Electricity Sellers Want You to Switch

Boston Globe

Most of us don't know a kilowatt hour from a New York minute, but the high price of electricity is accelerating the learning curve.

February 11, 2007

Electricity prices are at or near record highs across most of the state, prompting many residential consumers to give serious consideration to the offers for cheaper electricity showing up in their mailboxes.

Louella Hoffman of Boston said her NStar electric bill has been going "up, up, and up." She said the offer of 10 percent savings from Dominion Retail was very appealing, but she wanted more information about the company and its services.

"Sometimes the devil you know is better than the devil you don't," she said. "I don't know Dominion at all."

Dominion is one of two companies that currently sell electricity in Massachusetts, a paltry number considering the state shifted to a competitive electricity market in 1998. Power suppliers vie for commercial and industrial customers, but only 3 percent of residential customers purchase electricity from a competitive supplier, and most of those are members of a unique Cape Cod buying cooperative.

A survey conducted last year by NStar indicated nearly two-thirds of Bay State residents still are not aware that they may purchase their power from someone other than their local utility.

But that's slowly starting to change. With power prices close to 12 cents per kilowatt hour, Dominion Retail and MXEnergy Inc. are starting to gain some traction.

Dominion Retail is the sales arm of Dominion Energy of Virginia, an electricity generation company that owns two power plants in Massachusetts, one in Rhode Island, and a nuclear plant in Connecticut. The company has been selling power in Massachusetts for several years, but recently has stepped up its efforts across the state. Dominion currently has about 64,000 customers in Massachusetts, twice as many as a year ago.

MXEnergy of Stamford, Conn., is the other company peddling power in Massachusetts. It doesn't own any power plants, instead buying and reselling electricity. It targets only customers of National Grid, but it, too, says consumers are showing a lot more interest in its offers.

"Competition has given people a way to get control of these roller-coaster electricity prices," said Jeffrey Mayer , chief executive of MXEnergy who declined to say how many Massachusetts customers the company has.

Dominion is offering customers of NStar, National Grid, and Western Massachusetts Electric Co. one-year contracts that currently yield a 10 percent discount on electricity. MXEnergy is offering a 7 percent discount off of National Grid prices through the end of April, plus a $25 cash rebate. MXEnergy also offers one-year contracts, but prices change frequently. The current offer is a 3 percent discount off of existing National Grid prices.

Both companies shift customers to either a variable rate or another long-term rate after the introductory offer ends.

In evaluating the offers, keep in mind that the discounts trumpeted by Dominion and MXEnergy only apply to the cost of electricity, not the cost to deliver it.For a typical NStar customer using 500 kilowatt hours per month, the Dominion discount represents a savings of $6 a month, or about 6 percent of the entire electric bill. For the National Grid customer, the savings with Dominion are about $5.86 a month, or 7 percent of the entire bill. For the Western Massachusetts Electric customer, the savings are $5.52.

The MXEnergy short-term discount represents savings of $4.86 for the typical National Grid customer, or less than 5 percent of the entire bill. The savings on the longer-term deal is only $2.86 at current prices.

The savings on the longer-term deals are also subject to change. Utilities every six months buy a year's supply of electricity for half of their customer base, and adjust their basic service price accordingly. National Grid will adjust its basic service price on May 1, while NStar will make its next pricing adjustment on July 1.

Paul Flemming , director of power and gas services at Energy Security Analysis Inc. of Wakefield, predicts the basic service prices of utilities will be falling in the coming months, which could reduce or possibly eliminate the discounts being offered on one-year contracts by competitive suppliers.

"We can't guarantee savings," said MXEnergy's Mayer.

David O'Connor , commissioner of the state Division of Energy Resources, said cost savings are important, but consumers also should value the pricing stability the competitive suppliers are offering. "It appeals to the customer who wants to know what they're going to be paying," he said.

There's no penalty for leaving utility basic service, no sign-up fees with competitive suppliers, and no service interruptions. Your local utility continues to deliver your power, read your meter, and bill you. The only change is that the power generation charge on the bill is forwarded to whichever competitive supplier you select.

Even if a competitive supplier were to go out of business, state officials say, customers would not lose power. The officials said local utilities would be required to step in and return customers to basic service.

On their one-year contracts, both Dominion and MXEnergy charge a $50 cancellation fee if a customer leaves early. MXEnergy isn't assessing a cancellation fee on its current short-term deal. Local utilities charge no fees when a customer returns to them.

Customers switching to a competitive supplier face one other cost issue.

Nearly every customer on utility basic service pays a fixed rate for electricity over every six-month billing period. The fixed rate is the average of the variable monthly rates the utility pays for power over the six-month period.

State regulations require utilities to send any customer who leaves during the middle of a billing period an adjusted bill reflecting the monthly variable rates for the power they have used. Sometimes the adjustment results in a higher bill and sometimes a lower bill.

A customer using 500 kilowatt hours per month who leaves NStar for Dominion on March 1 would see his payments for January and February adjusted to reflect the variable rates, triggering a retroactive bill for an additional $19. The same customer leaving National Grid would see his November-through-February bills adjusted upward by $2.

John R. Harris , an economics professor at Boston University who lives in Jamaica Plain, said the pricing uncertainty associated with the Dominion offer makes it difficult to evaluate. He said he doubted he would switch. "Inertia is going to rule."