Stuart Ormsbee
Vice President, Power Supply Strategies
Colonial Power Group

Guest Contributor

Jim Smith paid 50 cents/kWh for electricity supply in December for his home in Dorchester, MA. No typo; fifty cents. A few years ago, Jim responded to a flyer he received in the mail and signed a 24-month fixed-rate contract with a competitive electricity supplier. 

It was a sound decision, both at the time and in retrospect, Jim even understood one of the most important provisions of the contract: the supplier would continue to provide electric supply beyond the initial 24-month term, but at a monthly market-based rate as determined by the supplier. Jim would want to shop again in a couple years to evaluate his options for a subsequent term. But life moves on, and such self-acknowledgments quickly drop to the bottom of the to-do list. And so, his supplier continued to provide electric supply at a monthly rate, gradually increasing to a high mark of 50 cents/kWh.

50 cents/kWh?? Gouging! Excessive profiteering!! Yes?! Well, no. 

At different times over the last few months, fifty cents/kWh has been reflective of the extreme market prices in New England for the coming winter. For example, Eversource-NH’s January rate for large commercial customers is 48.55 cents/kWh. There is a good chance that these exceptionally high electricity prices and exceptional market price volatility could continue over the next few years.

Freedom Energy and Colonial Power Group are working together to provide consulting services to towns and cities in New Hampshire interested in community choice aggregations (CCA). A CCA aggregates together all the consumers in a municipality currently receiving default energy service from their utility to form a large buying pool. Freedom Energy and Colonial Power Group will then conduct competitive solicitations and manage the power supply needs for the CCA over time, executing on forward power purchases when market conditions are most advantageous. The large buying pools consistently attract competitive pricing from the leading suppliers in the region. Municipal aggregations have been a tremendous success in Massachusetts for over a decade, delivering stable rates and savings over time when compared to utility basic service rates. 

At a recent meeting, a town official expressed discomfort with the town establishing a CCA. I detected a sentiment that residents already have a choice in electric supply, either from the local utility or from the competitive market. To him, a town program, therefore would be an unjustified imposition. On the contrary, I think the consumer benefits derived from a CCA are more important now than ever because the basic features of both utility last resort supply and direct contracts with competitive suppliers do not perform well in such a turbulent market. 

One option is for a consumer to purchase electric supply from its utility company. In New Hampshire and Massachusetts, the companies are directed by state regulators to purchase supply at certain times each year, independent of market conditions. There is no thoughtful strategy to the process and absolutely no obligation for the utilities to minimize price. A timer is pre-set and when the timer rings, the companies buy.

Alternatively, a consumer can purchase directly from a competitive supplier. I acknowledge there are some consumers who are extremely organized, extremely attentive to expenditures, and actually enjoy active management of their electric supply. I personally know several. However, I believe there is a much larger group of consumers buying electricity from competitive suppliers that are ill-informed and far less attentive. Some were exploited by aggressive sales tactics and may be unaware of their current situation. The rest are like Jim Smith, who are slow to re-shop and are therefore unwittingly exposed to market-based rates. When market prices are stable, that risk may be tolerable. That’s not the market we’re in today.

Extreme market prices and stark seasonal variability renders the standard contract with hold-over provisions problematic. Its promise as a sound alternative to utility last resort service is weakened. Today’s market is simply too risky for the whole lot of us who are not absolutely dedicated to managing their supply agreements like an energy professional (and please, please be honest with yourself).

A CCA fills this void. Unlike the utility procurement process, a CCA is actively managed by energy professionals like Freedom Energy and Colonial Power Group. Unlike a direct contract with a supplier, a CCA protects consumers from price volatility. It provides another option, and, in today’s market, it offers the best choice for the vast majority of residents, including Jim Smith, who is now happily enrolled in the City of Boston’s CCA, paying 10.9 cents/kWh.

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