Beacon Hill: Don't Mess With Success on Energy

Posted by Bob Rio on Jul 27, 2018 7:45:00 AM

Massachusetts lawmakers, led by the state House of Representatives, got energy policy right two years ago.

ElectriclinessmallWe now have proof that the landmark 2016 Beacon Hill energy bill requiring competitive procurement of nearly 1,200 megawatts of clean energy is helping the environment without bankrupting the companies and homeowners who pay electric bills.

The New England Clean Energy Connect (NECEC), which won a competitive bid to move zero- carbon hydro power from Hydroquebec over transmission lines built by Avangrid through Maine, is seeking state approval for a 20-year contract with a levelized price (2017 dollars) of 5.9 cents per kilowatt/hour (kWh). In real dollars the price begins at approximately 6.4 cents per kWh in 2023 to slightly more than 10 cents per kWh in 2043.

The average cost is about 8.1 cents per kWh 

That’s surprisingly close to today’s wholesale prices.

But here’s the catch – none of these encouraging developments would have taken place if the Legislature had increased the so-called Renewable Portfolio Standard (RPS), a step that ironically is being debated now as part of a 2018 energy bill. AIM believes increasing the RPS will impede rather than further the goal to reduce greenhouse gas emissions 80 percent from all sectors by 2050.

The reason is that the RPS does not include large hydro power projects such as NECEC, even though hydro power emits no carbon. RPS-eligible sources consist primarily of onshore and offshore wind and solar. (Offshore wind contracts should be filed shortly with the Massachusetts Department of Public Utilities).

As the RPS mandate increases (along with other energy mandates) hydro power will at some point become ineligible to receive credit in Massachusetts for its clean-energy attributes. Based upon AIM’s analysis of the 2018 energy proposals, hydro power could be out of the energy mix before the end of the proposed 20-year Avangrid contract term and well before the RPS approaches 100 percent.    

The result is that Massachusetts business and residential consumers could end up paying for hydro power they can’t use to comply with clean-energy laws. 

Instead of taking the disruptive step of increasing the RPS, the Legislature should instead enjoy the success of their efforts to create a dynamic energy market in Massachusetts:

  • Massachusetts is moving forward with plans to develop more than 2,800 MW of zero-carbon energy, representing 40 percent of the commonwealth’s electric load at full build.   
  • A new solar program will double the amount of current solar capacity.  
  • There is continued innovation in Massachusetts’ nation-leading energy efficiency program.  
  • New energy storage pilots and rebate programs are rolling out. 
  • New electric and other alternative vehicle programs will tackle the largest source of greenhouse gas emissions – transportation.  

AIM and its member employers are committed to encouraging clean energy without increasing the RPS.

We urge the administration and the Legislature’s energy conference committee to discuss additional competitive solicitations of clean energy, including offshore wind and hydro power.  Those discussions should include a review the procurement process to ensure it has led to the lowest possible prices for Massachusetts consumers while creating opportunities to grow a new clean energy industry here.


Topics: Electricity, Energy, Hydro Power

Renewable-Energy Mandate Endangers Hydro Deal

Posted by Bob Rio on Jun 8, 2018 8:23:48 AM

Proposed legislation to increase the amount of renewable energy that electricity suppliers must purchase may jeopardize a recently announced project to bring more than 1,000 megawatts of clean electricity to Massachusetts from Hydro-Quebec.

HydroMore significantly, it would remove hydro power as a long-term potential source of clean energy for Massachusetts.

The recently announced hydro project, to be developed by the power company Avangrid, will begin moving hydro power to the commonwealth over a transmission line through western Maine by 2022. The development would curb greenhouse- gas emissions by substituting hydro power for electricity from fossil-fuel plants.

The Avangrid proposal has been championed by the Baker Administration and supported by AIM.

Final contracts are expected to be signed within the next several days. The project will then be filed with the Massachusetts Department of Public Utilities (DPU) to determine whether it is cost-effective for ratepayers.

But An Act to Increase Renewable Energy and Reduce High-cost Peak Hours (H.1747) and similar bills now being debated on Beacon Hill threaten approval of the Avangrid project because they focus only on renewable energy and penalize clean-energy sources like hydro power.

H.1747 was reported favorably by the House Committee on Telecommunication, Utilities and Energy Committee (TUE) last week.

H.1747 increases what is known as the renewable portfolio standard (RPS) – the amount renewable energy (primarily wind and solar) that electricity suppliers need to purchase to serve their electric load. The RPS for 2018 is 13 percent of a suppliers’ total electric load, increasing 1 percent per year.

