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Remember the Ratepayer

Posted by John Regan on Sep 28, 2015 10:20:45 AM

A manufacturing company in Berkshire County pays an average of 12.87 cents per kilowatt hour for electricity.

ElectriclinessmallMove that company several miles to the west, over the New York border, and the cost drops by more than half, to 6.15 cents per kilowatt hour.

Remember those numbers when someone tells you that electricity costs don’t affect where companies locate and create jobs. The difference can add up to millions of dollars per year and hundreds of jobs.

The corrosive impact of high electricity costs on the state economy will be front and center tomorrow as Associated Industries of Massachusetts testifies on multiple bills pertaining to solar power and hydro power. The hearing underscores the responsibility of policymakers to refocus Massachusetts energy policy around the one figure largely forgotten in the often esoteric political debates over power – the ratepayer.

It’s the same ratepayer who foots among the highest electricity bills in the country. The same customer whose rates have surged 56 percent during the past decade versus 38 percent for the nation as a whole. The same employer and citizen who have suffered massive increases for several years in winter electric rates because the commonwealth lacks adequate infrastructure for natural gas and hydro power.

“High energy costs have real consequences for some of the most important industries in Massachusetts, from advanced manufacturing to hospitals to colleges and universities,” says Robert Rio, Senior Vice President of Government Affairs for AIM, who will testify before the Legislature’s Joint Committee on Telecommunications, Utilities and Energy.

“Energy policy must fundamentally be about cost and competitiveness. Massachusetts must use competitive market forces to determine the most efficient and cost-effective methods for generating and transporting power to the Bay State.

AIM will oppose five bills that would force Massachusetts employers and consumers to purchase significant amounts of electricity generated under long-term contracts with hydro, wind and solar generators. Employers generally support diversification of energy sources and use of renewable energy, but none of the six bills alone will increase the reliability of the electric system at the lowest possible cost to consumers.

All of the bills in one way or another establish long-term contracts for large hydropower or other renewables. The bills together would authorize nearly 2,700 megawatts of power - more than four times the electricity generated by the Pilgrim nuclear power plant – to come from renewables and hydro power under long-term deals without adequate protection for ratepayers.

The impact of long-term contracts on electricity prices could be severe and lead to unintended detrimental changes in the way customers use electricity

Given the large amount of power, even small price discrepancies would have large economic consequences. For instance if just 1,700 megawatts are contracted and the difference is 6 cents per kWh average the additional burden is nearly $1 billion per year to ratepayers.  

AIM will also oppose a Baker Administration proposal to expand the commonwealth’s dysfunctional solar-energy subsidy program. The measure would add $600 million to ratepayer bills by 2020 on top of the $4 billion that business and residential customers are already paying to subsidize solar installations.

The solar program, referred to as net metering, creates a system in which virtually all the savings (except for wholesale fuel costs) attributable to solar installations are 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. 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.

“Reducing the cost of solar programs and electricity should be the highest priority. Massachusetts ratepayers are not only spending an enormous amount of money for solar power, we are spending at rates double any other state,” Rio says.

AIM seeks a market-based approach once Massachusetts hits its objective of 1,600 megawatts of solar generation.

Topics: Energy, Business Costs, Charlie Baker

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