Extreme market volatility and skyrocketing prices were the dominant energy themes in 2000, prompting business owners to tighten their belts and question again the so-called benefits of a deregulated market.
Repeated gas and oil price hikes during the year’s last six months have been a “double whammy,” according to Elia Germani, chairman of the Public Utilities Commission. Wholesale prices for natural gas have nearly tripled since last year and electric customers in Rhode Island are paying nearly 30 percent more than they did the year before.
Prospects for the year ahead don’t appear any better, especially if the winter stays cold, but last month Governor Almond committed to a two-to-three day reserve of heating oil to meet any emergency in supply.
Oil prices even began to come down last month, but regarding natural gas prices, “I don’t see anything softening” until at least late in 2000, Germani said. “There’s really nothing good to be saying right now. The problem is no one in this country anticipated what happened in natural gas prices.”
Natural gas now accounts for about 95 percent of all electrical generation, Germani said, and because its prices aren’t regulated at the wellhead, utilities “have no control over” over volatility and thus must relay higher generation costs to customers as a pass-through. “Whatever happens to the market will be happening to them,” Germani said of utilities.
But Roger Buck, executive director of The Energy Council of Rhode Island, a group of large commercial and industrial users in the state, hopes utilities, and also the PUC, will be more accountable in 2001 for representing consumer interests, since deregulation has failed to live up to its promises.
Deregulation’s goal was to create competition that would lower prices and still maintain reliability in supply, but it’s actually impeded competition in the electricity market, Buck said, since both Standard Offer and Last Resort rates for generation are below what the market will pay.
This past year Rhode Island’s energy-intensive companies, especially those that have tried to remain competitive by replacing people with technology are “hurting,” Buck said. “A lot of them are hanging on by their fingernails,” and one large business owner even said the “last quarter was the worst they had had in 20 years.”
While it depends on the industry, the average company spends about 5 percent of its bottom line on energy costs, a 5 percent that “could be the difference between red and black,” Buck said.
To try to regain some losses, he said TEC-RI will suggest in 2001 that the PUC provide utilities more incentive to buy on the futures market by letting them profit when they make a good deal and pay the price if they don’t.
He also cited the 2 mil (tenth of a cent) surcharge on every customer kilowatt-hour that raises between $25 million to $30 million a year for Narragansett Electric’s conservation programs, and said perhaps it should be reduced during these volatile times.
Mergers dominated Rhode Island’s utility landscape in 2000, which means huge corporations now own most electricity and gas companies in the state.
The sale of Narragansett Electric’s parent to National Grid Group PLC of Britain was completed in May and in September, Southern Union of Texas officially acquired the state’s two major gas companies, Providence Energy Corp. and Valley Resources Inc. of Cumberland.
Buck said in light of these acquisitions TEC-RI members would “like to see [the PUC] hold the utilities’ feet to the fire” to ensure they focus on what’s best for customers “rather than what we think [they’re doing which is] focusing on their parent and shareholders.”
Buck added, however, that it is really the companies that generate power, not the utilities which just distribute it, that have really been benefiting the most.
Germani said the PUC will meet this month to consider the issue of whether local gas companies could “be more prudent” in terms of locking in prices for customers.
Germani, whose term expires March 1, also said he expects Governor Almond to nominate him for reappointment in February.
On the power generation front, a new 265-mewawatt power plant in Tiverton came online last summer and a 500-megawatt natural gas-fired power plant broke ground in Johnston in late October.
The fate of a 350-watt megawatt electric plant in North Smithfield, which has met stiff opposition from residents, still hangs in the balance, with the next hearing by the Energy Facilities Siting Board scheduled for Thursday, January 11.
Buck said New England hasn’t done enough to protect reliability of energy sources by providing new pipelines and generation, mostly because of a “not in my backyard” philosophy. “We’re running down the California road if we’re not careful,” he said, citing that deregulated state’s continued crisis in meeting increased demand.
