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Robert Rio

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New Solar Subsidy Program Gets It Right

Posted by Robert Rio on Feb 2, 2017 2:00:00 PM

The Massachusetts Department of Energy Resources (DOER), after months of public comment, released on Tuesday its proposal for a new solar-energy incentive program to replace the complex and overly expensive program now in place.

solarpanels.small.jpgWe think the state got it right. And employers and other electric customers will be the better for it.

The proposal adopts suggestions made by AIM to rely on market competition to establish the amount of incentives that developers will receive to install solar energy. The result will be a program that costs half as much as the current one and still encourages the development of solar installations throughout the commonwealth.

Total savings to employer and other electric ratepayers: $250 million per year.

The new program will eliminate Solar Renewable Energy Credits (SREC), one of two methods through which solar developers currently collect subsidies. The other, net metering credits, will remain unchanged.

While some of the details are still being worked out, the new program, called the Solar Massachusetts Renewable Target program or SMART program, will establish a solar tariff rate only after bidding is complete for an initial 200 megawatt block of solar projects. Developers will receive that bid price for 20 years.

That incentive rate will remain the same for all solar projects and will automatically decline 4 percent for every 200 MW block in the future. There will be some “adders” to the base price - for building-mounted systems, solar canopies, and cases in which solar is combined with storage technologies - that would add small amounts to the baseline price.

Projects may still receive net metering credits, but those will offset the tariff to determine the final subsidy. So if the base rate is established at 15 cents and the developer receives net metering credits of 10 cents, the utility will make up the 5-cent subsidy through the tariff.

AIM opposed the scope of the current solar program and was concerned that early proposals for the new program relied on government officials to set tariff levels for solar incentives without using the competitive market to drive down costs to the ratepayer. Such a system would fail to pass along to the ratepayer the 50 percent reduction in solar installation costs that have occurred over the last few years. 

Driving down costs is important for the future of the Massachusetts economy. Massachusetts not only has one of the highest electricity costs in the country, but one of the most generous solar and renewable incentive programs, adding up to nearly $1 billion in 2016 and $2 billion by 2020. Those subsidies add up to nearly 4 cents per kilowatt hour for individual customers even before the new solar incentive program kicks in.

AIM, in a series of comments, urged DOER to adopt a model based on competition. Other states where solar installations cost half as much as Massachusetts already use the competitive model.

Read First Set of AIM Comments

Read Second Set of AIM Comments

Competition reduces prices. Competition is also the hallmark of the recently passed Massachusetts energy bill, which requires utilities to solicit market proposals for hydropower and offshore wind, a notion AIM supports.

The solar proposal still needs to go through public comment and any tariff needs to be approved by the Massachusetts Department of Public Utilities. During the transition period between now and the point at which the new program is approved by the Department of Public Utilities (DPU) – expected January 2018 - the existing solar incentive program will remain in place at a lower incentive rate.  

DOER has developed a program that is well thought-out and enjoys wide support. AIM commends DOER for this step in the right direction and we look forward to working with the Baker Administration and others to get this program approved and implemented as soon as possible. 

If you are interested in following this issue and engaging with AIM on Massachusetts electricity prices, contact me at rrio@aimnet.org or 617-262-1180

Review the DOER Proposal

Topics: Energy, Solar Subsidies

Electricity Ruling Produces $115 Million Refund

Posted by Robert Rio on Mar 31, 2016 7:30:00 AM

Massachusetts electric ratepayers will receive a $115 million refund as the result of a ruling last week in an administrative court case brought by the attorney general and supported by AIM.

Electriclinessmall.jpgA federal administrative law judge, ruling in a case first brought in 2011, reduced to 9.59 percent the guaranteed return granted to the companies that develop and operate transmission lines that bring electricity long distances. It marked the second time that regulators have lessened the rate of return, bringing New England ratepayers total refunds of $310 million.

