Utilities ordered to restructure charges

MASSACHUSETTS - We've all gotten the fliers tucked inside our monthly utility bills encouraging us to be more efficient and use renewable power. But have you ever wondered why your utility company would urge you to conserve when it bills you based on how much energy you use?

"For a utility, it's like shooting themselves in the foot," according to one state energy official.

And that's why the state Department of Public Utilities ordered all of the Commonwealth's electric and natural gas companies to restructure their distribution rates in such a way that it doesn't go against the utility's self-interest to help customers lower bills by consuming less.

Ian Bowles, secretary of the state's Executive Office of Energy and Environmental Affairs, called the department's order a "sweeping and historic" change in the way Massachusetts households are charged for energy.

Traditionally, utilities charge customers based on the amount of energy used - from a business perspective that means the more, the better. Under the new order, utilities will calculate distribution rates based on how much it costs annually to run the company and maintain power distribution systems. If the utility collects more revenue than expected, customers would get a credit on their bills; if they collect less, customers would see a surcharge.

The idea, called "rate decoupling," is that once utilities no longer profit when their customers use more energy, the utilities will help those same customers conserve - as required by the state's newly enacted Green Communities law.

"In a time of high energy prices... why would we ever want to regulate utilities in a way that makes them want to maximize power sales?" Bowles asked while lauding the restructured rates. "Fundamentally, this (order) is about maximizing people's chance to save on high energy costs."

Once utilities implement the restructured rates - which are expected to go hand-in-hand with expanded efficiency programs - energy officials say customers probably will see a slight increase in the distribution rate on their monthly bills. That increased rate, however, is expected to be offset by the larger savings that could occur by lowering energy use and becoming more efficient.

"They will certainly see huge benefits," said Paul Hibbard, head of the Department of Public Utilities. He said that under his department's order, customers would be protected from a large surcharge by a requirement that utilities monitor their revenues on a consistent basis and ask for rate adjustments as needed.

Officials with the state's leading utility companies, NStar and National Grid, praised the order from the Department of Public Utilities.

"We think it will lead to lower energy demand, which will lead to lower bills," said Tom King, president of National Grid in the United States. "We, as a company, believe that we have got to reduce consumption."

King said he didn't know how quickly National Grid would be able to institute a restructured rate.

Most utilities are expected to file new rate plans with the Department of Public Utilities by 2012, when most of their current plans will expire.

Robert Rio, senior vice president at Associated Industries of Massachusetts, said that though his organization did not support decoupling, he and his peers will work to ensure that utility customers are treated fairly under the new system.

"Our goal going forward is to look at a couple of things: first, to make sure that the rate payer is protected," Rio said. In order to do that, he added, someone needs to ask, "how much does it cost to run a utility?"

"The biggest problem here is determining what they need. It's not going to be a simple matter," Rio said. "I know it costs money to run a utility, and we don't want the wires to fall down and we don't want to see the lights go out because the utility is not getting enough money... (but) we don't want the utilities to be unduly rewarded for basically having a guaranteed revenue."