Employers in Massachusetts pay some of the highest electricity rates in the country, in part because the commonwealth lacks adequate infrastructure to bring natural gas from other regions of the country. AIM Senior Vice President of Government Affairs Robert Rio last week debated the natural-gas issue on Commonwealth magazine's Codcast with Elizabeth Turnbull Henry, President of the Environmental League of Massachusetts.
Massachusetts suffers from some of the highest electricity prices in the country – nearly double those of competitor states like North Carolina. There are lots of reasons, but the reality is that there is no end in sight for rising electricity costs.
At a 5 percent profit margin, every $1 increase in electric rates requires additional sales of $20 just to cover the increase. For employers who also struggle with the cost of health insurance, taxes and wages, it is easy to see why controlling the energy line item is important.
The good news is that there are at least two effective strategies employers can use not only to reduce energy costs, but also to shrink their environmental footprint and drive operational efficiency.
The first strategy is to use less electricity through energy efficiency and on-site generation (including solar or even combined heat and power). Reducing electricity use not only cuts costs, but also shrinks your environmental footprint. Massachusetts has many programs that will help with technical assistance and rebates. Take advantage of these programs since you are paying for them through surcharges on your electric bill.
The second strategy is to change the way you use electricity.
Shift your use of electricity to avoid demand charges, which are assessed at times when the electricity grid is stressed – usually on hot summer days. The utility imposes a demand charge based upon your usage on the peak day of the year. At that point you “own” that amount on the grid, even if you never reach that amount for another year.
The key, then is to reduce your power demand on these days, so you “own” less of the grid going forward. Knowing when to shift your usage through sometimes small operational changes can cut your costs dramatically, with no restrictions on future use.
And shifting use helps the environment too, even though you are using the same amount of total energy. High demand on hot days often causes ISO New England to call upon inefficient oil plants to provide power. All ratepayers chip in to keep these rarely used plants at the ready. Reduce the need for these plants and you reduce costs and emissions – without using less electricity.
There is no one size fits all – each company’s operations are different and strategies for improving your company’s energy management system are available, no matter what the size of your organization.
Begin to understand your energy needs and trends. Don’t focus exclusively on how much energy you are using per day, but where it is used and what times. Look at demand side management alternatives such as energy efficiency and demand response, or on-site generation, but be sure to understand the incentives your utility has available before you commit to a capital project.
At the AIM Sustainability Roundtable meeting scheduled for March 17 you can hear from experts who will share their experiences with power-purchase agreements, energy conservation, metering, and other topics.
Advocates of renewable energy are fond of saying that the billions of dollars siphoned from ratepayers for mandated green programs actually save money in the long run.
The facts tell a different story.
Analysis performed by Energy Tariff Experts, LLC, has found that the cost of state-mandated renewable energy programs has increased by a whopping 320 percent since 2010 for a typical large commercial customer in National Grid territory. These programs include solar energy subsidies, energy efficiency and carbon-reduction taxes.
Similar results occurred in Eversource territory.
It’s even worse for residential customers – the increase in costs for these same programs is more than 400 percent in five years.
And the increases are just beginning. Solar energy subsidies alone are on a trajectory that will add billions of dollars to the cost of electricity over the next decade.
Massachusetts in January 2010 had the third highest commercial and second highest industrial rates in the continental United States. Nearly six years later, after all the renewable energy initiatives, Massachusetts still suffers from the third highest commercial rates and now has the dubious distinction of having the highest industrial rates in the continental US.
Where are the economic benefits claimed by advocates? If they exist, they are clearly not flowing back to ratepayers.
AIM supports the development of renewable energy, but believes that renewable initiatives funded by ratepayers must provide maximum benefit and efficiency for minimum cost.
To understand how much of your monthly electric bill goes to pay for mandated renewable energy programs, download the AIM energy calculator. I also invite you to share your thoughts with me at firstname.lastname@example.org.
“It will only cost a cup of coffee a month.”