“Massachusetts employers and homeowners pay some of the highest electricity rates in the country, and that’s why AIM participates in actions like this one that put money back into the hands of growing companies,” said John Regan, Executive Vice President of Government Affairs at AIM.

AIM supported the attorney general in litigation filed in 2011 at the Federal Energy Regulatory Commission (FERC) to challenge the return on equity that New England transmission companies (utilities) are guaranteed on transmission-related projects.

Unlike local distribution rates, which are regulated by the state Department of Public Utilities (DPU), the profits on large transmission projects, which form the backbone of the electric grid, are regulated at the federal level by FERC.

The return on equity for electric transmission companies was set in 2006 at 11.14 percent. AIM was the only general trade association in Massachusetts to sign on to the complaint arguing that the costs were too high in light of economic conditions.

In October 2014, based on the attorney general’s complaint, FERC lowered the transmission owners’ allowed profits to 10.57 for rates in effect in 2011 and 2012 - not as low as the attorney general and AIM wanted, but still enough to generate $78 million in refunds. Those refunds were given back to ratepayers in the form of credits throughout 2015.

The administrative law judge on March 22 further reduced the guaranteed return to 9.59 percent for rates in effect from January 2013 to April 2014. If FERC approves the decision, New England ratepayers will receive another $234 million refund, about half of which will be distributed in Massachusetts. A decision is expected by the end of the year.

And the attorney general isn’t done. She is now arguing that the rates after April 2014 should also be lower than the transmission companies are currently receiving.

“AIM thanks attorney General Maura Healey and her Office of Ratepayer Advocacy for allowing us to be part of this ongoing litigation to bring electric costs down,” Regan said.

Topics: Electricity, Energy

Solar-Energy Subsidies: A Primer

Posted by Robert Rio on Dec 7, 2015 7:30:00 AM

The debate over solar-energy subsidies in Massachusetts has enormous cost implications for employers. But the debate is arcane, complex and littered with head-scratching jargon such as SRECs, net-metering and behind-the-meter installations.

It is also littered with misinformation intended to distort the financial facts of the issue.

Solar.PrimerAssociated Industries of Massachusetts has compiled a plain-English series of questions and answers to help employers understand the issue. The document is excerpted below. The full white paper is available here.

What incentives are available in Massachusetts to defray solar installation costs?

There are three types of incentives:

  • the federal investment tax credit (ITC), which is 30 percent of the cost of solar installation;
  • state solar renewable energy certificates (SRECs); and
  • state net metering credits.

The incentives do not include savings from lowering your electric bill through the use of on-site solar, or any tax savings, such as depreciation, that may be applicable to your business. The ITC is scheduled to be reduced to 10 percent for commercial installations on December 31, 2016 although there are efforts to extend it. Net-metering credits are tax free in Massachusetts.

What’s the difference between a net-metering credit and an SREC? Which types of facilities are eligible to receive them?

Net metering describes the process by which an electric customer uses the solar power produced at its facility to lower the use of electricity. If you produce more than you use, the surplus may be sold back to the utility for net-metering credit. Otherwise, your electric bill is just lowered by the amount you generate.

SRECs are different.

Massachusetts law requires that a certain portion of all power consumed within the commonwealth be generated by renewable resources. The amount is currently 10 percent and it increases 1 percentage point per year. The generating resources may be solar, wind, small hydro and few other generation methods classified as renewable under state law (the definition can vary from state to state).  A certain portion of the 10 percent renewable obligation must be met with solar energy.

Each renewable source essentially generates two components – the actual energy, which in the case of solar is typically used on-site (though it could be sent to the electric grid), and environmental attributes associated with the clean-energy production.

The state determines whether or not utilities or others are in compliance with the renewable obligation through the trading of the clean-energy attributes, known as Renewable Energy Certificates (RECs) or Solar Renewable Energy Certificates (SRECs) if they are generated by solar energy. One REC or SREC is generated every time a megawatt-hour (1,000 kilowatt hours) of energy is generated by the applicable renewable source. Utilities and others buy these RECs or SRECs to meet their obligation set by the state.

