Restructuring Today
January 4, 2006

Massachusetts picks protection for its people but at a cost

Massachusetts regulators OKd late Friday a settlement at Nstar that trades a tiny distribution rate cut now for deferrals and high interest charges into the future.

          The deal trades as well market-responsive standard generation rates for locked-in rates that postpone a developing retail market.

          The deal moves Nstar's basic generation service supply to three-year contracts replacing shorter-term RFPs that reflect the market and would be more responsive if prices go down.

          The settlement was concocterd by Nstar, the politically ambitious Attorney General Tom Reilly, the Low-Income Energy Affordability Network and Associated Industries of Massachusetts.

          It was opposed by other interested stakeholders including marketers, the Cape Light Compact buying pool and some C&I customer groups.

          Cape Light is the community pool that has been serving the bulk of small customers in Cape Cod towns since the SOS rate was replaced by market-based basic service.

          It warned the settlement's tiny savings are "illusory" since costs are deferred into the future with large interest costs.

          The pool had pointed out the dangers of switching to longer-term basic power supply buying that seems to reverse Massachusetts recent track record of moving to market prices for non-shoppers.

          The longer contracts create a price-stabilized product, Cape Light warned, that ought to be available only on the competitive market -- not as a monopoly service.

          NEMA had warned that buying longer-term power likely would artificially inflate prices since liquidity is scarce in later years while blocking market price signals. 

          When wholesale prices fall -- and some believe that’s almost inevitable -- it's likely to create a new boom-and-bust cycle as customers search for alternatives to locked-in, high basic rates.

          Nstar gave the Dept of Telecommunications & Energy a deadline to accept the settlement before Jan 1 when new rates kicked in.

          With the deal, Nstar reported, consumers now are saving 46¢/month on distribution rates versus paying an extra $1.67/month.

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