The R.I. Public Utilities Commission is considering two electricity rate proposals for large customers. Both would more quickly pass along costs and savings in the energy market, but one would make it very difficult for businesses to predict costs in what has been a wildly fluctuating market. That more radical course should be taken only with extreme caution.
The better way to go at the moment is a plan being presented by National Grid. It would set rates every three months, much as it does in Massachusetts now. Not only would the pain and gain both be felt more rapidly, but the premium that energy suppliers include in longer contracts as a hedge against rising costs would be significantly reduced.
The more sweeping plan being put forward by a division of the PUC would eliminate that pricing hedge completely by having National Grid sell electricity to large customers from the spot market for energy. In effect, electricity customers would be completely exposed to the vagaries of the market, sharing in almost real time the savings that come when energy prices drop, but also paying more as soon as costs increase.
This approach would, on the whole, lower prices, but it would do so by exposing businesses to the full risk of a very volatile marketplace. And while all businesses want lower costs, they also want predictability.
The Energy Council of Rhode Island, a trade organization of large electricity users, believes that the PUC’s idea has merit, but it recommends that such a rate structure be offered as an option that is phased in gradually. That is a sensible way to go. •