The power does not have to be sold with the RECs or SRECs. As long as it is consumed somewhere in the electric grid for New England, an REC or SREC is generated and may be sold.

Here’s an example: A business customer generates one megawatt hour of solar electricity and thus one SREC. The company uses the power on site, but has no need for the SREC since the renewable compliance obligation is on the utility and suppliers of electricity. The company may then sell the SREC to someone who needs it to meet their renewable obligation, generating revenue for the company that produces the SREC in addition to lowering the cost of power.

How much do these incentives cost consumers?

The federal Investment Tax Credit is paid from general tax revenues. The Massachusetts SREC and net metering credit programs are paid by a surcharge on non-solar energy used by ratepayers.

The total tab to Massachusetts electric ratepayers for SREC and net metering will be about $600 million in 2015. That cost is expected to nearly triple by 2025 as solar becomes more ubiquitous. Solar subsidies will thus become the largest single component of distribution charges faced by ratepayers, even more than the cost to maintain the electric grid itself.

According to studies done by the state Department of Energy Resources (DOER), generating renewable energy through solar currently costs about 39 cents per kilowatt hour (kWh). Non-solar renewables can be produced for an average of 4.5 cents per kWh. Almost half of every dollar spent for renewable power goes to subsidize solar, yet it only generates 7 percent of the clean energy. 

What do those costs mean for employers?

Massachusetts already has one of the highest prices for electricity in the continental United States (typically among the top three for residential, commercial and industrial ratepayers). Our rates are double those of North Carolina.

Companies that use large amounts of electricity to manufacture products or to provide 24/7 medical care end up paying hundreds of thousands of dollars each year to fund solar developments for someone else. These artificially inflated electricity costs have forced scores of manufacturers to leave Massachusetts – or to close – during the past two decades.

Solar subsidies also increase the cost of electricity to cities and towns, translating into higher taxes, higher education costs and higher medical costs.

My solar-energy vendor told me there is a “cap” on the amount of solar allowed in Massachusetts and that I should support an increase in that cap. Does that mean I can’t install solar panels on my property once the “cap” is reached?  

Not at all. The “cap” does not limit solar installations in any way. It does change the way some facilities (depending on size and geographic location) are reimbursed by the utility for net metering credits.

Could you explain?

There are two general types of solar installations.

Some businesses add solar generation to reduce their electricity use. All output from the solar panels is used on site. These are called “behind the meter” installations. Most companies that add solar have an electric load much higher than the solar panels can provide. They therefore do not generate surplus net metering credits.

The second type, known as “solar farms” or “virtual net-meter” installations, are primarily built by developers to send power back to the utility, essentially acting as a power plant.  

When the Massachusetts lawmakers enacted the solar legislation, they allowed facilities that generate surplus net-metering credits to be compensated for those credits at the full retail rate of electricity. So these facilities are producing electricity like a power plant while receiving reimbursements as if they were selling electricity like a utility.

The generous reimbursement prompted the Legislature to “cap” the program. Once the cap is reached, additional solar facilities that come on line would not receive the full retail rate of power, but rather a lower rate. They would, essentially, be treated like any other power generator, including wind energy producers.  

Is my business affected by the cap?

There is a good chance that it is not.

Homeowners and most small businesses are exempt from the cap and therefore continue to receive the higher retail rate for net metering.  And the cap is utility specific. While National Grid territory has reached its cap, Eversource territory has not.

Most AIM member employers who move to solar do so with so-called “behind the meter” installations, which are not typically impacted by the cap because the facility is generally not selling electricity back to the grid. If the company occasionally sends power back to the grid during periods of low onsite energy usage, it may be impacted by the cap if it applies. Generally, however, this revenue impact is minimal.  

Even after the cap has been reached, a company can still receive benefits under the Federal ITC and SREC program. In fact, in most cases, the ITC and SRECs are far more lucrative than net-metering revenues. And remember, net-metering benefits are tax free so you can still save, even if revenue is lowered.   

