What’s In Your Electric Bill – Energy Portion

By: Doug Thomas

State Representative, Clerk, Science, Technology and Energy Committee

Our electric bills are too high. That’s no surprise to anyone, especially our businesses and industries.  As a member on the House Science, Technology and Energy Committee, I work hard to find ways to give true relief to ratepayers. Unfortunately, it’s not that simple. We ask what can be done to make a difference policy-wise in a way that doesn’t put more of a burden on the ratepayers?  But in attempting to explain some “whys”, perhaps it would be helpful to understand what makes up your total bill.  This article will start with the energy portion of your bill as it relates to residential rates. It is a very simplified description on how energy cost is derived.

On average approximately 50 – 60% of your total bill is energy cost. So it makes sense to look at this first.  Because NH passed a law to require the utilities to divest of their generation plants, the electric companies now must purchase the power for customers who do not choose to purchase the energy elsewhere from the market.  The market dictates the costs so the utilities are not responsible for the cost of energy any longer.  They now buy it from the least expensive private provider at six-month intervals.  There are cases where they are forced to pay more, but that’s covered in another article.  The price paid to generate electricity is determined by auction bids managed by the grid operator, Independent Systems Operator (ISO) of New England (NE).  Natural Gas (NG), Nuclear, Coal, Oil, and Hydro bid prices based on how many Megawatts (MW) they can provide until the required capacity, as determined by ISO-NE, is reached.  The final bid price that reaches this capacity is what is paid to all generators, regardless of what they bid.  At certain times of the year, NG is not used to power generating plants because it is being used to heat homes and businesses, so other more expensive forms of generation are used and set at a higher price.  This creates volatility in the rates, which is not acceptable to ratepayers.

The primary responsibility of ISO-NE is to “keep the lights on”.  Yet they have no authority to make a developer build a power plant when needed. Since 2013, nearly 5000MW of generation has retired or announced plans to retire in the coming year.  These are the resources that have played a critical role in recent winters when NG is being diverted to heat homes and businesses.  The grid operator has warned that the demand is getting close to outpacing supply.  As macroeconomics teaches us, this creates high-energy rates.  As if that isn’t enough, to keep the lights on, they have resorted to paying premiums to some older plants to try to keep them from shutting down until solutions can be built.  New England and NH ratepayers foot the bill for this.

Between 2000 and 2017, natural gas went from providing 15% of the energy generation in the region to 48%. The lack of NG in the winter is a critical problem. If more NG is needed to produce electricity, the price can be much more, causing price spikes. In the meantime, renewables (includes solar, wind and hydro) only increased by 3% in those same 17 years (8% to 11%). So we have to be realistic about what can actually help us keep the lights on.  Renewable energy cannot be relied upon 24/7 since you can’t store sun and wind, regardless of how much more we can get on the system (ISO-NE has an app [ISO to Go] with real time statistics on energy use and fuel mix).

So the major cost drivers to the cost of energy are the retirement of some older power plants, over reliance on NG to fuel power plants (causing big problems during the cold winter months) and paying some older plants to continue to run to keep the lights on.  But this is not by far the only cost driver in your electric bill.   Distribution costs, albeit a distant second, play an important role and will be covered in the next article.

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