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Utilities cutting rates for electricity

Prices follow fall in natural gas cost

By Erin Ailworth
Globe Staff / May 8, 2012
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Massachusetts ratepayers could soon see their electricity bills shrink as the lowest natural gas prices in a decade make it cheaper to produce power.

Nearly 60 percent of the state’s electricity is generated by gas-fired power plants, and utilities - which have been paying less to buy that power - are passing the savings on to consumers.

NStar, now a subsidiary of Northeast Utilities of Boston and Hartford, asked state regulators on Monday to approve a nearly 16 percent cut in power rates for its 1.1 million electricity customers. That would bring the charge to its lowest in eight years and save the average customer about $6 a month.

Last week, National Grid, the state’s second largest utility, lowered its electricity supply charge by nearly 19 percent, cutting a typical customer’s monthly bill by $7.74.

Meanwhile, a subsidiary of Dominion power company, an independent electricity supplier, is offering Massachusetts customers the chance to lock in the current low electricity rates through at least December 2013. Dominion’s prices are slightly higher than National Grid’s and NStar’s, but still 12 percent to 39 percent lower than the prices it offered utility customers three years ago.

“Right now, electricity prices are low because natural gas prices are low,’’ said Dan Donovan, a spokesman for Dominion Energy Solutions, which serves more than 100,000 Massachusetts customers.

The combination of new supplies from shale formations, increased production, and modest demand have helped cut natural gas prices by half in the last 12 months alone, to about $2 per million British thermal units. That is the equivalent of a barrel of oil selling for $12.

Declining electricity prices are adding to the relief consumers are getting from high energy costs recently. AAA Southern New England reported Monday that the average price of unleaded regular gasoline in Massachusetts has fallen 13 cents in the last three weeks, to $3.77 per gallon. That decline is the result of the falling price of crude oil, which closed below $98 a barrel in New York on Monday, the lowest price in three months.

As for electricity, NStar asked regulators to lower its supply charge from 7.92 cents per kilowatt-hour to 6.7 cents per kilowatt-hour starting in July. National Grid’s rate decreased 1.5 cents at the beginning of this month, to 6.72 cents per kilowatt-hour from 8.27.

Dominion is offering NStar customers a rate of about 7 cents per kilowatt-hour and National Grid customers a rate of 7.68 cents. Those electricity charges account for about half of an average customer’s monthly utility bill, with delivery and other charges making up the rest. Under the state’s electricity deregulation rules, utilities do not generate power, but buy it in wholesale markets and pass the costs on to customers.

If customers choose, they can instead purchase their power from competitive suppliers such as Dominion Energy, which has been doing business in Massachusetts since 2001. Utilities such as NStar and National Grid earn their profits primarily from regulated delivery charges and collect them whether customers buy their power through the utilities or from a competitive supplier.

Dominion tries to undercut the rates that utilities file with the state and get customers to lock in at those prices for a year or more. Dominion, however, does not guarantee customers will continue to save over the life of their contracts. Utilities adjust the electricity supply charge every six months, and, those prices can beat Dominion’s offers.

Still, Dominion says, its long-term deals provide price stability for customers looking to budget for their utility expenses. “We’re appealing to the ones that want some certainty,’’ Donovan said.

Consumer advocates advise ratepayers to carefully consider whether to commit to a long-term contract. Agreeing to pay a fixed-rate for electric supply over time “involves some risk for the consumer’’ because wholesale power prices change often and natural gas prices have been falling for some time, said John Howat, a senior energy analyst with the National Consumer Law Center, an advocacy group in Boston.

“They’re not locking in savings,’’ he said. “The customer has to be aware that they could end up paying more for electricity, not less.’’

Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.

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