COMPETITION, HIGH ENERGY COSTS AT ROOT OF MUNI-ELECTRIC BILL
By Michael Norton
STATE HOUSE NEWS SERVICE
STATE HOUSE, BOSTON, JUNE 8, 2011… It's been 85 years since the last municipal electric utility was created, but officials from north central Massachusetts on Wednesday said it's time for the Legislature to give cities and towns the tools to compete with major utilities.
Proponents of legislation removing barriers to the formation of municipal electric utilities predict the bill's passage will likely not lead to a rush of new utilities, but will apply an extra level of pressure on private utilities to improve service and make rates more affordable.
Rep. Jennifer Benson (D-Lunenberg) said her interest in the bill was spurred by a 2008 ice storm that knocked out power for two weeks and left residents furious with the restoration efforts of Unitil.
"Communities are really hemmed in," Benson told the Committee on Telecommunications, Utilities and Energy. "They have no choices about where they get their electricity."
Rep. Stephen DiNatale (D-Fitchburg) predicted the bill (H 869) would keep utilities honest by removing the veto power investor-owned utilities possess over attempts to form municipal electric utilities.
"I think it's important that we have an option in our communities," added Sen. Jennifer Flanagan (D-Leominster).
After the hearing, committee co-chairman Sen. Benjamin Downing (D-Pittsfield) said a 2010 state report showed municipal utilities tend to have lower costs than investor-owned utilities, but also operate without many of the energy efficiency and clean energy requirements and mandates.
Downing said bill supporters are correct in claiming there's no way to form a muni-electric utility under current laws, and said the report provides "guidance on ways we might go about reforming the process."
Asked if there was not enough competition in the industry, Downing said he believed that "in some areas" of the state competition could help improve utility customer service.
He also agreed that even the threat of muni-electric utilities forming could make private utilities more responsive. "Under the existing law, you don't even have the possibility," he said.
Fitchburg Mayor Lisa Wong, the former director of that city's redevelopment authority, said she hears weekly from businesses that are either closing down or relocating because of high energy bills. Describing "stacks" of emails from frustrated ratepayers, she said, "They cannot afford their utility bills."
The current law governing formation of municipal electric utilities was written in 1900, said Thomas Philbin, legislative analyst for the Massachusetts Municipal Association, an organization representing cities and towns that supports the bill. "As you can tell it needs to be updated," Philbin told lawmakers.
Philbin said consolidation in the power distribution industry has meant less competition. Forming a municipal electricity utility under current laws, he said, is a "non-starter" and would require municipalities to string together new poles and wires. Under the bill, he said, state public utilities regulators would set a fair price for municipalities to acquire electricity distribution infrastructure.
Noting the bill cleared the same committee last session, Philbin urged committee members to do the same again this year and then "fight for it on the floor."
According to a January 2010 state Department of Energy Resources report, new municipal electric utilities would likely not resemble existing muni's, which have been in existence for more than 80 years.
The report identified changes in the industry landscape. New muni's would need to carry significantly higher debt levels, for instance, and federal laws preclude municipalities from purchasing assets of an investor-owned with tax-exempt debt. Also, existing muni's either have ownership interests in power plants or arrangements that act as a hedge on rising power costs.
The report concluded: "The question of whether municipalization of electric power systems will lead to benefits for departing customers is one that requires a great amount of case-specific study and analyses." It added, "While existing municipal utilities provide lower rates to customers at reliability levels comparable to those provided by the IOUs, it is unclear that such benefits can be replicated by a new municipal utility."
Robert Rio, senior vice president of Associated Industries of Massachusetts, testified in favor of legislation (S 1679) making changes to the Green Communities Act, including a requirement that future long-term renewable energy contracts be competitively bid.
While he did not offer comment on the muni-electric utility bill, Rio said commercial electricity costs in Massachusetts are among the highest in the nation, citing federal data from February 2011 showing Bay State costs 38 percent higher than the national average. Rio also read from an email from a major employer in southeastern Massachusetts paying twice as much for electricity as out-of-state competitors.
Committee co-chairman Rep. John Keenan (D-Salem) said the panel would likely hold hearings in the fall on the "successes and failures" of the Green Communities Act.