Default electric service rate ‘death spiral’: Will NH utilities change how they procure energy?
The high costs to keep the lights on this winter have people across the state reeling. (Getty Images)
Susan Durling wants to see a thumb on the scale for consumers.
That’s what the Hillsborough resident told state lawmakers last week as she testified in support of a bill that would change the default electric service rate paid by residents and businesses.
“We have to plan our budgets, too, and buy groceries and buy medications,” she said. “I would like to see some guardrails set.”
The default electric service rate, which changes twice per year on varying schedules for customers of utility companies in New Hampshire, reflects how much it costs a utility to procure energy, and is subject to changing market forces of the moment.
The high costs to keep the lights on this winter have people across the state reeling. Customers of Eversource and Liberty Utilities saw a twofold increase in their electric rates beginning last summer, and only a small reprieve as rates adjusted Feb. 1. In December, Unitil announced a 160 percent increase in its rate for an eight-month period.
Londonderry Rep. Douglas Thomas, vice chairman of the House Science, Technology, and Energy Committee, said he’s seen people in his district “almost living in squalor because of these high rates.”
A House bill sponsored by Concord Rep. Rebecca McWilliams, which she called a “first pass” at addressing price volatility and unpredictability, is part of a larger conversation occurring across the state, one that involves an open investigatory proceeding by the Public Utilities Commission looking into how and when New Hampshire utility companies set their default electric service rates.
“It’s been the topic of the moment for well over a year,” said Donald Kreis, New Hampshire’s consumer advocate. “It’s essential we take a hard look at improving the way we procure default energy service on behalf of customers.”
Eversource, Liberty, Unitil and the customer-owned New Hampshire Electric Cooperative purchase electricity for customers on the competitive market directly from power generators and do not profit from default electric service rates. Over the past year, utilities have blamed the war in Ukraine, the region’s overreliance on natural gas, and extreme weather events for the exorbitant numbers. In that sense, the companies often argue they have little control over what they’re charging.
But a growing choir of voices is suggesting changes at the state level could make a difference for New Hampshire’s electricity customers.
Presenting her bill on Feb. 17, McWilliams cited a “pain” felt by residents and businesses as a result of “crazy volatility” in the energy market.
House Bill 159 would establish a five-year rolling average to recalculate the default electric service rate for electric utility customers, based on retail rates for the New England region as posted by grid operator ISO-New England.
McWilliams acknowledged her formula may be erroneous, and feedback from the energy community thus far is that it won’t work. But she hopes HB 159 can feed an important conversation that might lead to “changing the way that we address pricing and the way the spikes impact individuals and businesses here in the state.”
Representing the Department of Energy, State Energy Program Manager Griffin Roberge said nuances in McWilliams’ bill could be “legally problematic,” so they oppose it. But the DOE understands the intent, he said, and is willing to take part in a conversation.
Michael Licata, director of government affairs at Eversource, agreed, saying the utility company “certainly has thoughts and ideas” about working toward more price stability, something that’s being probed by the PUC’s current investigatory proceeding.
In Massachusetts and Connecticut, Eversource has established “laddered” procurement plans, resulting in a “blended price” that’s typically lower when market prices are high, the utility company said.
But in New Hampshire, the PUC previously chose not to go in that direction, Licata said, instead opting for the twice per year rate changes based on market prices of the moment.
On Tuesday, Feb. 21, the House Science, Technology, and Energy Committee voted unanimously to retain McWilliams’ bill and create a subcommittee.
PUC probing default electric service rate
Laddering and other potential remedies are now up for discussion again with the PUC as part of its open investigation into the future of energy commodity procurement, including the renewable portfolio standard, default service electric power, and cost of natural gas.
In September, the PUC opened a regulatory proceeding “to engage stakeholders in an open, overarching, and collaborative process” without the constraints of an official decision needing to be rendered, as is the case with adjudicative proceedings.
Eversource has told the PUC the rapid developments in energy markets led to a bigger price increase in New Hampshire, while increases for consumers in Connecticut and Massachusetts “were tempered by purchases previous to or early on in the upward pricing trend,” as part of its laddering procurement plans in both states.
“Should policy priorities now favor price stability rather than reflection of true market prices, a shift to laddering may be preferable over making a one-time purchase for the entire supply requirement for a service period,” Eversource wrote to the PUC.
At minimum, Eversource said it recommends the PUC consider the amount of time it takes to review and approve energy supply procurements – currently about six weeks to two months, which “already increases supply prices received from the competitive market.”
Approval of procurement contracts in Massachusetts happens within days, the company said, and in Connecticut within several hours.
In its comments, Liberty said if the PUC intends to “insulate customers from the dramatic price swings and peak prices,” then “perhaps the electric utilities could extend the time of their fixed price contracts or ladder several such contracts over longer periods of time.”
Such certainty, though, Liberty noted, “comes with a cost.”
Stepping into the fray last Friday was the Office of the Consumer Advocate, writing: “The OCA has, until now, avoided public comment on the future of default energy service procurement. We are stepping forward at this juncture because, frankly, we are concerned about the extent to which other commenters have adopted what amounts to ‘do little if anything’ recommendations in the face of an electricity affordability crisis.”
Kreis, calling the situation a “default energy service ‘death spiral,’” encouraged the PUC to seek official proposals from the utilities, and said his office may suggest an approach “that will resemble the active portfolio management practiced by the New Hampshire Electric Cooperative.”
Could regulated utility companies take cues from the co-op?
How the New Hampshire Electric Cooperative procures energy is often discussed as a potential model for regulated utilities to follow. A member-owned and democratically run utility, the co-op has leeway to go to market more frequently to purchase power and with more flexibility than the other utilities that answer to the PUC.
Last fall, when asked how it was that their rate increases were lower than other utilities, President Alyssa Clemsen Roberts said the co-op is “able to be a little more innovative about how we procure power … because we’re not regulated.”
“They’re following a prescribed statute on how they do things,” she said of Eversource, Liberty, and Unitil. “So what they’re doing is not wrong – it’s really what they’re obligated to do from my understanding.”
With more flexibility, some experts warn, also comes more risk – one that puts co-op members on the hook if energy prices fluctuate. Long-term contracts could result in consumers missing out on savings if costs go down mid-contract.
But from his experience representing the interests of ratepayers, Kreis feels people prefer knowing their costs upfront.
“Residential customers like certainty,” he said. “They want to go into the winter knowing what the cost of energy is going to be for them. And they prefer certainty to price volatility, even in the case of potential bargains.”
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