Plugging In/ Energy

Somerville’s new electricity contract offers some hope

Two-year deal suggests finding lower prices is possible

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SOMERVILLE THIS WEEK offered some hope to those worried about the high cost of electricity ever since National Grid said its basic service rate would be jumping to a record 33.9 cents per kilowatt hour on November 1.

The city said it signed a contract starting November 1 with Direct Energy that will provide electricity to residents at a much lower price — 14.9 cents a kilowatt hour for basic service, 15.7 cents a kilowatt hour for power with 20 percent more renewable energy, and 18.6 cents a kilowatt hour for all-renewable electricity.

Somerville’s contract will last two years, while National Grid’s rate will remain in place for only six months. A lot can happen over the next two years in energy markets, so locking a price in for that length of time carries some risk. But Somerville’s new rates suggest municipalities and individuals may be able to find some relief for soaring electricity prices by shopping around.

Massachusetts residents have no choice when it comes to selecting their local utility, which delivers electricity to their home. But residents do have a choice about their electricity provider. They can buy power on their own, they can join with their neighbors and buy power as a group through their municipality, or they can let their utility buy power on their behalf.

Somerville residents have all three options. Eversource is the local utility serving Somerville. Under existing rules, it can procure power on behalf of its customers in six-month increments and pass it along at cost. The current Eversource basic service rate is 17.9 cents a kilowatt hour. The company will soon announce what it is charging for the six-month period starting January 1, and the expectation is the price will be somewhat similar to what National Grid is charging.

Somerville started aggregating its residents and purchasing power on their behalf in 2017. Somerville is free to negotiate power supply contracts of any duration, so it chose to lock in rates for the next two years. In announcing the new rate, Somerville acknowledged there are risks.

“Future savings compared to Eversource basic service cannot be guaranteed because future basic service prices change every six months for residential and commercial customers and every three months for industrial customers,” the city said.

Christine Blais, director of Somerville’s office of sustainability and environment, said the city believes a two-year contract is a “conservative choice,” but she noted that residents are free to opt out of the program and find an alternative electricity supplier if rates change dramatically. She said Somerville’s rates have been lower than Eversource’s basic service price for all but six months out of the last five years.

The National Grid basic service rate hike is prompting some soul searching about the way utilities procure basic service power. The system has worked fairly well for the last 20 years, but it’s unclear, particularly when markets are so unstable, whether going out to bid for electricity at a set time and for a fixed period of six months yields the best price. 

Jonathan Goldberg, general counsel for the Department of Public Utilities, said during recent deliberations over the National Grid basic service rate hike that finding electricity suppliers is not easy for utilities given the growth of municipal aggregation and companies catering to individual customers.

“The electric distribution companies have explained that obtaining sufficient competitive bids for basic service is an immediate short-term issue,” he said. 

Nathan Forster, chief of the attorney general’s energy and telecommunications division, said in a DPU filing that the problem is not going away soon. “Experts predict that the results of National Grid’s winter basic service procurement are not an outlier,” he said. “Our region’s continuing over reliance on natural gas to fuel our power plants and world geopolitical forces, particularly the impact on natural gas prices from the war in Ukraine, are resulting in historically high winter electricity costs.”

Goldberg said the DPU is very concerned about the runup in energy prices. “Gasoline, propane, oil, natural gas, and electricity costs have all significantly increased over the last year,” he said. “The department agrees, however, that the increase in electric supply costs is particularly concerning. While natural gas customers are expected to experience about a 20 percent bill increase due to rising natural gas supply costs, the electric supply costs through National Grid’s basic service are expected to increase an average residential customer’s electric bill by over 80 percent from current rates.”

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Bruce Mohl

Editor, CommonWealth
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About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Goldberg said the DPU intends to explore ways to improve basic service procurements. In the meantime, he said, customers can look to their municipality if it aggregates customers or they can seek out companies selling electricity to individuals. He urged caution in signing on with companies selling electricity to individuals.

“Customers should be mindful of the rate, the term of the rate, potential termination costs, and any automatic re-enrollment conditions,” he said.