AIM Business Insider

Misguided Energy Policy Magnifies Shock of Electric Rate Increases

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(Editor's Note: Associated Industries of Massachusetts testified Thursday night at a public hearing conducted by the Department of Public Utilities on a rate increase request filed by Western Massachusetts Electric Company.)

Misguided state energy policy makes even sound rate proposals by responsible utilities hazardous to the economic health of Massachusetts.

Take the pending $28 million rate increase filed by Western Massachusetts Electric Company (WMECO), which serves most of the four western counties of the commonwealth.

WMECO’s proposal includes positive steps on rate design, reduction of on-peak hours, and the value of high electricity load factors. But the ill-conceived state energy mandates and cross subsidies that have been forced on WMECO mean that the proposed rate increase still threatens to chase away key employers who form the backbone of the western Massachusetts job market.

Lose those large electricity users and the jobs they provide and you’re left with a continuing downward spiral in which fewer and fewer ratepayers carry an ever-increasing cost burden for electricity.
 
Here’s the problem.  Massachusetts policymakers have created energy regulations that promote environmental policy over economic development.

Decoupling, for example, allows utilities to recover revenues lost when customers reduce their electricity usage though conservation. Originally proposed by the Patrick administration, AIM has opposed decoupling as a giveaway to utilities at the expense of ratepayers.

State regulators also promote non-economic renewable energy policies that raise rates while accomplishing little in the way of adding renewable power to our energy mix. Some examples:

• Solar carve outs (expected to add hundreds of millions to ratepayers over the next 15 years);
• Utility owned solar (unnecessary and a long term burden on ratepayers;
• Long-term contracting provisions for renewables – a multiyear burden on ratepayers.

All of these government mandates will add between $6 billion and $7 billion to the electric bills of Massachusetts consumers and employers during the next several years. Almost none of those dollars will make WMECO a healthier utility or improve electric reliability for the people of western Massachusetts.

WMECO proposes a number of steps in its rate filing that will create savings for ratepayers:

• Better rate design to more accurately reflect the cost of service;
• Elimination of kWh in demand charges;
• Recognizing the value of higher load factors and effect usage patterns;
• Reducing on-peak times from 16 hours to 8 hours;
• Residential rates which encourage efficient use patterns.

WMECO should also be congratulated for its enormous commitment to energy efficiency.  We have in the past supported modest increases in energy efficiency investments supplemented by federal stimulus money.

But make no mistake: WMECO’s proposed rate increase will reduce competitiveness, discourage investment, and dampen job creation throughout the Pioneer Valley and the Berkshires. The regulatory framework in which WMECO must operate has become unsustainable.

And the WMECO case is only part of the energy cost picture in western Massachusetts. Westborough-based National Grid, which serves 40 towns in western Massachusetts, last year won a $50 million rate increase that includes the same decoupling provisions contained in the WMECO proposal. National Grid ratepayers also face a $1.2 billion increase in their bills as a result of the utility’s pending agreement to buy above-market power from Cape Wind.

The Department of Public Utilities, which is reviewing the WMECO proposal, can take practical steps to help both the utility and its ratepayers:

• WMECO needs to be excused from some low-income cross subsidies. With almost half of customers eligible for reduced electricity cost, the cost to the remainder of the ratepayers is significant.
• DPU should examine the return on equity contained in the WMECO proposal and determine whether the amount is consistent with established standards.

AIM is an intervener in the WMECO case and looks forward to working with regulators to ensure that any rate increase is justified and has the least possible impact on ratepayers.

The energy cost challenges in western Massachusetts underscore the need for Massachusetts to conduct a vigorous review of policies that raise electricity costs without providing benefits to customers and the economy. The long-term solution is an energy policy that preserves jobs and economic opportunity rather than murky political agendas.

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