Since the year 2000, the source of New England electric production has shifted dramatically away from petroleum and coal, toward natural gas. According to the U.S. Energy Information Administration, natural gas comprised 67% of the state’s electricity generation in 2018. In the past 10 years, petroleum-sourced generation has dropped from about ⅕ of MA electricity to less than 2%, and coal-sourced generation has dropped to nearly zero. Most of the remainder of electricity generated in MA comes from nuclear (⅙ of total) and renewable sources (⅕ of total), which includes biomass.
How is energy distributed?
High voltage electrical energy is produced or generated at power plants. It then travels long distances to communities via transmission lines, where the voltage is lowered at substations. The final route of low-voltage electricity between substations and the electricity user is called distribution. Since the 1990s, the Investor-Owned Utilities (IOUs) that distribute electricity in MA and much of New England have been barred from ownership of electricity generation. The process of divesting from energy generation, called deregulation, was done with the goal of allowing independent energy producers to enter the market. Transmission, meanwhile, is overseen by the nonprofit ISO-New England. Natural gas, similarly, has a deregulated system of production and distribution which requires compressor stations to maintain pipeline pressure over long distances to travel to customers.
What are Investor-Owned Utilities (IOUs)?
Electricity and natural gas are considered to be “natural monopolies” due to the large amount of expensive infrastructure required to cover a geographical area. Any attempt to duplicate such infrastructure would raise rates for customers, so providers are awarded rights to monopolies in specific areas by state regulatory agencies. The dominant MA electrical and natural gas distribution companies are National Grid and Eversource. Columbia Gas is another dominant natural gas company in this area. These are all called IOUs, or Investor-Owned Utilities. Community-owned Municipal utilities are less common, but still exist in some MA communities.
How to read a utility bill?
Utility bill components include base rates, the rates required to maintain normal electrical utility operation and maintenance, and reconciling mechanisms, which account for additional, unforeseen costs.
How do IOUs raise rates?
Base rates are determined in periodic rate cases, held between the utility company and the Department of Public Utilities. In these rate cases, a utility company will propose the specifics of a rate increase to the DPU in Phase One. Phase Two involves collection of testimony and evidence from any affected parties including the attorney general’s office and certain community members who are empowered to act as legal intervenors. Phase Three involves negotiation, settlement and litigation among interested parties before the DPU makes a final decision, which is Phase Four. If rate cases were compared to a legal battle in court, the utility would be the defendant, the attorney general’s office, speaking on behalf of the ratepayers and disadvantaged members of the community, would be the prosecutor, and the DPU would in most cases act as judge, although they may also take on the role of defendant or prosecutor according to the way they view the case affecting their own image or the long term needs of the public.
How do IOUs make profit?
IOU’s set rates in order to make a profit. If they do not make a profit, they cannot continue to operate. A high rate of profit is important for two reasons: attracting investors and satisfying shareholders. Without investors, utilities cannot finance debt and build or maintain their infrastructure. Thus, they are incentivized to ensure profits despite trends of decreased energy usage due to increased efficiency. Some ways that IOUs ensure that they continue to generate profit are through building new infrastructure, which allows rates to increase whether or not the infrastructure is technically necessary, and through revenue decoupling mechanisms. Revenue decoupling mechanisms are various types of mathematical calculations that have been used since the 1990’s to ensure “fair return on investment” despite the possibility of decreasing energy usage.
What is Performance-based ratemaking?
Performance based ratemaking is a type of revenue decoupling mechanism, recently used by National Grid in its rate case, which was ostensibly designed to help utilities meet performance efficiency goals by tying rate increases to these performance goals. The specific goals, however, are often created by the utility companies themselves, and though the criteria for evaluation are often supplemented by statistics and customer satisfaction surveys, the ultimate determination of goal performance is frequently determined by utility company representatives, hardly an impartial party. This phenomenon could be compared to schoolchildren allowed to write their own report cards.
How are utilities regulated in MA?