So if I am a business and just want to put solar on my roof to lower my bills, can I still do it?

Even though your installation is credited against the cap for accounting reasons, the presence or absence of a cap has no financial effect on your ability to lower electricity costs through the use of solar. You will continue to receive retail credit for the power you do not use as well as SRECs and the ITC as applicable. 

Read AIM's Position Paper on Solar Subsidies

Topics: Massachusetts economy, Energy

Infographic | Massachusetts Solar Subsidies Out of Line

Posted by Robert Rio on Nov 2, 2015 7:30:00 AM

Massachusetts maintains some of the richest subidies in the country for developers of solar energy. These rich incentives are unnecessarily raising annual solar costs to almost $600 million per year. Left unchecked, the program will siphon $9 billion from businesses and homeowners and into the pockets of developers during the next decade. 

 

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Topics: Energy

Infographic: The Cost of Electricity in Massachusetts

Posted by Robert Rio on Sep 29, 2015 12:39:33 PM

Energy.09.29.15

"Today, Massachusetts has taken a giant step forward toward a clean energy future. This legislation will reduce electric bills, promote the development of renewable energy, and stimulate the clean energy industry that is taking root here in the Commonwealth…" , Governor Deval Patrick as he signed the Green Communities Act in 2008.

Boston Herald in 2011 reveals a staggering $4 billion dollars in extra cost to Massachusetts ratepayers by the Green Communities Act.  Boston Herald November 10, 2011, "Martha Coakley: ‘Green’ act costs $4B."

Senate Solar Subsidy Could Add $600 Million to Electric Bills

Posted by Robert Rio on Jul 27, 2015 7:35:47 AM

The state Senate last week passed on a voice vote with little debate a solar-energy subsidy that could add as much as $600 million to the electric bills of Massachusetts consumers, businesses and institutions.

solarpanels.smallApproval of an amendment doubling the scope of state subsidies for solar power will leave consumers with a total tab of $4 billion by 2020. The amendment contained none of the ratepayer protections advocated by AIM and others.

The measure now goes to the House of Representatives as part of a larger bill that would require virtually all permitting and financial decisions by the state to conform to a still-vague plan to adapt to climate change.

Associated Industries of Massachusetts opposes increasing the solar subsidy because virtually all the savings (except for wholesale fuel costs) attributable to solar installations are basically a transfer from non-participating ratepayers to those who have solar, increasing costs for those who may not be able to take advantage of solar programs.

AIM supports instead the creation of new policies that continue to promote the expansion of solar energy in Massachusetts without forcing non-solar customers to subsidize millions of dollars in profits for developers.

“It is unconscionable for lawmakers to take money from low-income homeowners and small businesses that already pay the highest electric rates in the country and put it in the pockets of solar developers,” said John Regan, Executive Vice President of Government Affairs at AIM.

The cost of solar subsidies in Massachusetts is almost twice the level in neighboring states. AIM and others, as part of a task force established by the Legislature last year, advocated reforming the current program and bringing costs into line with other states before expanding the program.

We believe:

  • Reducing the cost of solar programs and electricity should be the priority.
  • Competition in solar procurement will drive down costs.
  • Those who are still “Connected” to the grid must pay their fair share of maintaining the grid that they in fact rely upon. 
  • There should be no grandfathering of the current program when a new program is enacted.
  • The current net metering cap should not be increased until a new solar program is developed that is cost-effective and sustainable. 

All these increases have come at a time when Massachusetts pays the highest electric rates in nation because of past bad policy decisions. According to the US Energy Information Administration (EIA), an arm of the Department of Energy, residential rates in April were the second highest in the continental US, just a fraction of a cent below Connecticut and nearly double North Carolina.

Comparing the data to the same time last year, residential electric rates in Massachusetts have increased 23 percent while the national average has inched up only 2.7 percent.

In the Commercial and Industrial sector, rates increased 10 percent relative to last year, while the average national rate for these sectors declined.

