Following a year that saw legislative action to reform energy policies, and two proposals for rate decreases by National Grid, the market for electricity is in much better shape than at the same time last year, according to advocate who represents businesses on the issue.
John Farley, executive director of The Energy Council of Rhode Island (TEC-RI), observed last week that a year ago, energy providers and consumers were wrestling with high costs in the wake of two major American hurricanes.
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But this year, besides a mild hurricane season, he said, businesses are benefiting from the passage of the state Energy Conservation, Efficiency and Affordability Act of 2006, which will create funding sources for renewable energy and assure that National Grid’s price structure remains stable.
While the law is likely to have a long-term impact on the market, Farley said, the short-term picture looks good for both residential and commercial energy consumers thanks to National Grid’s rate decreases in 2006.
In January, National Grid raised the cost of its “standard offer” – the rate paid by most of the company’s customers – from 8.2 cents to 10 cents per kilowatt-hour. But in September, the utility dropped the rate to 9.4 cents per kWh.
The company is now proposing a decrease of 6.6 percent from the current price, which would bring the cost down to 8.3 cents per kWh in January if approved by the R.I. Public Utilities Commission.
The result, Farley said, is that National Grid is offering a better rate than most consumers could find on the competitive market.
With the Utility Restructuring Act of 1996, the R.I. General Assembly made way for a free electricity market for consumers, encouraging competition in order to create more price options for users. But although some commercial and institutional users have taken advantage of the free market, there has been little movement on the residential side.
To ease customers out of the regulated environment, the Assembly created the standard offer, a gradually increasing price structure that applies to all but 4,000 of the state’s 472,000 electricity customers.
Customers can leave to go into the competitive market, but if they return, they must pay a higher rate called “last resort.” According to PUC spokesman Thomas Kogut, however, most companies on the competitive market will only look at a potential client if they are using energy “well beyond what most residential customers would.”
The competitive market in Rhode Island had only 3,350 customers as of September, the most recently quarterly filing for the state. Though that is only a small portion of the state’s energy users, it is still a marked increase from last year, when there were only 2,910.
David Graves, a spokesman for National Grid, said he didn’t know the reason more customers had left the company, a trend that appeared to begin in March, but said the company does encourage large commercial users to look at alternative markets for a long-term contract.
Farley said the figures just show that companies have “found it more attractive to get the prices in the competitive market.” This is likely to have changed in the past two months, he said, and is likely to change again with future National Grid rate decreases.
In fact, Farley said, any cost savings associated with entering the competitive market are likely to be offset by the costs associated with a concept called the “forward-capacity market.”
ISO New England, the regional company that oversees the generation and transmission of energy in New England, this month began implementing a price structure that is supposed to build a more market-based system for electricity generation, through an auctioned price for capacity. But there are costs associated with the market approach, including the $2.8 billion that is slated to be paid to generators of electricity to expand and improve their facilities.
Customers on the standard offer in Rhode Island will not have to pay for forward capacity until at least 2010, the date when the standard offer was originally set to expire, before it was extended to 2019 under legislation that cleared the General Assembly this year.
Farley said, however, that customers in the competitive market will probably paying for that cost all along.
