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Lawmakers Can Ensure Energy Supply without Bankrupting Ratepayers

Posted on July 12, 2012

The Beacon Hill conference committee currently hammering out an energy bill has a once-in-a-generation opportunity to put Massachusetts on a path of energy independence without bankrupting ratepayers.

EnergyHow? By crafting a bill that re-balances rate design and reforms a proposed requirement that utility companies purchase more of the long-term renewable power contracts that have already cost hard-working individuals and businesses billions of dollars on projects like Cape Wind.

The committee holds in its hands the power to jump-start a Massachusetts economy that has been saddled by the failure of the commonwealth’s centerpiece energy law – the 2008 Green Communities Act – to lower the cost of electricity. A balanced energy bill will ensure reliability and improve the bottom line of key Massachusetts industries that depend upon electricity, from traditional manufacturing to hi-tech data centers to municipalities, hospitals and universities

AIM and its member employers believe that the proposed Act Relative to Competitively Priced Electricity in the Commonwealth should enhance the parts of Green Communities that work and eliminate or reform those that do not. Our position reflects a belief that renewable generation based on sound market based economic principles can, unlike the current system, reduce prices while improving the environment and energy independence.

First, the good news. An Act Relative to Competitively Priced Electricity in the Commonwealth would resolve rate inequalities under which commercial and industrial ratepayers foot an increasing percentage of total electricity costs despite using a declining share of power. The proposed legislation would allow state regulators to allocate the cost of operating the electricity distribution system in proportion to the demand represented by each rate class.

Now the challenging part. AIM opposes sections of the bill that would allow electricity distribution companies like NStar and National Grid to increase purchases of long-term contracts for power and renewable energy credits from renewable providers without a  transparent competitive bid process. Long-term contracts, negotiated in back rooms, have left consumers and employers stuck with a $3 billion bill for power from Cape Wind. Three-quarters of all contracts for long-term renewable power have been negotiated outside of competitive bidding at a cost some three times that of market-based renewable power.

The protections should include:

  • Long term contracts must be competitive bid. There should be no option for individual negotiations outside the bidding process.
  • There should be a defined cap on the amount of power that distribution companies are required to solicit.
  • The allocation of above market or below market costs of the long-term contracts needs to be fairly distributed across customer classes with no one class subsidizing the others.
  • Cost-effectiveness of long-term contracts should be defined clearly.
  • There should be no other options for long-term contracts other than those specifically approved under this law

AIM also believes a section of the bill that requiring long-term contracts with new gas generating plans at the locations of existing coal or oil fire plants would harm consumers.

The prohibitive cost of energy is one of the key reasons that Massachusetts fell from sixth to 28th this week on CNBC’s annual ranking of the Best States for Business. The energy conference committee can help to restore the commonwealth’s ranking by taking real steps to reduce the cost of electricity in the Bay State.