Rate freeze notwithstanding Massachusetts utility wants 16% increase

By Ann de Rouffignac
OGJ Online

HOUSTON, June 8 -- Massachusetts Electric Co., feeling the pinch of rising wholesale electric prices, is seeking a 16% retail rate increase request.

The Northborough, Mass., company last week asked the Massachusetts Department of Telecommunications and Energy for permission to raise the standard offer, a rate that was supposed to remain fixed for 7 years after the state's electric industry was deregulated in 1998.

Under deregulation in Massachusetts electric customers received a 25% rate cut in two stages. These customers were then supposed to "get used" to deregulation and gradually start shopping around for other suppliers, said Debbie Drew, spokesperson for Massachusetts Electric. But the retail market evaporated because alternative suppliers couldn't compete with the standard offer.

Standard offer customers continued to receive electricity from Massachusetts Electric at 3.8¢/kw-hr until last summer when state regulators approved a rate hike to about 5.4¢/kw-hr. The utility is seeking another rate increase to 6.3¢/kw-hr effective July 1.

"We have been experiencing undercollection of about $100 million since Oct. 2000," said Drew. "We are buying power at higher prices and need about a penny more per kilowatt hour to make ends meet."

The utility, a unit of National Grid Co., sold all its generation as part of the restructuring, and is now dependent on purchases from outside suppliers to provide electricity for 1.2 customers who did not leave the system.

"Our great hope is for customers to have choice," said Drew. "Our goal is to be just a distributor of electricity."

A second class of customers who left the utility and then returned pay 9.213¢/kw-hr for electricity.

Rate changes for these so-called 'default' customers are still approved by regulators.

With the rising prices in default rates and the proposed increase in the standard offer rate, the utility is encouraged that competitive suppliers will be able to compete and start providing electricity for more customers, Drew said.

"We are encouraged about new suppliers," said Drew. "New Energy has said it will be marketing to commercial customers on our default rates." But Drew said she didn't know of any alternative suppliers marketing to residential customers.

Data posted by the Massachusetts Department of Telecommunications and Energy shows incumbent utilities serve 1.86 million residential customers and competitive suppliers serve only 3,795 customers as of March 2001, even though more than 30 companies are licensed to sell electricity in the state.

To help competitive suppliers gain access to customer data, Massachusetts Electric filed a proposal last week with regulators, explaining how it would improve communication between default service customers and third party suppliers this summer.

"The goal of our initiative is to have suppliers contacting and communicating offers to customers on default service," according to the filing. Massachusetts Electric said it is even willing to defer charging for customer lists.

"We don't wish to have the fee stand in the way of getting default service nonresidential customer lists to suppliers as soon as possible," it said.