The Dept of Public Utilities (DPU), under the oversight of the Governor and the Secretary of Energy and Environmental Affairs (EEA) is technically tasked with acting on behalf of the public to ensure reasonable rates, safety, and quality of service. However, their “public” hearings are not always so public. As we discovered during National Grid’s recent rate case, these hearings are not well-publicized, they can be difficult to find, and they do not often provide translation services, even in communities in which English is not the primary language spoken. Instead of advocating for the public, the DPU often sides with the fossil fuel industry, as in the case of the proposal to tax ratepayers for gas pipelines in 2016, which was ultimately struck down by the supreme judicial court of MA. DPU officials often come from a fossil fuel industry background, for example, current chairman Matthew Nelson used to work for Eversource. The DPU reform bill, H.2812, which was introduced in the last session of MA legislature and re-filed this session, seeks to clarify the role of the DPU, and emphasize its duties on behalf of the public interest.
One recent major DPU misstep was its failure to properly address gas safety issues around the state. In 2017, a large scale study done in collaboration with 3 major gas companies highlighted the need for repairing the infrastructure and gas leaks. Recent investigations have shown, however, that gas leaks are still extremely frequent. Two glaring examples of gas companies’ failures to provide safe and reliable service to Massachusetts residents were the lockout of two United Steelworkers locals for 6 months by National Grid last year, and the Merrimack Valley explosions by Columbia Gas. Outrage over these incidents finally forced MA state legislators decided to take an interest in gas safety. It became apparent that the DPU had failed in its oversight of utility companies, not least by providing only two on-site gas inspectors for all of MA. After Governor Baker assigned Eversource to clean up the mess after the gas explosions in the Merrimack Valley, the Boston Globe reported that the for-profit utility’s executives cut checks to Baker’s campaign. Though they promised to return service within weeks, Eversource took months to complete the project, forcing many Merrimack Valley residents to find alternate housing or deal with lack of heat until after Thanksgiving. And even a year after the explosions, a dangerous gas leak was discovered in Lawrence, forcing residents to evacuate once again. The federal government, unsurprisingly, is neglecting public safety as well, by rolling back standards on methane emissions that apply to natural gas utilities. For-profit utilities and politicians have proven to us that money is more of a priority for them than public safety.
Beyond the safety issues, gas leaks also have much higher greenhouse gas emissions than the burning of gas for residential and commercial use.
Investor-owned utilities have also recently come up against opposition for making infrastructure siting decisions that fail to consider the needs and safety of the surrounding community. The proposed substation in Eagle Hill in East Boston would be sited next to a children’s playground and jet fuel tanks, in a flood zone. The proposed substation in East Cambridge is in a dense residential neighborhood adjacent to an elementary school. The Weymouth compressor station would be in an environmentally overburdened community, adjacent to a highly-trafficked bridge, near schools and senior housing. The need for every one of these three stations has come into question, yet ratepayers would be forced to pay for them if built.
Energy Democracy: Public Ownership of Utilities as Alternatives
We believe that one way to stop utilities from making decisions that harm us is to put utilities in the hands of the public. Energy democracy is public power, giving the public the opportunity to make energy decisions for their own community, and ultimately holding utilities directly accountable to the people they serve. Effective public power can result in lower utility bills, more reliable utility service, and a faster renewable energy transition. There are several models for public ownership, some more democratic than others.
State-owned utilities oversee large portions of their states. New York Power Authority, founded in 1931, is the largest state public power utility, which provides low-cost energy generation, mostly through hydropower. It also provides about a third of the state’s major transmission lines. Nebraska Public Power District provides power for 86 of Nebraska’s 93 counties. It was formed in 1970 from a merger of municipal power plants.
Municipal Utilities (Munis)
Municipal utilities are a very common not-for-profit model of public ownership. Municipal utilities, or munis, do exist in Massachusetts, but there has been only one new muni established since 1926, because of a law that allows investor owned utilities to refuse to sell poles, lines and other infrastructure to new munis unless they are offering a “fair market value”. There have been attempts to overturn this legislation, including There are about 50 municipal utilities in MA currently. Municipal utilities have a reputation for having a vested interest in serving their communities, and thus better response time in the event of outages, disasters and damage to equipment. They are also more accountable to public demand to make the grid more green by increasing the proportion of energy sourced by renewables.
Energy cooperatives allow consumers in rural areas that were previously not well-served by investor-owned utilities to take control of their own energy distribution with assistance from the federal government, through the Rural Electrification Act of 1935. Energy co-ops are another not-for-profit model. Vermont Electric Cooperative is one such consumer-owned co-op. Vermont also has established many all-volunteer town energy committees in which citizens are empowered to help shape municipal energy policies in order to achieve renewable energy and energy efficiency goals set by the state.
