AIM: Energy bill will raise electric rates

By John Regan 4 Comments Jul 21, 2016

What follows is a letter sent by Associated Industries of Massachusetts to the six lawmakers working to resolve differences between the House and Senate on energy legislation.

WE SUPPORT THE COMMONWEALTH’S efforts to transition our economy to non-carbon fuel sources and attract new businesses to Massachusetts. At the same time, the energy bill will have far-reaching and irreversible impacts during the next two decades.

The conference committee is undertaking an enormous challenge in reconciling these two bills, S.2400 and H.4385. There are elements of both that are good and elements of both that will damage the economy. It is impossible to choose one version over the other or even to choose one section over the other.

The two bills must be blended in a careful and thoughtful manner to achieve maximum benefit for Massachusetts ratepayers. If that objective cannot be met before the end of the session, the process should be abandoned. A bad bill is worse than no bill.

A significant amount of power will be purchased under this bill. Compare the potential procurements in these bills with the total state consumption of electricity 1 (assuming a 40 percent capacity factor for offshore wind):

The power purchasing requirements under S.2400 would represent at least 40 percent of the state’s electric load. H.4385 would represent about 30 percent of the state’s power load committed under long-term contract. Neither amount includes amounts already under long-term contract through other laws, about 10-12 percent.
Either commitment would be larger than the total amount of electricity that distribution companies currently sell to their customers under basic service.

This bill will raise electric rates.

Under any scenario, the prices for these procurements will be higher than today. That is why it is incumbent upon you to ensure that the conference committee report is based on sound business practices that allows utilities, the Department of Energy Resources, the Attorney General, the Department of Public Utilities (DPU), and stakeholders the flexibility to obtain the best deals for ratepayers.

Coming on the heels of recent legislation that continues our highest-in-the-nation solar incentives and a projected 22 percent distribution rate hike filed by one utility, large electricity consumers in Massachusetts are being hit many different ways.

In fact, with wholesale electric prices in 2015 averaging about 4.5 cents per kilowatt hour , and with 2016 wholesale prices trending even lower than 2015, the above-market costs passed to ratepayers in the form of rate hikes could be larger than any utility rate hike in history.

The Legislature must adopt clear goals to justify such increases and be forthright with consumers that the Commonwealth has chosen other priorities – lower greenhouse gas emissions, energy diversity, and subsidizing new technologies – instead of lower costs. That choice provides little consolation to a company faced with ever-increasing electricity rates, particularly with Massachusetts already having the second-highest electricity rates in the continental US in all sectors: residential, commercial, and industrial.

This 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. Other companies are regularly courted by representatives from states where electricity costs are lower. Still other companies simply dismiss Massachusetts when deciding where to locate or expand because of the prohibitive cost of electricity.

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.

Companies will change the way they do business if electricity prices become unsustainable. At a 5 percent profit margin, every dollar increase in electricity costs boosts the revenue a company must generate by $20 just to remain even. One AIM member at this moment is debating a large investment, wondering if the payback time – eight years – is simply too long. Even companies that won’t move, such as hospitals, universities, and others simply pass along whatever cost they can, resulting in higher prices for everyone.

Additionally, as customers adopt on-site generation (conservation, solar, combined heat and power) to take control of their energy costs, electricity use in Massachusetts will remain flat or even fall, making the contracts called for in these bills an even larger percentage of the state’s total electricity load. Higher priced long-term contracts will represent an increasing amount of total power used and spreading these costs over a smaller customer base will increase costs for those remaining on the system.

The Global Warming Solution Act was passed in the final days of the legislative session in 2008. Nearly eight years later, the Supreme Judicial Court interpreted the words to this act in a way not intended by the Legislature, causing confusion to the regulated world and potentially setting back greenhouse-gas advances. Even one of the architects of the 2008 law recently wrote an article in Commonwealth magazine disagreeing with the SJC decision. Clearly the words matter and that is why the current bill must be perfect.

There will be lawsuits related to this legislation. The legislation is far reaching and crosses lines related to wholesale/retail markets as well as international boundaries. With this in mind, the committee needs to consult with ISO-NE and the Federal Energy Regulatory Commission (FERC) to make sure the Legislature is not running afoul of any regional or federal laws. Lawsuits will delay implementation of many of the provisions of the law.

In our joint letter we outlined several provisions that AIM opposes or supports – namely:

Oppose:

Section 16 of S. 2400, which doubles the Renewable Portfolio Standard (RPS) requirement;
Section 30 of S. 2400, which precludes natural gas as an option when electric utilities file a tariff request with the Department of Public Utilities (DPU) to pay for such contracts. As this issue is already subject to a proceeding with the Department of Public Utilities, we believe that process should not be circumvented by the Legislature;
Section 83D(b) of S.2400, which requires that clean energy resources be in operation by December 2020. This is an unreasonable deadline and does not take into account the complexity of some projects and the fact that such investments will yield results for decades. This deadline will limit the number of sources that will be able to bid under and proposal and increase costs.

Support:

Language that allows flexibility in contracting:
Allowing the regional three-state (Massachusetts, Connecticut, and Rhode Island) clean energy RFP to account for a portion of the clean energy solicitation requirement along with innovating contracting methods contained in the RFP.
Broadening the definition of “clean energy generation” as contained in Section 34 of S. 2400 to include stand-alone Class I-eligible resources
Line 840-852 of S.2400 that requires the Department of Public Utilities only approve subsequent offshore wind contracts that are less than the previous procurement and gives preference to those projects that decrease costs at least 15 percent from previous procurements.

We support the following amendments not mentioned in our joint letter:

Section 3 – Clarification of the role of the Attorney General as Ratepayer Advocate
Section 48 – Creation of an energy efficiency task force.

Finally, we support language that would require that any project is required to guarantee output of power during critical time periods (e.g. certain months of the year) as determined by ISO-NE and FERC rules. Not requiring this guarantee would circumvent the entire premise of this energy bill since clean power would not be available when we need it most, causing Massachusetts energy users to burn fossil fuels at times of critical shortages.

As you debate these issues and hopefully come to a compromise we urge you to focus on procurement sections of the bill, leaving extraneous matters for another time. The 4,000 member employers of AIM implore you to understand the full ramifications of these actions on Massachusetts’ businesses.

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