State urged to act fast on 'munis'
Municipal utilities a tempting option

By Brenda J. Buote, Globe Correspondent / July 17, 2008

The ink on Governor Deval Patrick's landmark energy bill is barely dry, but already advocates of legislation to make it easier for communities to establish their own municipal electric companies are pushing for state leaders to move quickly on one of the measure's little-known mandates.

A group called the Lexington Electric Utility Ad-hoc Committee is urging the Department of Energy Resources to take swift action on section 107 of the 89-page Green Communities Act that requires the department to assess the pros and cons of creating and operating municipal-owned electric utilities, or munis.

Among the many questions the state study is expected to address: What impact would new munis have on electric rates? It's an issue the Lexington group has studied closely and believes would bolster its drive for more municipal-owned utilities.

In its latest report, released July 2 - the same day Patrick signed the Green Communities Act into law - the Lexington panel reviewed the 2007 electricity costs for a major supermarket retailer that operates several dozen Massachusetts stores. Some of those stores are served by NStar or National Grid, while others are served by munis. Last year, each store used about 2.5 million kilowatt hours of electricity, enough energy to run 400 average-size homes.

The study found that the stores served by munis paid an average of 11.3 cents per kilowatt hour, while stores served by National Grid were charged 13 cents, and those served by NStar paid 14.5 cents. National Grid and NStar are investor-owned utilities.

The study concluded that if the supermarket retailer had been charged the average muni rate, the company's electricity costs would have been reduced by about $5 million.

"This comparison of commercial rates for a major Massachusetts retailer demonstrates the breadth of benefits from municipal utilities," Paul Chernick, chairman of the Lexington committee, said. "All types of customers - homeowners, businesses, and governments - pay less if they are served by munis."

NStar officials said they could not comment directly on the study's findings because they had not seen a copy of the report. Company spokesman Michael Durand said the comparison "does not cover any new ground."

Durand said the ad-hoc group has repeatedly pointed out the fact that investor-owned companies tend to have higher rates than munis but communities must consider factors that go far beyond electricity costs when assessing the feasibility of a new muni. For many communities, establishing a muni would be too cost-prohibitive, Durand said.

The Department of Energy Resources could help settle the score.

Responding to the Lexington group's call for quick action, department spokesman Frank Gorke said, "We are in the process now of sequencing all of the deadlines included in the Green Act, and fully expect to get moving very quickly on the muni study."

The latest study by the Lexington group, meanwhile, showed that if all of NStar's nonresidential customers, who used 15.1 billion kilowatt hours of electricity in 2007, had been charged the average muni rate, they would have saved about $302 million collectively, while the company's 974,000 residential customers would have saved about $436 million for the 566 kilowatts they consumed, on average, each month last year. In 2007, NStar charged residential customers $95 for 500 kilowatt hours, National Grid charged $83, and the average muni charged $62.

Committee member Patrick Mehr said the lower rates charged by munis were the result of operational efficiencies at public utilities and their ability to negotiate lower-priced electricity supply contracts. However, other factors may also play a role: Investor-owned utilities must pay property taxes; munis do not. Public utilities also enjoy tax-exempt financing and are not required to contribute to the state's renewable energy trust.

State law has allowed communities to set up their own munis for more than a century. However, Durand contends, cities and towns that wish to do so would not only have to acquire the requisite infrastructure and equipment, they would also have to hire and train workers, and establish operations and call centers, and other back-end support departments.

Statewide, there are 41 munis, which together serve roughly 15 percent of Massachusetts residents. Five are in this area: Belmont, Concord, Groton, Littleton, and Reading. With the exception of the redevelopment of Fort Devens - a special situation - there has not been a muni formed in Massachusetts since 1926.

Proponents of House Bill 3319, which would make it practical for communities to buy the local assets of an investor-owned utility and form their own muni, are praising Patrick for mandating the study in the Green Communities Act. Lexington's state representative, Democrat Jay R. Kaufman, the lead sponsor of HB 3319, has long been calling for such a study.

For five years, Kaufman has been garnering support for his muni bill. Fifty-three legislators, including senators and representatives for Andover, Concord, Burlington, Somerville, Waltham, and Watertown, support the measure. The bill also has the support of the Massachusetts Municipal Association and the Massachusetts Climate Action Network.

Opponents have expressed what Kaufman concedes is a "legitimate concern" - that the formation of new munis could have a detrimental economic impact on investor-owned utilities and their ratepayers. Opponents also question whether communities have the expertise needed to manage a muni, and wonder what would happen if the muni were to fail.

The Department of Energy Resources study is expected to address those concerns.

Durand would not comment on the state study or the commission that is being formed to conduct it. "We are generally supportive of the Green Communities Act, but it is too early for us to comment" on that provision, he said.

For their part, muni advocates hope the state study will "clear up some misconceptions about munis, and ease the way for formation of new munis," Mehr said. The study's findings must be submitted to the Legislature's joint committee on telecommunications, utilities, and energy no later than Jan. 1, 2009.

The Green Communities Act mandates that the 12-member commission include three volunteers from municipalities that are interested in establishing a muni. Geoff Beckwith, executive director of the Massachusetts Municipal Association, is expected to name the three soon.

"I expect that the commission will be put together shortly because there's a very quick turnaround time for the study," said Beckwith.

The Green Communities Act may be viewed at mass.gov/doer.

Brenda J. Buote can be reached at bbuote@comcast.net.