H.1747 would increase that rate marginally for the next few years, then to 2 percent per year beginning in 2020 until it reaches 100 percent. Other proposals would increase it even faster.

Renewable Portfolio Standard Fact Sheet

Here’s the problem. Hydro power is not eligible for inclusion in the RPS under Massachusetts law. As the RPS mandate increases (along with other energy mandates) hydro power will at some point become ineligible to be sold in Massachusetts. Based upon AIM’s analysis of the small increases proposed in H.1747, hydro power could be out of the energy mix before the end of the proposed 20-year Avangrid contract term and well before the RPS approaches 100 percent.    

The result is that Massachusetts business and residential consumers will end up paying for hydro power they can’t use.  That conundrum could significantly impact the cost-effectiveness determination of the proposed hydro power contract.   

The bottom line is that any bill that raises the RPS will eliminate the possibility of the legislature adding more hydro power to our energy supply. That’s a shame because the amount of power Massachusetts needs to meet its clean-energy goals is immense. Shutting out hydro will add decades to the time frame needed to achieve those goals.

Why does H.1747 and similar legislation put all our energy needs in one basket - essentially offshore wind – when at least part of the solution is already built?

We cannot believe that it is the goal of the Legislature to close the door on any long-term, cost-effective contracts for hydro power beyond the current procurement while disrupting the current procurement from reaching its full potential. That is the net effect of raising the RPS.

We urge the House Ways and Means Committee to turn thumbs-down on this bill. It will not help us achieve our carbon goals.

Letter Opposing An Act to Increase Renewable Energy

Connect with Bob Rio on Twitter, @robertrioaim, or at

Topics: Electricity, Environment, Energy

Competition Moderates Clean-Energy Costs for Ratepayers

Posted by Bob Rio on Jan 16, 2018 8:30:00 AM

Clean energy in Massachusetts is finally subject to the laws of economics. That’s good news for both businesses and residents throughout the commonwealth who pay some of the highest electric rates in nation.

Hydro.jpgThe current competitive bidding process being conducted by Massachusetts utilities for large scale hydropower, onshore and offshore wind, and solar will not lower the price of electricity – at least not in the next few years. But ratepayers will at least be assured their money is being spent wisely.

Governor Charlie Baker signed two energy bills in 2016 that swept away the sweetheart deals and overly generous subsidies that characterized the clean-energy business prior to that time. The bills required purchases of clean energy to be competitive and transparent. The results are already evident, even before the contracts are signed.

In April 2017, as part of the first requirement for the utilities to purchase clean energy (primarily large hydropower from Canada and onshore wind) a request for proposals was sent to developers.

Suppliers responded with nearly 50 proposals, far more that the total cumulative amount allowed in the legislation. Some names you might recognize – Hydroquebec, for instance, has been sending power to Massachusetts for decades. But others may not be as familiar – Emera, Nalcor, TDI, Nextera, and Avangrid – some partnering with utilities National Grid and Eversource - all vying to serve Massachusetts consumers.

The clean energy process even attracted a bid from New England-based Deepwater Wind, which submitted a small offshore wind proposal, even though the larger competitive solicitation for offshore wind was not due until this month, separate from the initial clean energy bidding process.

While prices haven’t been disclosed yet (the analysis is based on a complex evaluation of bids and is confidential until a winning bidder is selected following by a public process at the Department of Public Utilities process), the fact that so many developers “sharpened their pencil” is a good start.

Bids under the clean-energy program are scheduled to be awarded around January 25. Bids for the separate offshore wind program will be selected on April 23..

Competition will have a particularly dramatic effect on solar energy.

Although some small solar projects were bid as part of the clean energy proposals, the vast amount of solar installations are currently subsidized through a different program that has been around for several years. It has become not only expensive – $500 million dollars per year, but also overly generous as the cost of solar installations has dropped more than 50 percent due to lower market prices.

Most states went to a competitive framework years ago – and saw significantly lower prices, but Massachusetts program is just starting. Bids for new solar projects were due in December. Those bids will establish a baseline process for solar power for the next several years. Based on the experience of other states, the prices should drop by more than half.

And that’s not all. In both the offshore wind and solar programs, future projects must be lower than the current prices, all but guaranteeing that the state has bent the price curve for these installations.

It’s an ambitious move. And in the aftermath of the Cape Wind debacle, some Massachusetts ratepayers may find it hard to believe that clean energy and offshore wind farms could be competitively priced and developed cost-effectively.

But that is what is happening. And the diversity of projects was no surprise to AIM – early supporters of bringing competition to clean energy.