Topics: Massachusetts economy, Energy

Legislature Should Rein in Solar Subsidies

Posted by Robert Rio on Jun 1, 2015 3:08:08 PM

In the not-to-distant future, up to 15 percent of your electric bill’s distribution charge could be used to pay for the solar panels on your neighbor’s house.

solarpanels.smallThat’s why a Task Force created by the Massachusetts Legislature is recommending changes to a Bay State solar program that is growing exponentially faster than similar initiatives in other states. Associated Industries of Massachusetts served on the so-called Net Metering Task Force and will today urge lawmakers at a public hearing to use the report as a roadmap for a significant overhaul. 

The outcome of the debate over solar energy subsidies has tremendous implications for the economic future of the commonwealth. The current program, left unchecked, will add an estimated $4 billion between now and 2020 to the electric bills of employers and citizens who already pay some of the highest energy costs in the nation.

While it is understandable that solar energy installers and even some participants want to keep the status quo, virtually all the savings (except for wholesale fuel costs) attributable to solar installations are basically a transfer from non-participating ratepayers to those who have solar, increasing costs for those who may not be able to take advantage of solar programs. The viability of the program depends on this inequity. If everyone took advantage of solar programs, there would be no ratepayers left to pay the cross-subsidy.

Additionally, as solar programs increase, there are fewer customers to pay the cost associated with maintaining the distribution and transmission system, which is still required to be ready willing and able to serve the customer when the sun is not shining. Solar customers also fail to pay their fair share of social costs embedded in distribution rates, causing a massive shift in who pays for programs that serve low-income customers.

Here are some important points from the Task Force report that should serve as a roadmap for any net metering legislation:

  • Reducing the cost of solar programs and electricity should be the priority: Massachusetts ratepayers are not only spending an enormous amount of money for solar power, we are spending at rates double that of any other state, including some nearby. Bring unsustainable costs in line with other state programs.
  • Competition in solar procurement will drive down costs: The current method of purchasing solar does not rely on the competitive market, which drives costs lower and allows ratepayers to take advantage of the declining costs of solar installations. For example, recent land-based wind contracts that were procured competitively under Section 83 of the Green Communities Act have lowered the cost of energy because competition reduced the cost of these projects to below wholesale electric rates. The same can be done in the solar market.
  • Those who are still “Connected” to the grid must pay their fair share of maintaining the grid that they in fact rely upon: The notion that those who use solar power are not using the electric grid is a myth. Even those who use solar for all their electricity needs rely on the electric grid to supply power when the sun isn’t shining. The cost of maintaining the grid, and backup power for the solar users, is not currently paid by the solar user and this cost is basically added to everyone else’s bill. In addition, those who net meter to zero (and those who receive rebates), are not paying any social costs embedded in rates, including low-income reimbursement, energy efficiency, and several other programs.
  • There should be no grandfathering of the current program when a new program is enacted: Any promises made about the sustainability of the current rebates and financial incentives were made by salespeople and not by the legislature or DPU.  There was never any guarantee given to solar users that the current program would continue to be as lucrative forever. Therefore, the current participants should immediately be brought under any new system.
  • The current net metering cap should not be increased until a new solar program is developed that is cost-effective and sustainable: The current cap has been hit in some utility territories. This cap was enacted by the legislature for the simple reason that is was needed to contain costs. Therefore it should not be raised until a new program is enacted. Additionally, contrary to reports of the demise of the solar industry, there is still some room in the caps in some territories and small solar systems are not under any cap. Raising the cap without reform will imbed millions of dollars into the long-term rates of ratepayers and make the situation worse. 

The Net Metering Task Force Report contains clear data that shows the current system is working best for solar developers and investors at the expense of business (and residential customers) trying to build and expand their businesses without the benefit of overly generous cross-subsidies.

 

Topics: Energy, Subsidy

Governors Address $7.5B Energy Question

Posted by Robert Rio on Apr 27, 2015 8:44:53 AM

$7.5 billion.

