Tucked inside the House energy bill is what industry folks call an adder, a special add-on fee paid by electric ratepayers to their utilities to compensate them for carrying out the Commonwealth’s energy policy.
Eversource Energy and National Grid play key roles under the legislation. The two utilities are assigned the task of negotiating long-term contracts with offshore wind and hydroelectricity suppliers for large quantities of electricity, roughly a quarter of the state’s total usage. Ratepayers will foot the bill for the electricity itself, but the legislation provides remuneration to the utilities “for accepting the financial obligation of the long-term contract,” according to the language of the House bill.
The adder authorizes the utilities to collect from their customers up to 2.75 percent of the annual payments under the contracts for offshore wind and hydroelectricity. The precise size of the adder won’t be known until the contracts are signed, but some analysts estimate it could be worth $40 million or more a year to the utilities for both the offshore wind and hydro contracts.
The financial obligations associated with long-term power contracts are a bit murky, with no consensus on the utilities’ actual cost. The original Green Communities Act, for example, allowed for adders of 4 percent; subsequent legislation lowered the number to 2.75 percent. When Rep. Patricia Haddad of Somerset filed her energy legislation last year, she included a 1.5 percent adder. There was no adder in the original energy bill reported out of the Legislature’s Telecommunications, Utilities, and Energy Committee; the “up to 2.75 percent” amount was added by Rep. Brian Dempsey in the House Ways and Means Committee.
Mike Hachey, an energy consultant who formerly served as an executive with a company selling electricity in Massachusetts, sent out a note recently on the House energy bill to manufacturers around the state. In his note, he said the adder is included ostensibly to offset the impact of the contracts on a utility’s credit rating. But he said that impact would essentially be mitigated by the fact that the utilities are simply complying with a state law that requires ratepayers to pay the tab for the power.
“There is no need to compensate the utilities for risk,” he said in his note. “The payment is simply gratuitous. The Legislature is giving a gift they will pay for with your money.”
A spokeswoman for Attorney General Maura Healey said her office, which represents ratepayers in energy matters, is strongly opposed to paying the utilities extra for handling power contracts. The attorney general pushed an amendment that was filed by Rep. Tacky Chan of Quincy to eliminate the adder, but, like many other amendments to the energy bill, it was withdrawn before it came up for a vote.
Peter Shattuck, Massachusetts director at the Acadia Center, an energy advocacy group, said the utility fee seems high considering National Grid and Eversource might play a role in building the transmission lines that will deliver the power. Eversource, for example, is partnering with Hydro-Quebec on the Northern Pass transmission line down from Canada. National Grid is involved with the Green Line in Vermont.
“The bonus incentives seem excessive given that utilities can get a return of 10 percent or more on the transmission to bring hydro and wind online,” Shattuck said.
Michael Durand, a spokesman for Eversource, said in a statement that the adder in the House bill is consistent state energy policy. “Adders such as this one, and those currently in place in legislation such as the Green Communities Act, are important when utilities are required to enter into guaranteed long-term energy contracts,” he said. “With those contracts come long-term financial obligations on the part of the utilities. These obligations can negatively affect the company’s financial ratings and increase the cost of capital to finance the many large projects we undertake. As those costs become higher, electricity rates customers pay also increase.”
Amie Breton, a spokeswoman for National Grid, said utilities deserve compensation because the risks associated with long-term contracts limit the companies’ ability to raise capital. “National Grid has consistently argued, and the Legislature has agreed, that it is important to address the monetary risks associated with mandated long-term contracts. In the long run, these efforts provide benefits by lowering the cost of capital benefits to our customers, given that they will be responsible for supporting these long term contracts as required under state law,” Breton said in a statement.
Ron Gerwatowski, an energy consultant who formerly held top positions at National Grid and in the Baker administration, worries about the cost. “The utilities have a point to be concerned about the impact of taking on multi-billion-dollar, long-term commitments, but implementing an incentive as a percentage of total payments is a method that produces rough results,” he said in a statement. “When we consider the magnitude of the megawatt-hours being contemplated under the new law, the size of the incentive could get higher than some policy-makers might find acceptable. This might cause some to consider whether there is a different way to compensate them for the financial risk, or whether the amounts earned should be capped.”
A correction has been added to this story to fix the employment status of Mike Hachey.
Twenty years ago utilities were deregulated to usher in a competitive market for electricity designed to favor the least expensive and reliable power leading to lower rates.
This has now morphed into a system where folks with political clout can lobby for their favorite power source on Beacon Hill to mandate long term power contracts at any cost.
Is it any wonder that rates are skyrocketing and ISO-NE is increasingly concerned about the future reliability of the grid. The steady supply of dependable baseload coal and nuclear power has been prematurely squeezed out of the market to favor these long term contracts born in the legislature, initiated by misguided lobby groups who want to ruin neighborhoods in the East with giant wind turbines (Falmouth, Fairhaven, Bourne, Kingston, Scituate), and destroy mountains in the Berkshires.
Dong Energy from Denmark has inspired a Beacon Hill delegation to visit Denmark to bathe in the success of wind power, acknowledged as the best in the world. The irony is that Denmark has the highest rates in the world, and now, just announced they can not continue planting expensive wind turbines all over the place.
“Danes are the latest to question the price of green-energy virtue.”
http://www.wsj.com/articles/denmarks-wind-subsidy-lesson-1466105618
We need to repeal the Green Communities Act and the Global Warming Solutions Act and let the market, set up 20 years ago, to function as intended.
The lesson from Denmark is that wind power is a giant loser!
It should be noted that Northern Europe’s wind ( and solar) power are workable only because Norway’s vast hydro power capacity can be turned on quickly when wind and solar stop or under-produce. Since no one in the Administration or the Legislature or the energy bigots at the DOER want to develop, to the maximum, Massachusetts in-state hydro we will not have a “Norway” except for Hydro Quebec