Massachusetts lawmakers are currently considering legislation that, unless amended, will impose hundreds of millions of dollars in costs on the state’s electricity consumers to subsidize a private developer’s unnecessary and uneconomical power plant.
Members of the House and Senate are meeting to reconcile legislation called “An Act Relative to Competitively Priced Electricity in the Commonwealth.” This comprehensive energy bill seeks to promote competition among power plant developers to ensure the state’s policy goals are met as cost-effectively as possible.
Contrary to that purpose, however, a provision added to the House bill would unnecessarily increase costs for consumers by requiring them to financially support a private company’s development proposal, providing the developer financial guarantees not available to other power plant projects in Massachusetts.
Section 42 of the House bill would provide a 15-year noncompetitive contract for developers of a retiring coal or oil power plant that is being converted to another fuel, such as natural gas. Today, only a plant in Salem Harbor meets those criteria. But if this project moves forward with financial guarantees from the state’s consumers, other power project developers will line up for similar treatment. This is a recipe for escalating electricity prices that will have a detrimental impact on the Massachusetts economy and jobs creation.
Massachusetts has always had some of the highest electricity rates in the country. Because of this, the state has been at the forefront of regional and national efforts to inject competition into the stodgy, inefficient utility sector. Experience has borne out the state’s move to competition over a decade ago. Promoting an open marketplace for electricity has helped drive innovation, improved environmental and economic performance of generation facilities, and helped keep consumer costs lower than they would have been with continued monopoly protections for utilities and government-determined electricity prices.
Section 42 of the House bill would mark a return to government intervention in electricity pricing. It threatens to undermine the successful competitive market structure in Massachusetts and New England that is providing electricity at increasingly affordable prices today.
Prices in New England’s competitive wholesale power market are at their lowest levels in a decade and competitive retail suppliers are rushing to offer savings to homeowners and businesses. NSTAR and National Grid customers have seen price decreases of up to 20 percent. But this dynamic would be turned on its head by the House bill’s provision to require consumers to subsidize private power plant development.
Since the late 1990s, generation developers have invested billions of dollars in new generation facilities providing over 13,100 megawatts of new, clean generation for New England – nearly 20 times as much power as the proposed Salem power plant. These investments have been made solely at the risk of plant developers.
This is a significant change from the old monopoly regulation model, in which customers captive to a monopoly utility provided a guaranteed return on the utility’s investment. That involved heavy-handed government intervention in establishing electricity prices while providing utilities with little or no incentive to control costs, innovate, or increase efficiency.
Competitive power plant developers must absorb the risks of cost overruns and potential bad investment decisions. Competition has resulted in more efficient and cleaner plant operations. More efficient power plant operations have resulted in enough electricity generation to power nearly 2 million homes without building any new power plants. This has also produced environmental benefits across the region, as smog-forming nitrous oxide emissions are down 66 percent, acid rain-causing sulfur dioxide emissions have decreased by 71 percent, and carbon dioxide emissions are 18 percent lower.
New England currently has an excess supply of electricity. That is why some power plants are being retired. But even with expected plant retirements over the next few years, there will be nearly 4,000 megawatts of existing electricity capacity beyond the amount needed to ensure reliable and affordable electricity in New England.
The House bill’s proposed mandate will worsen this oversupply and harm ongoing development efforts, including renewable facilities and even some conservation programs.
Massachusetts consumers should not be required to guarantee an investment return for projects that developers deem too risky or uneconomic to finance on their own. Section 42 of the House bill should be rejected by the Legislature.