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As cold sets in, electric bills heat up

By Hiroko Sato,

UPDATED: 12/15/2014

If you are on a tight budget this holiday season, you could be thinking twice about flipping that switch on your Christmas lights.

Electricity rates are skyrocketing and are expected to climb even higher in many cases before dropping.

But how deeper you have to dig in to your pocket to pay for it largely depends on who your power supplier is.

For Littleton and Boxboro residents who get their electricity from the Littleton Electric Department, for example, the cost of using 750 kilowatt hour (kWh) of power per month averaged $86.18 between October 2013 through September 2014.

That's almost half the $161.10 that Fitchburg Gas and Electric customers paid and nearly one-third less than $125.76 that National Grid customers paid on average for consuming the same amount of electricity during the same 12-month period ending Sept. 30, according to statistics compiled by The Massachusetts Municipal Wholesale Electric Company (MMWEC).

MMWEC does not publicly release these statistics, but some member utilities do. According to MMWEC, 750 kWh is close to the average monthly family usage. According to Fitchburg Gas and Electric, its ratepayers use an average 600 kWh per month.

These rate gaps are widening even more with the arrival of winter. Littleton Electric rate payers would now pay $88.17, for consuming 750 kWh per month.

For Fitchburg Gas and Electric customers, it now costs $214.

99, which represents a 25 percent, or $43 increase from last winter's rate, according to Alec O'Meara, media relations manager for Fitchburg Gas and Electric.
Starting Jan. 1, these customers will see about a $16.35 reduction on the nonsupply cost part of the monthly bills.

National Grid's current rate -- effective from October through April -- is 62.3 percent higher than the rate for the same period a year ago. Groton Electric Light Department rates have increased about 12 percent from the rates of the previous two years.

In general, municipal electric departments charge less than so-called investor-owned utilities, or commonly known as IOUs, such as National Grid and Fitchburg Gas and Electric.

That doesn't mean, though, that IOU customers will be stuck with higher bills; they have choices to contract with so-called competitive suppliers.

Shopping around for better rates isn't easy, however. Many competitive suppliers offer flat rates locked in for a year or so, which may be lower than IOUs' winter rates but higher than its summer rates.

There is also no website that lists all competitive suppliers with complete rates information -- something that the state Department of Public Utilities says it's in the process of creating.

Some local governments, such as Lowell and Lunenburg, have contracts with competitive suppliers to provide power to everyone in their communities at flat rates with the option given to the rate payers to opt out of the program and sign back with IOUs or other suppliers.

Hampshire Power currently provides power in Lowell for 10.8 cents per kWh, and ConEdison Solutions in Lunenburg for 13.99 cents per kWh.

So why do electricity rates vary so largely among municipal utilities, IOUs and competitive suppliers?

It all has to do with how suppliers buy power, experts say. Under the Electric Industry Restructuring Act of 1997, investor-owned utilities are required to purchase their supply only every six months. The market rate at the time of the purchase then gets passed on to the customers as is, according to O'Meara.

IOUs need to buy power from others because the Act required them to sell their own generating plants in order to encourage competition in the market. 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, spokesman for MMWEC. The MMWEC helps municipal departments with power-supply planning and bidding.

Groton Electric Light Department will be able to distribute power generated at Seabrook Station nuclear-power plant in Seabrook, N.H., for 3.5 cents per kWh in 2018, because it will have paid off the debt for its ownership of a portion of the plant by then, said GELD Manager Kevin Kelly.

The MMWEC is a joint owner in two nuclear-power stations -- the Seabrook Station and the Millstone Unit 3 plant in Waterford, Conn. -- and owns the Stony Brook Power Plant in Ludlow, which runs on natural gas and coal, a share of W.F. Wyman Station in Yarmouth, Maine, which runs on oil, and an ownership interest in the Berkshire Wind Power Project. Many municipal electric departments get supplies from these sources through the MMWEC.

The MMWEC's power portfolio management and hedging program also saved its 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.

But, most important, experts say, municipal utilities usually have long-range power supply contracts that can last 10 years or more, which helps them keep their 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-rate deals, said Stuart Ormsbee, New England chairman of the Retail Energy Supply Association. Competitive suppliers, on the other hand, often trade in spot market. But Ormsbee said they also use fixed-term hedge contracts. Competitive suppliers try 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 skyrocketed 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 people converting heat systems from oil-operated ones to gas-operated ones, Tuohey said.

The bigger issue, however, is the closures of oil and nuclear-power stations due to stricter federal and state environmental regulations that have made it much more difficult for them to compete against their counterparts that run on inexpensive natural gas, Kelly said.

The Mount 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.

The recent IOU rate hikes further explains why the state should amend its law that makes is practically impossible for more towns to start their own municipal utilities, said Patrick Mehr of the Massachusetts Alliance for Municipal Choice. The Legislature should also give IOUs more flexibility for supply procurement, Mehr said.

But no matter who the supplier is, rates are only going up.

"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," Kelly said. "And, it's not even cold (enough to have a peak load) yet," he said.