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Utility aims to increase some bills 54 percent

Mass. Electric sees summer crunch

By Peter J. Howe, Globe Staff, 5/4/2000

Fearing that New England electric prices could go through the roof this summer, Massachusetts Electric has asked state regulators for permission to raise power-generation rates charged to more than 200,000 customers by 54 percent in order to protect its 1 million other customers from price spikes.

Mass. Electric's filing involves prices charged for the power-generation component of ''default offer'' plans, but not the fixed cost of delivering power. It could add $10 or more to some homeowners' monthly bills for several months; many businesses could pay hundreds of dollars more.

Starting June 1, the plan, if adopted, would affect almost everyone who opened a new electric account after March 1998 in one of the 168 Bay State communities served by Massachusetts Electric and two subsidiaries, Nantucket Electric and Eastern Edison. It would also affect anyone who switched to a competitive supplier but then switched back to paying the utility for power.

''This was a very, very difficult decision,'' company spokeswoman Karen Berardino said yesterday. ''But we are trying to be fair to all customers who could be affected. It's important to emphasize that low-income customers will not be affected in any way.''

Mass. Electric said that if state regulators do not approve their plan, the utility could rack up $60 million in losses that would be passed on to customers next year, possibly adding $2 or more to all of its residential customers' monthly bills.

Mass. Electric now sells default-offer power at the same price as standard-offer power, or 3.8 cents per kilowatt hour.

Recently, it has been negotiating with suppliers to get contracts to cover default customers, ''and we have been receiving bids that include monthly prices as high as 9 cents a kilowatt hour'' for summer, Berardino said.

Mass. Electric fears that many competitive suppliers may offer cash incentives to have their customers go back to buying power from Mass. Electric at 3.8 cents during the summer months. That's because the suppliers would have to pay far more than that on the spot market this summer, when air conditioning demand causes prices to soar.

If suppliers move customers back to the Mass. Electric default offer, that would lead to the utility losing tens of millions of dollars, it said, which it could later legally recover from all 1.2 million of its customers through rate increases.

By raising the default price for power to 5.859 cents per kilowatt hour from June 1 to Oct. 31, Mass. Electric hopes to minimize losses that would be passed on to standard-offer customers and encourage more competition among competitive suppliers to serve this market segment.

Leaving a regulatory system in place that encourages competitive suppliers to dump their customers on the Mass. Electric default plan for the summer months would be ''counterproductive to retail competition, and it's not good for customers,'' Berardino said.

As is usual in rate cases, state Department of Telecommunications and Energy officials did not comment on the filing.

Rob Sargent of the Massachusetts Public Interest Research Group, a leading critic of the state's 1998 electric deregulation law, said: ''This should be a huge red flag to those who bought the line from the monopoly utilities that there was going to be plenty of electric savings in the future, thanks to deregulation.

''Mass. Electric was one of the cheerleaders for this whole thing, and it goes to show when you let monopoly utilities write the rules for competition in the utility markets, you don't get competition and you don't get lower rates.''

Mass. Electric's assistant general counsel, Terry L. Schwennesen, said in documents filed with the state that if the default power rate is not increased, ''there is significant potential for enrichment of competitive suppliers at the expense of customers.''

Between January and March, he said, about 350 customers representing over $2 million a year in power costs left competitive suppliers to come back to the utility.

Massachusetts Electric has already racked up $8.6 million in losses providing default power at below-market rates, Schwennesen said, which it will charge back to customers during 2001. If power prices hit expected levels this summer, the company could face total losses of up to $61.5 million, Schwennesen said.

-- Martin Thompson (, May 04, 2000

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