The debate about whether the commonwealth will pursue clean energy is over. So is the debate about the value of competition to Massachusetts electric customers.

Topics: Electricity, Energy, Solar Subsidies

Take Action to Limit Electricity Rate Hikes

Posted by Bob Rio on Jul 22, 2016 11:57:57 AM

Employers concerned about the rising cost of electricity in Massachusetts take note – it’s time to contact members of a legislative conference committee hammering out an energy bill that could make your current electric bill look like child’s play.

Electriclinessmall.jpg The message: Pass a bill that follows the detailed recommendations of a four-page letter sent by AIM earlier this week.

The Legislature and Governor Charlie Baker have made it a priority to secure passage of an energy/electricity bill prior to the end of the session on July 31. 

AIM supports the commonwealth’s efforts to transition its economy to non-carbon fuel sources and attract new businesses to Massachusetts.  At the same time, the complex House and Senate energy bills now in conference will have far-reaching and irreversible impacts upon employers and citizens alike during the next two decades. 

One fact is clear: The final bill will raise electric rates.  Under virtually any scenario the above-market costs passed to ratepayers in the form of rate hikes could be larger than any utility rate hike in history. Massachusetts could end up buying up to 40 percent of its electricity from high-priced renewable energy sources.

The disparity between electric rates in Massachusetts and those in competing states is hindering the ability of employers to attract and retain jobs. The list of internationally known companies that have moved out of Massachusetts just in the last year is long and includes Polartec in Lawrence; SABIC in Pittsfield; Kraft Foods in Woburn; General Mills in Methuen; General Foods in Woburn; and Notini and Sons in Lowell.

Traditional companies located in Gateway cities are at particular risk. These companies are not beneficiaries of the new economy, but still provide good paying jobs, tax revenue and spin-off spending to their communities. 

Other Massachusetts employer groups also sent a letter to the conference committee this week urging lawmakers to factor in costs to ratepayers.

Contact the Energy Conference Committee


Topics: Electricity, Energy

Senate Advances Energy Bill

Posted by Bob Rio on Jun 27, 2016 9:47:25 AM

The Senate passedan  energy bill last week that would require utility companies to buy almost half of the electricity used in Massachusetts from renewable generation sources. AIM remains encouraged by some elements and concerned about others.

WindTurbinesSmall.jpgThe Senate measure (S. 2372, An Act Relative to Energy Diversity) would commit the commonwealth to purchasing 2,000 megawatts of electricity generated by offshore wind and about 1,400 MW from other sources, such as large hydropower and onshore wind. Other sections add requirements for energy labelling on buildings and mandatory energy audits. 

AIM’s response to the Senate proposal is the same as its reaction to an earlier bill passed by the House -  employers support the concept of buying electricity from clean-energy resources, provided the following guidelines are followed:

  • Any contract must be cost-effective for Massachusetts ratepayers (i.e. the benefits of any contract to the ratepayer must be greater than its costs);
  • The procurement process must be competitive and decision-makers must have an ability to refuse any bids that do not meet standards (i.e. no carve-outs for favored technologies);
  • Any above-market or below-markets costs of the contract must be allocated fairly among  all customers;
  • The clean energy procured must qualify to be used for compliance with the state’s Global Warming Solutions Act (GWSA), which requires a 25 percent reduction in statewide greenhouse gas emissions by 2020 and an 80 percent reduction by 2050.

The significant amounts of clean-energy solicitations contained in the Senate bill are a matter of concern for employers who already pay some of the highest electricity bills in the country. While the bill provides “off-ramps” allowing utilities to decline contracts deemed unreasonable or not cost-effective, the initiative could be economically damaging if wind and hydro power are priced higher than the electricity we current buy from other sources.

Positive elements of the legislation include:

  • The procurement process would require the price of each solicitation for offshore wind to result in lower prices than the solicitation before it, a good requirement.   
  • The bill would define cost-effective contracts simply as cost less benefits. Inexplicably missing from the requirement is that the benefits must accrue to Massachusetts ratepayers. The Senate version still leaves open the possibility that Massachusetts ratepayers could subsidize out-of-state ratepayers by paying for benefits that accrue to other states. AIM will work with the Senate to clarify this section.
  • The bill contains a detailed tracking mechanism to ensure that clean-energy generation is used for compliance with the state greenhouse-gas requirements.
  • There is no remuneration surcharge to utilities included, potentially saving customers millions of dollars.
  • The creation of a task force to develop a new energy efficiency program starting in 2018.

