New England Electricity Rates Analysis
Prepared for NESCOE
September 2015
Reishus Consulting LLC

Preliminary insights

• Residential electricity customers in New England states have paid higher rates than those of the national average over the last decade.
  • The most significant factor that drives differences in rates paid by residential customers across the US is the underlying fuel mix of the power supply that customers purchase.
  • New England as a region derives relatively less of its power from cheaper sources of generation — especially coal, nuclear, and large federal hydro projects -­‐ than many other regions in the US.
• Over the last decade, the level and volatility in the price of natural gas that fuels a significant portion of power generation explains much of the movement of power prices in New England year over year, but it is a complicated relationship.
  • The share of natural gas fired generation is increasing at a time when natural gas prices have generally fallen to their lowest annual average in years, yet natural gas has also spiked to extremely high but short‐lived prices during recent periods of supply constraint.
  • Residential customers are generally not directly exposed to real-­time wholesale spot electric prices, which closely track natural gas prices delivered to electric generation plants, but over time they will see those spikes incorporated into seasonal or average generation rates.
• Other factors also drive trends in residential electricity bills, including:
  • The amount of electricity consumed on average by residential customers, which varies across states and utilities, and is correlated to factors such as the size and income level of the average household, and the level of electric heat and air-‐conditioning penetration
  • Specific regulatory and corporate policies that may impact the cost of utility distribution operations that are passed on to customers, such as relative levels of utility spending on specific programs related to smart meters or tree trimming to improve reliability,
  • Regulatory rate design choices that spread the utility’s allowed revenue requirement across different classes of customers or provide for time-­differentiated rates,
  • Statewide policies, such as those establishing rules or targets for long-term contracts, renewable portfolio standards, and energy efficiency programs.
• The non‐generation portion of rates, i.e., distribution and transmission, has been slowly but steadily increasing over time, driving up total bills to residential customers.
• Purchased power contracts are still a relatively small portion of the total generation mix in New England; their impact on rates is difficult to assess because of the lack of publicly available data.

Historical average residential rates of selected New England utilities (2003-­‐2013)

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Rates, which have been rising modestly over the period, are comprised of generation, transmission and distribution components. T&D rates have been steadily increasing, while generation rates, after increasing quickly in the first half of the period, have moderated somewhat, although still remain volatile.

Historical average residential rates of New England and of two comparable east coast utilities (2003-­‐2013)

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Calculated monthly bills paid by typical New England residential customers, based on regional average consumption

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Calculated bills paid by typical residential customers across utilities based on an average New England consumption level

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Calculated bills paid by typical residential customer across New England (based on each state’s specific average annualized use)

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Gross state product per capita growth for New England states has recovered since the last recession

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The relative size of the current typical monthly residential bill varies somewhat across the New England utilities

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The generation and non-­‐generation components of the current average residential power bill are roughly equal in size

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The non‐power supply portion of residential rates has been generally trending upward over time

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The generation component of rates exhibits more movement over time than other portions of the electric price

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Overall price volatility for residential customers is most closely linked to the volatility in the generation portion of rates

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The price of natural gas delivered to electricity plants in the region has been especially volatile in the past two years after experiencing several years of significant declines in price

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There is a close relationship between wholesale spot supply price of electricity and natural gas prices in New England

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The generation component of rates can exhibit a significant seasonal difference that captures short‐term volatility, depending on the specific rate design in place for a given utility

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Fuel diversity of power supply for New England, New Jersey, and South Carolina exhibit significant differences, especially in the proportion of coal, gas & oil in the generation mix

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Some residential consumers have elected to be served by competitive suppliers, which may have different fuel diversity profiles than the default service providers

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Portion of total load served by default service providers versus competitive suppliers, continued

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Estimated share of renewable PPAs as a portion of the total generation mix varies significantly in the region, but remains a relatively small portion of the generation component to date

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Estimated share of renewable PPAs as a portion of the total generation mix, continued

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Notes on the analysis

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