We hear that phrase a lot from renewable-energy advocates seeking to justify uneconomical and inefficient government subsidy programs by arguing that they waste only a small amount of money at a time.
But put enough cups of coffee together and these programs turn into a something like a Box O’ Joe that poses a real threat to the Massachusetts economy.
The incremental costs of half-baked energy subsides add up, particularly for large customers like manufacturers and hospitals that cannot avoid them unless they reduce their electricity use to zero through onsite generation, which is not always practical. These politically generated costs are not added to the bottom lines of competitors in other states.
The subsidies avoid ratepayer outrage in large part because their cost is virtually invisible to the consumer, hidden in dark corners of electric bills. Some are tucked under the “energy” portion, some are under “distribution,” some are listed separately. Some, like solar and energy efficiency are listed under both. And don’t forget other costs that are sure to increase over the next few years, including transmission.
How much do these programs cost residential and commercial ratepayers? The state solar subsidy program checks in at $600 million per year and is headed for $1.5 billion per year. The energy efficiency program tacks on another $600 million per year. The regional greenhouse gas program, which charges electrical generators for their carbon emissions, totals another $60 million.
AIM is today unveiling an energy calculator designed to help Massachusetts employers decipher the maze of government-mandated energy subsidies. The calculator was developed with Energy Tariff Experts, LLC, and works for most customer classes (including residential), in National Grid and Eversource territories. Other rate classes will be added as necessary.
Based on trials with some members, the results show:
- Total subsidies for state-mandated programs, most of which have been added since 2008, can equal 25 percent of a customer’s total bill.
- Solar subsidies are so large they will likely become the largest mandated program on a customer’s bills this year. In fact, the cost nearly equals the cost for energy efficiency.
We invite you to use the AIM energy calculator. Also, if you are inclined, please save the spreadsheet and send us a copy. No identifying information is collected on our Web site or on the spreadsheet.
Associated Industries of Massachusetts President Richard C. Lord has been re-appointed to a five-year term on the board of a commission charged with moderating health insurance costs in Massachusetts.
Lord was re-appointed to the 11-member Massachusetts Health Policy Commission board by State Auditor Suzanne Bump. Also re-appointed for five years was Harvard University Economics Professor David Cutler. Former gubernatorial candidate and former Medicare and Medicaid Director Donald Berwick will also join the group under an appointment by Attorney General Maura Healey.
The Health Policy Commission is an independent state agency that develops policy to reduce health-care cost growth and improve the quality of patient care. Created under the state health-cost control law of 2012, the HPC is responsible for monitoring the performance of the health care system, analyzing the impact of health care market transactions and ensuring that health-care costs rise no faster than the overall rate of state economic growth.
“The Health Policy Commission works on the front lines of the battle to make health-insurance costs affordable for employers and their workers,” Lord said.
“It’s a privilege to represent hard-working employers in this important work.”
The commission has recently been reviewing a 4.8 percent surge in total health-care expenditures during 2014, an increase that exceeds both the 2.4 percent increase for 2013 and the 3.6 percent cost benchmark. Massachusetts patients spent $54 billion - that's $8,010 per person – on medical care last year while employers continued to pay some of the highest health-insurance premiums in the country.
The commission heard from health-care experts, elected officials and employers during three days of hearings in October focused on identifying strategies to limit cost increases and improve quality.
AIM-member employers often cite the cost of providing health insurance to workers as one of their primary concerns about doing business in the commonwealth. The issue is among four major iniatives included in AIM's Blueprint for the Next Century long-term economic plan for Massachusetts.
Stuart Altman, Professor of National Health Policy at The Heller School for Social Policy and Management at Brandeis University, chairs the Health Policy Commission board. Other members in addition to Lord, Cutler and Berwick include Wendy Everett, President of NEHI, a national health policy research institute; Carole Allen, a retired pediatrician from Arlington; Martin D. Cohen, president/CEO of the MetroWest Health Foundation; Secretary of Administration and Finance Kristen Lepore; Ron Mastrogiovanni, President and Chief Executive Officer of HealthView Services; Secretary of Health and Human Services Marylou Sudders; Veronica Turner is the Executive Vice President of 1199SEIU.
