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February 6, 2023

Department of Public Utilities opened electric service probe on Baker’s last day

A large brick building with columns in front and a gold dome on top with a long staircase leading up to it and an American flag on the left hand side. Photo | Courtesy of Commonwealth of Massachusetts Massachusetts State House

The day before he resigned as chair of the Department of Public Utilities last week, Matthew Nelson responded to nearly 100 state lawmakers who had written him with concerns about winter energy bill increases to tell them that the gas bill reductions publicized by the Healey administration Thursday were coming -- and to explain that the same can't be done for electricity bills.

The legislators wrote to Nelson on Jan. 11 to urge DPU to reconsider its approval of winter energy supply rates in light of the fact that the prices of commodities like oil and natural gas, a key justification for the hikes, have come back to Earth in recent months while ratepayers are still facing rates that were meant to reflect higher prices. The letter was spearheaded by Reps. John Barrett of North Adams and Smitty Pignatelli of Lenox, along with Sen. Paul Mark of Becket.

As rates were being set last year, the Baker administration was urging Bay Staters to brace for "at best, a very high-cost energy winter" and it has turned out that way. Natural gas customers have seen a 28 percent increase in their heating costs this winter, homes with electric heat have seen costs soar 57 percent and the cost of heating a home with oil is up 63 percent, according to an analysis from the Department of Energy Resources.

Nelson wrote back on Jan. 26, telling the representatives and senators that while DPU "does not regulate energy supply prices, it is committed to exploring any short-term or long-term ideas within its legal authority that could help customers with high winter energy prices and has taken several steps as a result." He then gave an example of a short- and a long-term strategy DPU was pursuing.

The former was publicized more widely by the Healey administration's Executive Office of Energy and Environmental Affairs on Thursday as Massachusetts braced for the coldest weather of the winter so far. Under DPU rules, gas companies are required to revise their gas supply rates "whenever the companies will materially over- or under-collect costs from customers," EEA said. As a result, Massachusetts gas companies are decreasing supply rates for gas consumed during February, March and April, saving ratepayers an average of 4 to 5 percent on their gas bills.

"I was extremely pleased to support the effort to advocate for Massachusetts ratepayers regarding the urgent need for regulators to consider opportunities to secure fair rate adjustments," Sen. Marc Pacheco said. "It stands to reason that the same rate increases that accompanied such drastic fluctuation in the cost of fossil fuels should be available for reconsideration following a return to relative normalcy in the supply chain. Many thanks to Sen. Paul Mark, Rep. John Barrett III, and my colleagues in the legislature who signed-on in support -- and to the new Healey Administration for proactively pursuing energy rate relief solutions for our Commonwealth."

But Nelson also told the lawmakers that they should not expect similar rate reductions for electric customers.

"Unlike electric supply rates, gas supply rates can change over the course of the winter period," Nelson told the lawmakers after mentioning the gas supply rate decreases. He added, "In contrast to gas supply rates, electric basic service rates do not change during the winter period because they are based on fixed contracts."

Nelson, a Gov. Charlie Baker appointee who separately came under fire from U.S. Sens. Elizabeth Warren and Ed Markey for "continuing gaps and failures" with DPU oversight of the MBTA, resigned as chair of the DPU the next day, Jan. 27. An EEA official said this week that Nelson resigned because his term at DPU was coterminous with the Baker administration, which ended at noon on Jan. 5.

On the long-term side of things, Nelson told state lawmakers that DPU had opened an investigation into the procurement and pricing of basic electric service across Massachusetts on the last full day of the Baker administration, Jan. 4. The agency is seeking input from any and all interested parties by Feb. 8 on recommendations it has already made, including one with an eye towards smoothing out the steep seasonal differences in electric supply rates.

For electric customers on basic service (those that don't select a competitive supplier) each utility company charges either a monthly variable supply rate or the default option of a six-month fixed rate that is calculated as the average of the monthly rates included in that span.

Those six-month periods vary based on the utility, but the deep winter months of January and February are included in the same six-month rate periods for all three of the electric companies under DPU's jurisdiction (National Grid, Eversource and Unitil). And that helps contribute to the steep rate hikes that make winter electric bills particularly hard to bear.

"In recent years, January and February have been the months in which wholesale electricity prices are highest ... this has led to significant differences in basic service rates between each distribution company's fixed-rate periods. Specifically, the fixed-rate 'Winter' periods that include the months of January and February have had significant higher rates than the 'Summer' periods that do not," DPU said in the order opening the investigation.

Take National Grid, for example. Its 2022 summer rate was 11.491 cents per kilowatt-hour and its winter rate is 33.891 cents/kWh, according to DPU. In 2021, it wasn't as extreme with a summer rate of 9.707 cents/kWh and a winter rate of 14.821 cents/kWh. In Eversource's eastern territory, the 2022 summer rate was 17.871 cents/kWh and customers saw an increase this winter to 25.649 cents/kWh.

DPU proposed that, going forward, distribution companies adopt the same six-month rate periods -- February through July and August though January for residential customers -- so that the two most expensive months aren't being included in the same six-month average in an attempt to even out some of the ups and downs that show up in electric bills.

The agency also recommended changes to existing basic service procurement practices.

"Basic service supply solicitations during the past year have led to record high rates and, in some cases, failed procurements that required the Department to review and approve alternative procurement and pricing plans in a compressed time period," DPU said.

One of the issues at play is that now less than half of all electric customers are on basic service. Competitive suppliers and municipal aggregation programs have taken off in the last 25 years, which has meant there are fewer suppliers interested in providing basic service when the utilities put it out to bid.

This is not the first time that DPU has launched an investigation of this type. The department opened the same kind of inquiry in 2015 "in response to significant increases seen in basic service rates during the then-preceding winter months, and declining participation by wholesale suppliers in basic service solicitations."

But that investigation went nowhere. In the order opening the latest basic service investigation, DPU said that the 2015 look "has been inactive since July 2016" and that DPU never issued any final determinations.

DPU's latest investigation adds to the litany of studies and preparations being undertaken as the Bay State charts a course towards a net-zero emissions future. Overall demand for electricity in Massachusetts is expected to grow in the coming years and decades as the state pursues its decarbonization targets, which rely on cleaner sources of energy generation like wind and solar to power the shift away from things like gas-powered cars and oil heating towards electric vehicles and electric heating.

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