That’s the amount of money Connecticut Governor Dannel P. Malloy says has been added to the electric bills of New England employers and homeowners during the past two years because of natural-gas pipeline constraints.

ElectriclinessmallEmployers should therefore be encouraged that five New England governors, including Massachusetts Governor Charlie Baker, met in Hartford last Thursday and pledged to work together to help consumers who pay more for electricity than almost anywhere else in the United States. While the costs and political challenges of investments in natural gas pipelines, transmission wires and renewable energy remain formidable, the governors nevertheless acknowledged that solving the energy crisis “is greater than any one state can solve alone.”

“We recognize that each state may support addressing our regional energy challenge in different ways. These efforts must be done in partnership with state legislatures, and respecting the requirements of laws, regulatory proceedings, and opportunities for public participation that are unique to each individual state,” the governors said in a statement.

“Together and respecting the bounds of individual state laws, we plan to continue to work to seek out economically beneficial infrastructure solutions to New England’s power system challenges. We are committed to working as a region to advance New England’s shared economic, energy, and environmental goals.”

The statement was consistent with the recommendations that AIM and statewide business organizations in Connecticut, New Hampshire and Maine made to the governors in an April 1 letter noting that regional and federal policies have boosted New England’s reliance on natural gas to generate electricity from 15 percent to more than 50 percent.

“Until now, our associations worried about lost job growth and economic activity as … enterprises expanded operations elsewhere. Given the current energy crisis, we now face a bleaker scenario: employers moving existing jobs out of New England to lower-cost locations around the country or world,” the business associations said.

“Lack of urgent leadership by New England’s governors may well lead to higher unemployment and a lagging economy for years to come.”

Average electric rates in Massachusetts are the third highest in the nation for industrial ratepayers, and more than twice as high as companies pay in the competitor state of North Carolina. Those costs place employers at a significant disadvantage when competing with businesses located in other areas of the country.

AIM has long maintained that any solution to the region’s energy problem must be fair to ratepayers, market based and implemented without subsidies that force one group of customers to pay the freight for others. The association has opposed programs like Cape Wind that gouge ratepayers without providing meaningful benefits. 

In addition to communicating with the New England governors, AIM currently sits on a commission to bring the commonwealth’s solar energy program into line with other states that install solar for less than half the price of what Massachusetts consumers pay. The association also represents employers on the Energy Efficiency Advisory Council, which oversees nearly $1 billion in annual spending for energy efficiency.

AIM and its 4,500 member employers urge the New England governors to continue their discussions and to solve one of the key burdens facing the regional economy.

AIM has recently established an Employer Energy Interest Group. If you would like to be on this group and receive regular updates, please email me at rrio@aimnet.org.

Topics: Electricity, Energy, Charlie Baker

Groceries Please, Hold the Politics

Posted by Robert Rio on Jan 30, 2014 2:33:00 PM

Associated Industries of Massachusetts and other business groups have filed a legal brief supporting the right of supermarkets to prohibit political candidates from collecting signatures on store properties.

Court CaseThe filing comes in a case before the state Supreme Judicial Court (SJC) in which a candidate for governor’s council sued Roche Brothers supermarkets after he says he was prohibited from gathering signatures near a Roche market in Westwood. The case could have significant implications for the many commercial property owners who belong to AIM.

Steven M. Glovsky, who brought the suit, alleges violation of his constitutional rights. The case was dismissed at the lower court but Glovsky appealed. The case will be argued in front of the court on February 3.

The SJC ruled in 1983 that candidates may not be barred from gathering signatures at shopping malls even if the owner does not want them there. Glovsky is asking the court to extend the protection to include places such as supermarkets and some commercial buildings. These properties, in Glovsky’s view, have taken the place of traditional downtowns and have become public spaces similar to malls.

AIM and the New England Legal Foundation argue in their brief that expanding the right to collect signatures is not warranted and would take away the rights of property owners to decide who should solicit signatures on their property.