Lord is widely acknowledged as an expert on the impact of health-insurance costs on employers. He serves on the boards of the Massachusetts Health Quality Partners and the Massachusetts Health Council and is a former board member of the Commonwealth Health Insurance Connector Authority.
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The special interests and solar developers seeking expanded subsidies for solar power in Massachusetts don't talk about how much these handouts cost business and residential ratepayers. Here's a quick look at what it means to your bottom line.
A manufacturing company in Berkshire County pays an average of 12.87 cents per kilowatt hour for electricity.
Move 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.
How serious is the energy cost crisis in New England?
A new study from business and labor organizations warns that failure to expand electricity and natural-gas infrastructure in the six-state region will generate the equivalent of a $5.4 billion tax on employers and homeowners between 2016 and 2020. Such an increase would negate 80 percent of the region’s projected private-sector job growth and drain $16.1 billion from economic output.
The study comes from the New England Coalition for Affordable Energy, which includes AIM. Other organizations include Associated Industries of Vermont, Business & Industry Association of New Hampshire; Brotherhood of Utility Workers Council, UWUA 369; Connecticut Business & Industry Association; Independent Oil Marketers Association of New England; NAIOP Massachusetts; National Federation of Independent Business (CT, MA, ME, RI, VT Chapters); Maine State Chamber of Commerce; and the Retailers Association of Massachusetts.
The economic devastation outlined in the study would be on top of the reported $7.5 billion in energy costs the region has already incurred over the past three winters due to the natural gas pipeline system reaching maximum capacity during winter months to meet both electricity generation and space heating demands.
“Energy issues are almost universally mentioned by members as the number one impediment for expanding in Massachusetts,” said John Regan, Executive Vice President of Government Affairs at AIM.
“This study clearly shows that without action, Massachusetts’ energy costs will go even higher, permanently hurting our competitiveness and resulting in major direct and indirect job losses as consumers are forced to pay higher prices for energy rather than investing that capital here.”
In May of this year, Massachusetts commercial and industrial electric rates paid some of the highest prices in the country for electricity, nearly double North Carolina and even higher than California. While rates in other parts of the country are flat or declining due to available and cheap natural gas, Massachusetts’ rates are increasing.
The study, conducted by Boston consulting firms La Capra Associates and Economic Development Research Group, found that failure to expand the region’s energy infrastructure will lead to a reduction in disposable income that could top $12 billion, and 167,600 jobs lost or not created. These impacts would ramp up from 2016 through 2020, with similar or larger impacts expected beyond that timeframe if infrastructure is not added.
AIM has consistently advocated for more natural gas infrastructure to take advantage of close and abundant natural gas supplies, while at the same time continuing to explore the use of large hydropower and renewables to help with diversification. The association does not take a position on any individual infrastructure projects or financing mechanisms.
Five New England governors, including Massachusetts Governor Charlie Baker, pledged in April 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.
A Beacon Hill conference committee last night recommended that the Massachusetts Legislature freeze Unemployment Insurance rates for 2014, a move that would spare employers from an unnecessary 33 percent tax increase that took effect January 1.
The measure now moves to the full Senate and House of Representatives, both of which have already approved a freeze as part of separate pieces of legislation. Expedited passage by the two chambers would meet a priority of Associated Industries of Massachusetts (AIM) to secure a freeze before first-quarter Unemployment Insurance tax bills go out to employers.
“AIM and its 4,500 member employers commend the legislative conference committee for advancing the Unemployment Insurance rate freeze. We urge the House and Senate to pass the freeze as soon as possible and Governor Patrick to sign it,” said Richard C. Lord, President and Chief Executive Officer of AIM.
