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Sunday, February 10, 2013

Electricity competition is real, so how should you decide what to do?

People generally have two reactions when they get a solicitation from a competitive electricity providers: First, is it real? Second, how do I decide what to do?

Let’s look at those two questions. ...

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People generally have two reactions when they get a solicitation from a competitive electricity providers: First, is it real? Second, how do I decide what to do?

Let’s look at those two questions.

First things first: Yes, it’s real and easy to do, and the savings do exist, although they aren’t huge. A homeowner can reduce monthly bills by around $5 to $15 when switching away from PSNH or their resident utility, depending on power usage.

There is almost no risk to consumers, and although the system is new, it seems to be working well from the consumer point of view (PSNH is less enthusiastic).

“We have not received many complaints,” said Amanda Noonan, director of consumer affairs for the New Hampshire Public Utilities Commission. “We do get a lot of calls … people trying to sort through it, figure it out; is this for real, can I do this?”

Why now?

The change has come about from the electricity deregulation that New Hampshire approved in 2000.

Initially, deregulation produced the financial shenanigans of Enron Corp. rather than anything useful, but it is finally bearing fruit, thanks largely to the rock-bottom price for natural gas.

That has dropped the price of producing electricity with natural gas, creating business opportunities for companies that, unlike firms like PSNH, Unitil and New Hampshire Electric Cooperative, aren’t tied down by utility regulations.

Big companies and other large power users have been getting lower rates from alternative providers for a few years, and as of 2012, the option started becoming available to homeowners. Noonan estimated that about 40,000 customers around New Hampshire, a figure that includes businesses as well as homes, have switched from their default provider.

These days, a half-dozen companies – the number is in flux – want you to buy electricity from them instead of from your regular provider, which, for most of Greater Nashua, is PSNH. You’ve probably gotten some of their junk mail – er, that is, their consumer information packets.

There is one small catch. You have to sign a contract for six months or a year, committing yourself, and if markets change, you could miss out on further
savings. This is unlikely, but it did happen to some customers for a few months last summer.

Otherwise, nothing changes after a switch. Sign up with ENH or Resident Power or TransCanada or FairPoint Energy or any other company and you’ll still get your same bill and pay it as you always have.

Most importantly, your status for repairs and upgrades remains the same: If the power goes out, for example, PSNH repair crews can’t skip your house because you have switched providers.

How to choose?

Now for the second question: How do you choose among the various companies?

Best answer: The same way you choose a cell phone carrier.

“People need to take a good look, ask some questions, be comfortable with what they are about to do,” Noonan said.

At the moment, 12 companies are registered with New Hampshire as direct suppliers, while dozens more are aggregators.

The direct suppliers buy electricity from the New England power pool and are the only ones actively soliciting residential customers, although not all of them are even doing that much. Some are waiting on regulatory decisions about how to handle charges and unpaid bills before entering the messy residential market.

Aggregators buy power contracts and combine them to resell. They generally only deal with large corporations or big power-users, and aren’t in the residential game – yet, anyway.

The main thing customers care about is cost, as charged by cents per kilowatt hour. (One kilowatt hour, written kWh, equals 1,000 watts of electricity used for an entire hour.)

PSNH’s rates are 9.5 cents per kWh; competitor rates are as low as 7.3 cents.

That’s a big difference – about 20 percent – but it only applies to about one-third of the standard electricity bill, the so-called energy supply charge.

About two-thirds of the average bill involves a service charge, which covers things like maintenance to lines, reimbursement for the “scrubber” on PSNH’s biggest coal-fired plant, and required payments to alternative energy providers. The service charge doesn’t alter no matter who sign up with, which is why the actual dollar savings when you change are relatively limited.

What else to consider?

Just as with cell phones, the contracts will have early termination fees, often around $100, which are supposed to be clearly disclosed and available on each company website.

Also like cell phones, power contracts can include different charges for different amounts of usages, although this is not being done by any supplier in New Hampshire.

Some firms have options for “green power,” in which the extra payment is given to providers that use electricity not produced by fossil fuels.

Noonan noted that lower income people on the state’s electric assistance program should be extra careful because the assistance won’t apply if providers are switched, thus negating much or all of the savings.

How does it work?

One of the interesting aspects of this is that nothing really changes: If you switch, the same power plants will send the same stream of electrons down the same wires to your wall sockets.

Electricity deregulation is just an accounting maneuver that alters where your money goes, rather than a technical change that alters how electricity flows.

This is possible because almost all of New England is connected to one grid, the “power pool.”

Very roughly, all power providers predict how much power they can produce during the year at certain costs. An overseeing organization, ISO-New England, gives this the thumbs up or thumbs down, mostly to ensure that there will be enough power all year and that the grid will remain stable, but mostly it’s up to the power companies to actually sell their power.

Competitive suppliers bid for that power, gambling that they can resell the contracts at a profit.

It’s easier to do this reselling to a few companies than to lots of residences, which is why power reselling came to corporations first, but the cost difference due to natural gas prices has gotten so that lots of companies are joining the fray.

This raises the question of what will happen if the natural gas price difference disappears. Will all the resellers disappear, too, and if so, what happens to the customers?

Noonan says that even if a reseller goes belly-up overnight, the worst that would happen to customers is that they’d be switched back to their regular provider; the lights shouldn’t even flicker.

A bigger issue, regulators say, is that the migration of customers away from PSNH might undermine its financial situation, leading to higher rates and thus more migration – a situation sometimes given the grim term “death spiral.” Since PSNH services most of the power grid in New Hampshire and owns many of the state’s power plants, this possibility raises concern.

David Brooks can be reached at 594-6531 or dbrooks@nashuatelegraph.com. Also, follow Brooks’ blog on Twitter
(@GraniteGeek).