3% revenue increase each year not fair to ratepayers
By Rep. Natalie Blais, Sen.
Electrifying buildings and appliances that now run on gas, oil, and other fossil fuels will be a key piece of meeting Massachusetts’ climate targets. The region’s investor-owned utilities will be vital partners in making this possible. However, it has recently come to light that Eversource has been quietly funding a campaign to fight against electrification and in support of propping up the gas system, despite the fact that the region must transition away from gas as quickly as possible.
One of the primary reasons utilities like Eversource continue to fight so hard for fossil fuels is because the current utility business model, which has helped deliver reliable energy for almost a century, is no longer compatible with the transformations within the power sector that are necessary to address climate change.
Today, utilities earn income based not on how well they serve residents, but on how expensive it is to run their companies. As expenses for maintaining the grid go up, utilities regularly ask the Massachusetts Department of Public Utilities (DPU) for approval to increase customer rates to help cover costs. Regulators usually approve these requests – and as legislators we hear frequently from constituents when they notice these new or increased charges on their electric bills and want to know what they are paying for and why.
Automatically increasing customer rates without requiring real change is not the answer. Massachusetts needs a better deal from its utilities – a real commitment to consumer interests, environmental justice, fighting climate change, and creating a reliable grid powered by clean energy resources.
Since 2018, Eversource has received an additional $95 million in revenue from cost increases to Massachusetts residents – without any requirement that the utility give them any additional benefits in return. This windfall is the result of a decision that the DPU made in 2017 that allowed Eversource to automatically increase customer rates each year using a tool called the “Performance Based Ratemaking Mechanism,” a misnomer that does not actually tie Eversource’s compensation to its performance or to benefits for customers.
The DPU then approved a similar deal for National Grid in 2019. The only thing Massachusetts ratepayers have received from these decisions is a bigger bill in their mailbox each month.
Under existing state utility regulation, Eversource’s incentives do not serve the interests of the Commonwealth’s residents. Eversource’s own securities filings identify that clean energy alternatives are a risk to its revenues. In other words, the path the Commonwealth is seeking to shift away from fossil fuels is bad for Eversource and its shareholders. This is incongruous with meeting Massachusetts’ ambitious climate goals.
We cannot continue to put the financial health of utility companies on the backs of ratepayers by providing annual revenue increases with little in return for residents or the environment. That’s why we introduced “An Act to Protect Ratepayers” (Bill H.3259/S.2143) and “An Act Promoting Local Energy Investment and Infrastructure Modernization” (Bill H.3261/S.2144). These bills will stop sweetheart deals and ensure broader stakeholder participation in decisions related to modernizing our energy system.
For years, Eversource and National Grid have faced growing expenses as a result of delays to the maintenance of the aging grid infrastructure, the cost of increasingly damaging storms, as well as the need to invest more to improve the reliability and resiliency of the grid. As these expenses have added up, Eversource and National Grid have argued that they are becoming less productive every year and, therefore, should receive an automatic revenue increase to make up for their expected financial shortfall.
For any normal business, if expenses exceed revenues, the company would attempt to lower costs, find new sources of income, or both – or go out of business. But because investor-owned utilities are granted an exclusive right to operate as a monopoly (in exchange for government oversight), residents can be unknowingly on the hook for bailing a utility out, without requiring the utility to solve its own financial problems. Under the utility’s monopoly, residents are stuck with little or no option except to pay.
The result in Eversource’s case has been a roughly 3 percent revenue increase every year without requiring any improvements in performance. This provides no incentive for the utility to solve its productivity problem. At the same time, the DPU has allowed a proceeding to consider actual performance metrics for Eversource languish since 2018. Not to mention the fact that Eversource and National Grid already earn a guaranteed return on equity that is much higher than the average in New England. All of this has raised costs for residents without providing anything in return.
In contrast, regulators in Hawaii recently rejected similar arguments from utilities around the need for automatic rate increases because of declining productivity, emphasizing the unprecedented nature of the Massachusetts decision.
Our bills will make sure the decisions that have cost residents in Massachusetts millions of dollars do not happen again. We deserve a better deal. It’s time to align utility financial incentives with climate, environmental justice, and clean energy goals.
Natalie Blais is the state representative from Sunderland, Joanne Comerford is the state senator from Northampton, and Daniel Sosland is the president of the Acadia Center, an environmental advocacy organization.