Electric bills for Massachusetts homeowners rank between 30th and 40th in the nation, well below the national average, but you’d never know it. That’s because some politicians and business groups regularly — and wrongly — sound the alarm about the state’s “out of control” energy costs.
To understand why they are wrong, first you have to understand your electric bill. It looks complicated, but the mysteries can be revealed, step by step. Promise.
On the front of the bill, you will see charges divided between “delivery” and “generation.” If you flip the bill over, “delivery” is broken down further into five main components.
■ Generation refers to the actual amount of electric power you consume for lighting, appliances and other uses. Electricity use is measured in kilowatt hours (kWh), or hours of usage based on every 1,000 watts of the stuff. It is most volatile part of the bill — prices spiked in 2002, between 2006 and 2009, and again during the past six months, driven by fluctuations in the price of fuel to run power plants. Still, averaged out of over the last 20 years and adjusted for inflation, a kWh of electricity has cost about 9 cents, with the price of generation typically accounting for a about half of the monthly electric bill.
This price is not regulated — it’s determined by the competitive market of power plant operators. For most residential customers with basic service, electric utilities establish power generation prices twice a year. Eversource, for instance, recently said its generation rates for the next six months would drop from 15 to 10 cents, starting in July.
■ Distribution. This is the cost to deliver power through wires that usually are attached to wooden telephone poles. This charge has been stable for the last 20 years — and has even modestly declined. It represents about one-third of the bill. The distribution charge is the utilities’ main source of income, and it’s regulated by the state Department of Public Utilities.
■ Transmission. This is the system of towers that send high voltage power over longer distances. Regulated exclusively by the federal government, the transmission fee has, by far, been the fastest growing part of your electric bill — increasing over six-fold in the last 20 years. Today, it adds up to about 12 percent of monthly charges.
■ Transition. In 1997, Governor William Weld and the Legislature required utilities to divest of power plants, based on the belief that the competitive market could build and maintain plants at lower cost than the monopoly utilities. Under terms of the deal, shareholders in utility companies would not lose any money because of the “transition.” Ratepayers are still slowly paying off these “stranded assets” of some of the older power plants.
So there are a lot of components to comprehend. But this much is easy to understand — every charge is assessed based on the amount of electricity used. If you use less power, you save on each fee, not just the generation charge. And here’s where Massachusetts’ efficiency program — the biggest in the nation — comes in. Even though our electric rates — all those charges lumped together — are above average, the actual bills paid by residential customers are below average.
Also, you can see that despite volatility in short-term fuel prices, energy costs over the long term have been fairly stable. That’s largely because nearly half of what you pay goes toward maintaining the transmission and distribution system, not buying power. Only the generation charge is subject to wild fluctuation, and even that tends to correct over time. Earlier this year, electricity prices nearly matched their last peak, which was in 2006. But this summer, your bill will be about the same as it was during the summer of 2001. Compare that pattern with something like health care, where costs are always on the rise.
The next time somebody tells you electricity prices in Massachusetts have gone crazy, tell them to spend some time with a monthly bill.
Ian Bowles is managing director of WindSail Capital Group LLC and a former Massachusetts secretary for energy and the environment.