“Glovsky even goes so far as to advocate that, for any piece of commercial property that is, allegedly, the best place for a candidate to gather signatures, the Court should apply a standard under which the property owner’s rights would necessarily be subordinated to the rights of the aspiring candidate, unless the owner can prove, in court, that he would suffer unavoidable economic harm,” says the brief, which is also supported by the Greater Boston Real Estate Board, the Massachusetts Food Association, NAIOP Massachusetts and other organizations.

“The Roche Brothers supermarket’s standing invitation to the public is to shop there, and the entrance area is to be used for the utilitarian purposes of entering and exiting the store when shopping, and not for non-commercial purposes. This area, in extent and configuration, is not comparable to the common areas found in many large shopping malls, notably those where the public is regularly encouraged to gather in large numbers, socialize, linger, etc…”

AIM frequently intervenes in court cases with broad implications for Massachusetts employers. Those cases most commonly revolve around contractual interpretations, jurisdictional issues, energy, tax and healthcare disputes. 

 

Topics: Litigation, Elections, Associated Industries of Massachusetts, Massachusetts Supreme Judicial Court

Landmark Law Cuts Electric, Gas Bills for Many Businesses

Posted by Robert Rio on Jan 8, 2014 12:48:00 PM

Businesses that purchase electricity or natural gas from NSTAR or Western Massachusetts Electric Company could see the distribution portion of their bills drop by as much as 14 percent as Massachusetts ends the practice of commercial/industrial customers subsidizing the power system to the tune of tens of millions of dollars each year.

Electric RatesWhile individual bills may vary, commercial/industrial electric customers in NSTAR and Western Mass Electric Company territories (both operating companies of Northeast Utilities) will collectively see reductions of more than 20 million dollars on the distribution portion of their bills. Some customer classes will see reductions as high as 7 percent in NSTAR territories and as high as 14 percent in Western Massachusetts Electric territory.

These are permanent reductions resulting from changes in the way costs are allocated.

The Massachusetts Department of Public Utilities (DPU) approved the new NSTAR and Western Massachusetts Electric rates late last month effective January 1.  Customers in National Grid and Unitil territories will see changes over the next few months, as will gas customers in all utility territories.

“The law and the new rates usher in a fair and efficient energy system in Massachusetts,” said Richard C. Lord, President and Chief Executive Officer of Associated Industries of Massachusetts.

“AIM and other business groups - including the Western Mass Industrial group, PowerOptions and the the Energy Consortium - along with the office of the Attorney General acting in her role as the ratepayer advocate, participated extensively in the DPU process, submitting testimony and filing comments to ensure the intent of the law was carried out.”

The change in the law corrected a longstanding problem with the way electric and gas costs were allocated to customers.

Under the previous rate-making process, medium and large commercial and industrial (C&I) customers saw the “distribution” portion of their electric and gas bills - the part that reimburses electric and gas utilities for the cost of maintaining their infrastructure – rise dramatically. Some of the price increases were driven by “reconciling factors,” also known as “trackers” that are costs over which the utility has little or no control - pension adjustments,  smart grid pilots, net metering, capital investments, storm costs, and some low-income programs.

The Department of Public Utilities historically ordered that these “tracker” costs be paid by ratepayers on a volumetric basis - the more energy a customer used the more the customer paid – even though there was no cost causation between the amount of energy a customer used and the reconciliation factor revenue requirement.

The policy has resulted over time in an unfair cross-subsidy of tens of millions of dollars per year.

The new law required the DPU to order each utility to identify trackers (there were several within each utility) and change the way each is allocated to reflect the true cost of providing the service to customers, regardless of how much energy is used. Each customer class pays only that portion of these reconciliation factors based on the relative cost of the rate class on the distribution system.

“AIM would like to thank the legislature, particularly Representative John Keenan and Senator Ben Downing and the Attorney General for their roles in ensuring that real rate reform and fairness is now embedded in utility rate design,” Lord said.

Topics: Electricity, Natural Gas, Energy

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