AIM remains concerned about several elements:

  • The bill doubles the renewable portfolio standard, which could increase cost, particularly since the increase in the RPS is not tied to the new timetable for the contracts. The mismatch would create a shortage of renewable power in the short term.
  • The cost-allocation methodologies for accounting for above-market power is inconsistent with what we believe should be fair to ratepayers.   

 Lawmakers are expected to propose a significant number of amendments to the bill this week.

Topics: Electricity, Energy

Beacon Hill Energy Bill Won't Lower Electric Bills

Posted by Bob Rio on May 31, 2016 7:30:00 AM

Those expecting the long-awaited Beacon Hill omnibus energy bill to lower the state’s highest-in-the-nation electricity costs will be disappointed.

Electriclinessmall.jpgIn fact, the bill will likely increase energy costs for employers and consumers.

The Legislature’s Joint committee on Telecommunications, Energy and Utilities released H.4336 on May 23.  The measure now goes to the House Ways and Means Committee for review.

The bill contains only two provisions – a requirement for utilities to solicit contracts for hydroelectric power combined with onshore wind; and a similar requirement to purchase offshore wind.

AIM supports the concept of soliciting for clean energy resources, provided the following guidelines are included:

  • Any contract must be cost-effective for Massachusetts ratepayers (i.e. the benefits of any contract to the ratepayer must be greater than its costs);
  • The procurement process must be competitive and decision-makers must have an ability to refuse any bids that do not meet standards (i.e. no carve outs for favored technologies);
  • Any above-market or below-markets costs of the contract must be allocated fairly among  all customers; and
  • The clean energy procured must qualify to be used for compliance with the state’s Global Warming Solutions Act (GWSA), which requires a 25 percent reduction in statewide greenhouse gas emissions by 2020 and an 80 percent reduction by 2050.

The last guideline is important in light of a May 17 Massachusetts Supreme Judicial Court (SJC) ruling that the state Department of Environmental Protection (DEP) has not acted aggressively enough to enforce regulations to meet the GWSA emission-reduction targets. DEP must now develop new regulations that reduce emissions in Massachusetts, especially in the transportation and energy generation sectors.

The court decision complicates the omnibus energy bill because virtually all of the clean energy envisioned in the omnibus bill would be purchased from out of state and would thus not directly reduce emissions in Massachusetts.

AIM is seeking to add language in the energy bill to ensure that any emission credits received from procuring clean energy under the bill are properly credited in accordance with the SJC decision. If clarification language is not included, and further interpretation of the decision finds that greenhouse gas reduction from all this clean energy cannot be used as a compliance tool with the GWSA, billions of dollars will be wasted to “comply” with the law and policymakers will no doubt impose more Draconian limits and costs on ratepayers.

The House has the opportunity to improve this legislation.    

While the bill sets up a process to solicit hydro and offshore wind, there is no definition of “cost-effective” or “reasonable,” two standards that appear numerous times in the procurement language of the bill. A definition of those terms is sorely needed because current law classifies even expensive projects like Cape Wind as “cost-effective” even though the energy they produce is several times more expensive than other clean power.  

Legislators should also change what appears to a special status created for offshore wind at the expense of large hydro and onshore wind. The bill establishes a ceiling on the amount on amount of large hydro/on shore wind that can be procured at about 20 percent of the of the states total electric load, while establishing a minimum amount of procurement for offshore wind at about 10 percent of the state electricity load.

The language is puzzling. It puts a limit on what may be the cheapest sources of power (large hydro/wind), while encouraging virtually unlimited amounts of the highest-cost power (offshore wind). The inevitable result will make Massachusetts dependent upon high-cost energy sources at multiple times the cost of conventional power.  

A recent analysis performed through the AIM Foundation found that Massachusetts employers and consumers already pay more than $800 million in additional costs on their electric bills to support renewable energy. Add carbon taxes for power plants (passed on to the ratepayer) and energy efficiency surcharges and the cost balloons to $1.5 billion, not including the cost of the actual electricity.

Businesses pay nearly 55 percent of these costs. More importantly, business that have used the AIM Energy Calculator have found that these hidden costs can add up to 25 percent of a total electric bill.

AIM is working with the House Ways and Means Committee to ensure that these items are addressed.

Topics: Electricity, Massachusetts Legislature, Energy

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

Strategies to Reduce Your Energy Costs

Posted by Bob Rio on Feb 25, 2016 10:34:14 AM

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.

Electriclinessmall.jpgAt 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.

Attend the AIM Sustainability Roundtable

Topics: Electricity, Energy, Business Costs

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

Topics: Electricity, Energy, Charlie Baker

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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