National Grid seeks 23.6-percent rate hike for Rhode Island electric customers

PROVIDENCE, R.I. — Most Rhode Islanders would see their electric bills increase dramatically in January under a proposal National Grid submitted to state regulators on Wednesday.

With prices for natural gas used for electric generation this winter expected to match or even exceed last winter, the typical Rhode Island household that uses 500 kilowatt hours of power is projected to pay 23.6 percent more than it did last January. That would bring the monthly bill for a residential customer to $109 from $88, according to National Grid, which has 486,000 customers in Rhode Island and is the state’s dominant utility.

The percentage increases for commercial and industrial users would be similar.

“For big users, this is a six-figure, if not seven-figure, increase in their budget,” said Douglas Gablinske, executive director of The Energy Council of Rhode Island, which represents factories, schools and other large electric customers in the state. “Those are tough numbers to absorb.”

The rate hike comes as more New England power plants are burning natural gas for electricity and are being thrown into competition with the home-heating market to get gas through the region’s constrained pipelines.

If the state Public Utilities Commission approves the proposal, as expected, the new rates would go into effect Jan. 1 and remain in place until June 30, when they would likely decrease as the demand for natural gas subsides in the summer. This is the new pattern with electric rates in New England. They rise in the colder months and fall in the warmer ones.

The proposed increase in Rhode Island follows announcements of even larger rate hikes in Massachusetts, where National Grid customers will see a 37-percent increase in their winter electric bills after regulators approved new rates that started Nov. 1, and NStar customers will pay 29 percent more on average.

The reason for the increase should sound familiar by now. The price of electricity in New England is driven by the price of natural gas, the primary fuel used for generation in the region. As cheap shale gas from Pennsylvania and beyond started to become available in the early 2000s through hydraulic fracturing, or fracking, New England stepped up its reliance on the fuel.

Currently, 45 percent of the electricity generated in the region comes from natural gas, and that number is expected to reach 48 percent by 2017, according to Independent System Operator New England, the entity that operates the regional power grid. Meanwhile, Salem Harbor Power Station, in Salem, Mass., the region’s second-largest coal plant, closed in June, while the largest, Brayton Point Power Station, in Somerset, Mass., is expected to follow suit, as is the Vermont Yankee in Vernon, Vt., nuclear power station.

Although shale gas is still plentiful and cheap, getting it to New England is a huge challenge. The six New England states are supplied by only two major pipelines and both are at capacity. Those constraints have pushed up the price of power in the past few winters when natural gas must also be used for heating.

“When those pipes become more valuable, the price to use them becomes more expensive,” said Michael LaFlamme, National Grid vice president for regulation and pricing in New England. “The supply is there. We simply can’t get the gas here.”

Prices first spiked in the winter of 2010-2011, and then eased back the following winter. But they rose higher again in 2012-2013 and higher still last winter. This past winter alone, National Grid spent $5 billion on energy for New England. In all of 2012, the utility spent $5.2 billion. ISO New England projects prices this winter that would be similar to the last one.

Ironically, the electric rate hikes are coming at the same time that natural gas heating bills are going down. Gas rates for heating are expected to decrease 1 to 3 percent in Massachusetts this winter. And in Rhode Island, from Nov. 1 to Oct. 31, 2015, rates will average 8.3-percent lower than the previous 12-month period.

Those rates are dropping because the price of gas itself is expected to be lower than it was a year ago, said LaFlamme. Moreover, gas for heating use takes priority in the pipelines that supply New England. Contracts for heating supply can be signed far in advance and are considered “firm” agreements, because there is no question that the gas will be delivered.

Electric generators can get their gas only from what capacity is left over in the pipelines. Because that amount can change on an hourly basis, prices can fluctuate wildly, especially when the temperature dips, and they pay a premium to have it delivered.

National Grid and other utilities have advocated for expanding the capacities of the region’s two main pipelines. But those projects would take years to complete and may not entirely solve the problem.

“They would certainly mitigate the problem,” said LaFlamme. “They’re years away unfortunately.”

Gablinske said that more gas needs to be brought into the region to use as a bridge fuel until the cost of renewable energy comes down.

“It is going to take time before renewable energy technology can meet demands at a cost-effective price,” he said. “In the meantime, we need more gas here.”

But not everyone buys that argument. The Conservation Law Foundation and other advocacy groups have pushed for expanding energy efficiency measures to reduce demand and increasing solar and wind facilities to provide alternative sources of generation.

In Rhode Island, about half of a customer’s electric bill goes to paying for the cost of power — the commodity cost, which National Grid is not allowed to mark up — while the other half goes to delivery — transition, transmission and distribution charges — and fees for renewable energy and energy efficiency. Nearly the entire proposed increase is due to higher commodity costs.

With the prospect of higher prices, National Grid is urging customers to temper the bill impact by investing in Energy Star-rated appliances and taking other steps to use less power.