Return to News Exchange Massachusetts Dereg Proposal Called "Back Room Deal," Rate Reduction "Misleading"

Legislators and public interest groups sharply criticized a new deregulation model negotiated between New England Electric System (NEES)-owned Massachusetts Electric and Attorney General Scott Harshbarger, calling its "guaranteed 10% rate reduction" "misleading," opposing its 100% ratepayer bailout of the state's utilities, and predicting "unregulated monopoly" under the plan.

Legislators and public interest groups called NEES/Mass Electric's "Consumers First" plan a "back room deal" with dubious benefits to consumers. State Senator Henri Rauschenbach (R-Cape& Islands) said that he was "concerned that the consumer has lost the Attorney General as an advocate as he is committed to the Mass Electric Company settlement."

If applied statewide, the plan will cost residents and businesses $1.3 billion per year in "stranded cost" electricity bill surcharges for up to 12 years to bail out the state's utilities for their bad investments, according to Consumers for Affordable, Clean Electricity (CACE), a coalition including Massachusetts Public Interest Research Group (MASSPIRG), Cape and Islands Self-Reliance, Clean Water Action, the Minority Action Council, and others.

The "stranded costs" provision, unexpected from an Attorney General whose recent report recommended no stranded costs bailout for the state's utility owners, would commit the state's residents and businesses to paying utility owners 100% of losses incurred from power plants and other facilities unable to compete in an unregulated market. By contrast, New Hampshire state regulators ruled that consumers and shareholders should share these costs in a 50/50 split. In California, whose recent deregulation law included a 100% stranded cost concession, that surcharge is approximately 1/3 of the average resident's total monthly bill.

Like the recent California deregulation law, the NEES/MassElectric package is advertised as a "guaranteed 10 per cent rate reduction" for residents who remain customers of their current investor-owned utility. But industry analysts say this "reduction" is misleading because investor-owned utility prices are artificially high. While municipally owned utilities have lowered their rates in recent years, investor-owned utilities in the state have raised theirs by 7% (9.5 cents to 10.2 cents/kwh) over the past four years, despite a steady decline in the cost of providing power: lower interest rates, financing costs, fuel costs, depreciated investments, no need for new capacity, and with most added capacity coming online at a lower cost than the embedded costs of existing generation. In contrast, members of the Massachusetts Municipal Wholesale Electric Company (MMWEC), representing 29 of 40 municipal systems in the state, have cut their average price by 9% since 1992 (10.1 to 9.2 cents/kwh). NEES/Mass Electric has raised its residential rate (500kwh standard) from 8.71 cents/kwh in 1990 to 11.06 cents/kwh in 1996, a 27% increase. "Everyone in New England knows that power costs have been declining. The NEES/MassElectric deal is like the retailer who raises the list price on goods before putting them on ‘sale,'" said utility policy analyst Scott Ridley. "NEES is giving up nothing in return for billions in consumer surcharges, and the Attorney General appears to have bought it."

MASSPIRG's Rob Sargent called the NEES/MassElectric proposal a "backroom deal designed to protect shareholders, not consumers." While the plan is billed as a "guaranteed" ten percent rate reduction, the reduced rate is subject to adders and surcharges. Massachusetts Electric's shareholders could add new charges to the promised "10% reduced" rate if the market delivers less than 6% in dividends. Any increases in taxes or the price of fuel could also be added. "The only guarantee here is to utility shareholders, not consumers."

CACE said the plan would create an "unregulated monopoly" by enabling holding companies like NEES to shift costs between subsidiaries and block consumers' access to the market, impacting consumers in other service territories or even other states. Recently, anoter NEES subsidiary, New England Power, unilaterally dropped its transmission contracts with 24 municipal utilities and raised their rates by an average of 250%, shifting new costs onto customers in public power communities. Consumers under other NEES subsidiaries like Narragansett Electric in Rhode Island may also face higher rates to subsidize the Massachusetts deal.