Community solar projects consolidate the resources of a community in order to build and maintain solar panels and renewable energy generating facilities, in areas where individuals may not have the financial ability to purchase the equipment or real estate to house the equipment without the help of their neighbors. These projects are often facilitated by expert nonprofits or co-ops, with many of the financial benefits going back to the community sponsors. Vermont Energy Cooperative facilitates several community solar projects.
Microgrids are locally organized systems of electricity generation and storage that can function independent of the larger grid, or connected within the larger grid. Microgrids can allow communities to control small portions of electrical generation and distribution, and operate even when the larger grid has an outage, allowing for more resilience. They often incorporate renewable energy resources, such as solar panels. Microgrids are being pursued in Boston by members of the Green Justice Coalition, Resilient Urban Neighborhoods, and Clean Energy Solutions.
ATR: annual target revenue, the proposed calculated revenue cap amount, specific for each customer rate class
CIAC: contribution in aid of construction, a calculated charge to the customer (especially generators and users of DER) to pay for new infrastructure in advance
CIRM: capital investment recovery mechanism, a ratemaking calculation used to create a return on infrastructure investments the company has made.
CPP: critical peak pricing, an announced time period during which electricity is priced especially high, for example early evening on a hot summer day
CVR: conservation voltage reduction, delivery of lower voltage transmission (within optimal range) to customers in order to reduce peak demand
DER: distributed energy resources, sources of clean/renewable energy that can be connected to the grid, such as solar/photovoltaic, wind, combined heat and power, anaerobic digestion, and hydropower.
DPU: Department of Public Utilities, MA’s government body overseeing utility rate and infrastructure changes.
ESM: earnings sharing mechanism. These are profits made by the utility on select mechanisms that are subject to be shared proportionally with the customers
EV: electric vehicle
FCM: forward capacity market, an auction device through which electrical utilities can buy future electrical generation capacity from other producers based on projected peak demand, prioritizing generators with the lowest cost of production.
GDP-PI: Gross Domestic Product-Price Index, a federal government measurement of inflation used in the ATR calculation
MMRC: monthly minimum reliability contribution, a new demand charge on net metering customers. This is a byproduct of the ever increasing solar grid, to ensure that customers providing a large amount of solar energy back to the utility are still paying for portion of the grid so that customers without solar capabilities are not left to bear the entire burden of financing the electric infrastructure
MWH: megawatt hours, equal to the amount of energy needed for one million watts of electrical power to run for one hour. The average American home uses almost 11 MWH per year.
PBRM: performance-based ratemaking mechanism, a way of decoupling customer rates from the amount of energy consumed, based on company performance toward stated goals. This ensures that utilities continue to earn a target ROI even as expenditures increase. PBRM also reduces the frequency and need for utility rate cases, where citizens and environmental groups are able to intervene
PIM: performance incentive mechanism, provide the utility with monetary rewards for meeting specific customer service, policy, or value objective
PSC: public service commission, regulatory agency in other states analogous to the DPU
Rate Case: typically a utility begins to earn a set return on investment (ROI) once a rate case is complete, where they file for claims for outstanding costs that aren’t reconciled in the normal course of business (ie, repairs to infrastructure and large projects). After a rate case, as utility expenditures continue, the utility’s ROI begins to decline over time and they will need to file a new rate case in order to get back to earning a high ROI and attract investors to finance debt. While there are many earning mechanisms and filings that a utility can make that aren’t necessarily open to public intervention, rate cases are always open to the public and a great opportunity for the public to be able to view the utility’s accounting and challenge “used and useful” expenses
RDM: revenue decoupling mechanism, of which PBRM is a type. The objective of RDM is to decouple company profits from usage, so that the companies are incentivized to encourage lower FF usage (mainly through energy efficiency programs) without losing revenue.
TFP: total factor productivity, economic term for the amount of output not explained by the sum of inputs into a system (labor and capital), a factor of efficiency and intensity of input utilization
TVR: time varying rate, customer electrical rates that vary over time.
VVO: volt/var optimization, combining conservation voltage reduction with reductions in reactive power flow along a circuit, optimizing cost and performance