Power to the People is a column by Donald M. Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere.
By DONALD M. KREIS, Power to the People
To paraphrase revolutionary pamphleteer Thomas Paine, these are the times that try ratepayers’ souls. The arrival of 22 cent electricity on August 1 in New Hampshire is the biggest and scariest energy-related news to hit the Granite State in 26 years.
Yes, 22 cents is a small number – less than a quarter – but we are talking here about 22 cents per kilowatt-hour. A typical residential customer uses around 650 kilowatt-hours a month. So, we are looking down the barrel of $150 a month in energy charges.
And remember these are just the energy charges. Your electric bill also includes other line items, like a distribution charge (which pays for the poles and wires) and a transmission charge (which pays for the bulk power transmission system). Altogether, a typical residential bill will go up by something like 50 or 60 percent – the most staggering one-time rate increase in the history of staggering one-time rate increases.
Meanwhile, our third investor-owned electric utility, Unitil, has a 10.1 cent energy service rate that will remain in effect through November 30. And the New Hampshire Electric Cooperative – customer-owned rather than investor-owned – is raising its energy service rate (known as “Co-op Power”) from 9.6 cents to just under 17 cents as of August 1.
You may be asking yourself: WTF? Or, Why These Fees – specifically, how can Unitil and the Co-op get away with charging so much less than 22 cents? Ultimately, the answer comes down to two words: torpid agency.
That’s “agency” as in: utilities are the agents of their customers when they buy electricity on the wholesale market and pass the cost through to retail bills without a profit. It’s “torpid” as in (according to Merriam-Webster): “sluggish in functioning or acting.”
With the blessing of the Public Utilities Commission (PUC), every six months Eversource, Liberty, and Unitil wield a very blunt instrument: a request for proposals (RFP) from wholesale electricity suppliers for six full months of energy service for “small” customers, a group that includes all residential customers.
The bids are for “all requirements” service, meaning the bidder must promise to meet whatever load materializes. And it must promise to do so in a very volatile wholesale environment. As you might imagine, these parameters cause the wholesale suppliers to build a hefty “risk premium” into their bids.
It also matters when you hit the market with your RFP.
If you seek bids in springtime for service that includes the first half of the winter, then the bidders are going to include in their prices what they reasonably expect to be gargantuan wholesale costs in December and January. It will be cold then and the worldwide demand for natural gas is expected to be monumental. Most of New England’s electricity is produced by generators that use natural gas as their fuel.
Unitil’s 10.1 cent rate went into effect on June 1 and only runs through the end of November. Its winning bidder did not have to include expected wholesale costs for December and January in its proposal.
The Co-op’s new rate of 16.98 cents on August 1 – a 76 percent increase over the current Co-op Power charge — is not welcome news for sure. But the Co-op’s ability to beat Eversource and Liberty by more than five cents a kilowatt-hour is worth pondering.
Active portfolio management – chiefly, ‘laddering’ wholesale contracts so they don’t expire all at once – explains the difference. To their credit, both the PUC and Governor Sununu have publicly called for a reexamination of energy service procurement practices for all electric utilities.
While we’re at it, we should reexamine the assumptions about how much of this should remain secret. For example, although I know (because I have access to documents the PUC deems confidential) how many wholesale suppliers responded to the Eversource and Liberty RFPs, I am not allowed to tell you.
Trust me, it’s information you’d want to know. How many bids are necessary to make a wholesale electric bidding process truly competitive? That’s a question for the economists. I was an English major, which means I like to inform myself by reading stuff – unredacted stuff.
When I said that this is the biggest energy news in 26 years, I was thinking of the electric utility restructuring act adopted in 1996. The co-authors of that landmark legislation, Clifton Below and Jeb Bradley, were then House members but now are a city councilor in Lebanon and the Senate majority leader at the State House in Concord, respectively.
Since Below and Bradley are still around, one might ask them: What of the assumption made in the 1996 restructuring law that most customers would buy electricity from a non-utility supplier and just use default service, if at all, as a backstop? At last word, fully 85 percent of Eversource’s residential customers are buying their energy from Eversource.
This would be a good time to take a look at whether the fundamental rules of the game, adopted in 1996, require some updating. If major league baseball can adapt (by using a designated hitter in both leagues, and foolishly putting an automatic runner on second base for extra innings) then we can revisit the policy choices made in 1996.
Some people, oddly, think the answer is ending retail choice for residential electric customers. I tend to look in the opposite direction, toward reforms that would make default energy service obsolete.
The PUC is poised to approve its community power aggregation rules on July 5, which (I hope) will allow municipalities (or consortia of municipalities, like the Community Power Coalition of New Hampshire) to be active and vigilant agents of residential customers in much the same fashion the New Hampshire Electric Co-op is now. We should find a way to make those sort of opportunities available to everyone.
These huge rate increases force all of us to think about electricity, on top of everything else we have to worry about. “What we obtain too cheap, we esteem too lightly,” wrote Thomas Paine in 1776. He was taking about freedom. But much the same point can be made about energy.