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Power To The Communities?

Debate about creating more municipal electric utilities is not new, but is intense

By Brandon Butler

Worcester Business Journal Staff Writer 09/26/11

Electricity is a touchy subject in Fitchburg.

Perhaps it goes back to a 2008 ice storm that knocked power out to some residents for two weeks or more.

Or perhaps it’s just because power is expensive in Massachusetts and New England.

Whatever the reason, city officials see an alternative to the status quo of being served by New Hampshire utility company Unitil Corp. Officials want to create a city-run municipal energy utility, or muni.

There are already 41 munis in Massachusetts out of the state’s 351 cities and towns, but they serve only about 15 percent of Bay State residents.

Everyone else gets electricity from four private utilities, including NStar, National Grid and Unitil.

No new munis have been created in decades. But officials in a handful of communities are attempting to change that by passing legislation that has been pending on Beacon Hill for more than a decade that could give new munis an easier path to creation. However, recent reports by the state raise questions about whether it’s worth it.

Cheaper Rates

The basic argument by proponents of munis is that they offer cheaper electricity and better service for residents.

The Massachusetts Alliance for Municipal Electric Choice notes that this year, in most cases, private utilities have levied double-digit percent rate increases to the average electric customer, compared with munis. For an average electric customer using 500 kilowatt hours per month, munis charged, on average, $70. NStar, at $86 a month, was 23 percent higher while National Grid’s $73 is 4 percent higher.

A study commissioned by the state’s Department of Energy Resources (DOER) found similar results, noting that the cost per kilowatt hour charged by a muni is about 2 percent lower than that of a private utility, at 13.34 cents per hour compared to 16.9 cents per hour for a private utility company.

Proponents argue that munis offer lower costs, have more flexible supply options, better reliability and services and are more attuned to what their communities want.
But, the question is: Would that be true if a new muni were created today?

The DOER study, conducted last year, takes an independent view regarding the debate about creating new munis. It raises significant questions about whether munis are actually a better option for communities in the future.

The current munis have been around for decades – in fact, there has not been a new muni created since 1926 (except for one at the former Fort Devens, which is separate because the community is not technically a municipality; rather it’s run by a state organization). If a new muni were to be created today, it would likely have debt obligations that would need to be paid off – something current munis don’t have to face. Plus, new power purchase agreements would have to be made to buy the power they would deliver. Both factors could erode the potential cost savings for ratepayers.

Proponents say even if there isn’t a cost savings, the service would be better.

“If we could provide better service for the same cost, that’s still better than the current arrangement,” said Fitchburg Mayor Lisa Wong. And communities don’t even know if it would be worth it to create a muni. It would cost hundreds of thousands of dollars, perhaps up to even a half-million dollars, Wong said, to study the issue to determine if it makes fiscal sense for a community like Fitchburg.

Companies Can Resist

That’s not an investment local officials are willing to make because proponents say utility companies don’t have to sell their power grid assets to the community, effectively blocking the deal, or what proponents label as veto power.

A community and the utility have to agree on the price the community would pay to buy the transmission lines, transfer stations and all the other equipment needed to run a muni. Since it’s not feasible for communities to install new equipment, they would have to buy it from the utility companies, which are under no obligation to sell it to the community.

Utility companies don’t call it veto power; they call it a business transaction. Alec O’Mera, a spokesperson for Unitil, which serves Fitchburg and three other neighboring towns in North Central Massachusetts, said the company is open to communities exploring the idea of creating munis. But he said it’s important that each community do its own research on whether it makes sense.

One of the biggest arguments for munis is that they’re cheaper. But there are exceptions. For instance, electricity in Princeton through its municipal light department is not cheaper than that of private utilities, said its director, John Fitch. The light department has long-term power purchase agreements that keep the cost of electricity steady. That’s good for consumers, but it also means that when the price drops, Princeton residents don’t see that benefit. If energy prices rise in the future, Princeton residents may have the better deal.

Also, while munis pride themselves on customer service, utility companies say there’s no significant difference in response time after a storm to restoring power. Unitil – which came under heavy criticism for its handling of the 2008 ice storm – said that after Tropical Storm Irene hit the area last month, it took only 36 hours to restore power to about 8,000 of its Bay State customers.