Socket to ya – Why our electric rates are so high

Leaving the porch light on, running an air conditioner at night or using a longer cycle on the clothes dryer are all decisions that, in Massachusetts, will cost users more than just about anywhere else in the country.

As the cost of everything has risen in the last few years, electricity rates in Massachusetts have slowly crept to the top of the list, sitting at fourth highest in the United States as of 2007. Massachusetts’s residential electric rates take a backseat only to Connecticut, New York and Alaska/Hawaii.

It’s a fact that has pinched household consumers especially in the last eight or nine years, as a typical residential electric bill has nearly doubled in that time period.

The Rate Hike

Massachusetts has always had slightly higher electric rates due to proximity – being at the end of the line on the East Coast. However, rates here have outpaced virtually every other state in the last several years.

According to federal statistics, the Massachusetts residential electric rate in 1990 was 9.66 cents per kilowatt-hour.

In states like Maryland it was 7.22 cents, in California it was 9.98 cents and in Tennessee it was 5.69 cents.

Those prices stayed almost flat for a decade in all the above states.

By 2000, the rate in Massachusetts was at 10.53 cents – while Maryland was 7.96 cents, California was 10.85 cents and Tennessee was 6.33 cents.

After that, things took a turn upward for everyone, but none went as high as Massachusetts.

Maryland and Tennessee stayed virtually unchanged.

California went up by 4 cents through 2007, with a rate of 14.41.

Massachusetts’s rate went up to 16.11 cents in 2007. Further statistics showed that Massachusetts’s rate had climbed to 17.4 cents through August of this year.

That meant that since 1990, the rate here had come very close to doubling. Through 2007, the state had clearly outpaced everyone else, including an energy hog like California.

The Reasons

State officials and electric company experts acknowledge and agree that Massachusetts has some of the highest rates in the country.

Phil Giudice, commissioner of the state’s Department of Energy Resources (DOER), said that the reason is because we generate our electricity with natural gas. While other states depend on cheaper fuels like coal to generate electricity, Massachusetts depends almost entirely on expensive natural gas.

“The big factor is the fact that other parts of the country are more dependent on older, coal-fired power plants and older nuclear power plants to generate their electricity,” he said. “In Massachusetts and New England, less than 20 percent of power generated is from nuclear or coal-fired sources…In Massachusetts we’ve done a much more significant amount of replacing older power plants with newer natural gas power plants. That’s great for environmental aspects and reliability, but it isn’t so good from a cost standpoint…It’s a different market here and we do pay more.”

Industry experts agree, saying that it’s not the delivery that hits consumers in the pocketbook, but rather the types of fuel we use to make our electricity.

“We’ve got a much higher proportion of the more expensive fossil fuels in our generation mix,” said Janet Gail Besser, vice president of regulatory affairs at National Grid and a former chair of the state Department of Public Utilities. “Historically, we had a higher proportion of oil and now we have a higher proportion of gas…When you go to the southeast and northwest, they have a significant proportion of hydro and nuclear power. The southeast and Midwest have a significant use of coal. These are lower cost fuels.”

Added Giudice, “Natural gas prices and electricity prices tend to track nearly identically 100 percent of the time.”

The Past

Things in Massachusetts began to change in 1997 when the state deregulated the industry – separating generation from delivery – and attracted new investors to build new power plants that would burn natural gas.

“The structure opened up and investors jumped in and saw they could get great returns on investments by building new, natural gas power plants,” said Giudice. “They built a lot of them…That massive capital investment hasn’t been undertaken in other parts of the country…Those costs [for construction] aren’t being born by consumers [in other parts of the country] because there are no costs because consumers in the past bore those costs.”

With so many new power plants in the region – some of which are already shut down and out of business because too many were built – consumers here are strapped with paying for the construction, while in other places consumers don’t face such costs.

Logically, many might wonder just why it was that the state decided to rely so heavily on natural gas to make electricity. Why not newer coal plants or nuclear power, or even other innovative types of generation?

Besser said that many of the plants that were replaced burned undesirable oil products. She said natural gas was an upgrade, and other technologies were really not welcomed here.

“We have to remember what we were replacing and it was oil,” she said. “Oil was dirtier and expensive. It’s not like we were replacing oil with coal or nuclear. It’s very tough to site a coal-fired plant in Massachusetts and we don’t have coal sources nearby. Nuclear is very tough in New England as well. Due to siting concerns and environmental concerns, New England has not been an easy place to site coal or nuclear generation facilities.”

The Future

Looking ahead, it doesn’t appear that rates will drop anytime soon.

There is some hope that natural gas prices might drop, as new technologies have allowed the extraction of more gas from difficult terrains. However, what that does to the price is still uncertain now.

Alternative energies like wind and solar are still not cost effective, and most agree that they won’t be for a while.

Besser said that doesn’t mean they shouldn’t be pursued.

“They probably won’t bring down costs in the near future because now some of those technologies are more expensive than gas,” said Besser. “Wind is becoming increasingly competitive. When gas prices went so high a few years ago, wind was competitive. What it does is it gives us some insurance against the volatility of gas prices and diversifies our generation mix.”

Giudice said that the current administration is pushing alternative energies right now, and that will mean Massachusetts will be first in line to reap the benefits if and when they do become cost effective.

“We have a big push on renewables,” he said. “They will be cost-effective in Massachusetts before almost anywhere else in the country. However, the status quo is not acceptable.”

The only silver lining in this story is that, depending on what is decided in Washington, D.C. concerning carbon emissions (i.e., Cap and Trade programs), residential electricity rates across the country could rise to the same level as Massachusetts.

“Regardless of carbon emissions, they will have to make significantly more investment than the New England states,” said Besser.

Said Giudice, “Depending on what is decided in the future [concerning carbon], we may see those dependent on coal-fired power plants among the more expensive in the country.”

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