switch to Hull Wind One, a 660-kilowatt, 240-foot-tall wind turbine.
The town plans to add a taller, more powerful turbine at the tip of Hull Peninsula next year and four more offshore turbines in Boston Harbor by 2008. By then, the town could generate all its energy for free.
NStar and MassElectric both oppose the bill and argue the current law prevents foolhardy takeovers of their assets by communities. Most of the municipalities, the two IOU's say, are unprepared to assume the significant costs to maintain the infrastructure and service their customers.
"Towns and cities need to look very closely at all the issues surrounding municipal power companies," NStar spokesman Michael Durand said. "The mechanism in place for cities and towns pursuing a takeover is a deliberate, careful process put there for a reason. It's not something to be taken lightly."
Durand criticized the movement as outdated, though he hinted NStar was already preparing for the bill's passage. A legislative vote isn't likely until next year.
"This is an idea whose time has come and gone," Durand said. "Things have changed in the electric industry and the world and made it so that this is not in the best interest of towns and cities to pursue. But NStar is concerned that if this goes forward, the value of our equipment should be treated fairly, so that our customers who remain with us are not subsidizing the those towns and cities that leave the system."