First-quarter UI payments are generally due by April 30, but the Massachusetts Department of Unemployment Assistance Advisory Committee recently postponed the deadline until May 30.
The automatic rate $500 million Unemployment Insurance tax increase facing employers came despite the fact that the fund used to pay benefits to jobless residents enjoys a healthy balance of $800 million. While House and Senate members agree on the freeze, they have disagreed about how to wrap that freeze into a broader set of reforms to the state’s costly Unemployment Insurance system.
Separate House and Senate UI reform bills share several common elements, including a new rate table with levels added at each end of the spectrum to decrease the financial burden on high-rated employers with low workforce turnover while penalizing negatively rated employers. The bills also propose multiple-year rate freezes on the new table, and an increase to the wage base upon which benefits are calculated.
Neither reform includes provisions supported by AIM to reduce the maximum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits.
Raymond G. Torto, global Chairman of Research at CBRE and Chair of AIM's Board of Economic Advisors (BEA) uses a medical metaphor to explain the meandering pattern of business confidence in Massachusetts.
"The ongoing strengthening of the economy still feels more like a prolonged convalescence than like robust health. Consumer confidence reports are mixed; federal spending cuts continue to affect Massachusetts companies and institutions; quantitative easing is winding down; the Affordable Care Act is raising more issues for many employers than expected; and financial problems in emerging economies cast a shadow on global prospects,” said Torto.
“For all the progress we have made, business confidence remains vulnerable to such concerns."
That vulnerability was again apparent at the beginning of 2014 as the Associated Industries of Massachusetts Business Confidence Index added six-tenths of a point to 50.8 on a 100-point scale. Confidence remains barely above neutral and barely better than the 50.4 reading in January 2013.
Richard C. Lord, President and Chief Executive Officer of AIM, said the January confidence number extends a pattern of small monthly gains or losses that goes back more than a year. He said tepid confidence among employers underscores the need for Massachusetts to build economic momentum to break out of the slow-growth pattern that has held the commonwealth in its grip since the Great Recession.
“That immediate goal of sustainable growth requires us to address two long-term concerns," Lord said.
"One is excessive business costs, which in a global business environment challenge employers daily. These include health care above all, but also unemployment insurance, taxes, and electric rates. “
The second challenge, according to Lord, is a pervasive shortage of trained and qualified employees.
"Ask any Massachusetts employer about what worries him or her most and you’ll hear the same response: 'I can’t find enough qualified people to run my business.' It’s a concern shared by technology and bioscience enterprises in Cambridge, manufacturing companies in the Pioneer Valley, health care providers in Worcester, and restaurants and hotels throughout the Commonwealth.”
He maintained that Massachusetts must move on to a new phase of K-12 school reform, press forward with the improvement of the higher education system, and train both students and current workers to master the demanding skills that drive areas such as high-value manufacturing, information technology and health care.
The specific confidence readings that make up the AIM Index also continued to move in a narrow range.
The Current Index, tracking employers’ assessment of existing business conditions, was up a tenth of a point on the month, and down two-tenths for the year, at 48.7. The Future Index, measuring expectations for the next six months, added four-tenths on the month, and one tenth on the year, at 52.0.
The Company Index, which measures survey respondents’ overall confidence in the situations of their own operations, added four-tenths of a point in January to 53.7. The Sales Index, however, shed four-tenths to 53.2, while the Employment Index lost six-tenths to 50.6.
"A closer look at the employment results reveals that employers reporting personnel reductions over the past six months outnumbered those adding staff, 25 percent to 19 percent," noted BEA member Fred Breimyer, regional economist at the FDIC. "The outlook for the next six months is rosier, as 25 percent of respondents expect to add staff while 14 percent foresee reductions."
Confidence was off in January among manufacturers (50.6, -3.5) and up among other employers (51.2, +4.3).
"The emerging economies currently experiencing financial turmoil may not themselves be major export markets for Massachusetts exporters, but the situation poses a threat to global trade generally," Breimyer said.