AIM Foundation gives Massachusetts restructuring a thumbs up

Boston

A sweeping primer and status assessment issued on the status to-date of the Massachusetts electricity restructuring law shows noteworthy success in shaping the revolutionary new way businesses and industry buy and use electricity—success made more evident in contrast to the delayed or failed efforts in many other states, including California. While the report indicates that there is no need for “revolutionary” change—only “fine-tuning to develop a more efficient market that encourages greater customer choice”—it highlights a need for still more competition in some sectors of the marketplace.

The primer, issued by the Associated Industries of Massachusetts (AIM) Foundation, comes as the state legislation, which toppled decades of utility-only generation and delivery of electricity, moves beyond the halfway point of the transition period, measured from March 1998 when the law became effective. The report also comes at a time when some policymakers and observers have questioned the post-California and post-Enron future of the restructuring movement.

Among the highlights in the report:

“- The retail price of electricity in Massachusetts, adjusted for inflation, has been reduced significantly since restructuring took place—down almost six percent for residential customers, 12 percent for commercial users and seven percent for industrial users.

“- Since restructuring, more than 20 new power plants in the region have come on line, begun construction or been proposed, keeping the state’s and the region’s supply adequate to meet consumers’ needs.

“- As of June 2002, 62 percent of the state’s commercial and industrial customer load was supplied by competitive suppliers, providing savings and often fixed costs benefits to the 7,300 customers in that sector.

“We predicted in 1995 that the path to restructuring and ultimately to lower rates would be long and perhaps contentious and that the way we addressed this complex issue would be both an indicator and a determinant of our progress toward a competitive business climate,” said Richard C. Lord, AIM’s president and CEO. “While many challenges remain, we believe that the restructuring of the electric utility industry in Massachusetts has been successful. There is no need for any kind of sea change,” added Lord.

In a section titled, “Consumer Benefits of Restructuring,” the primer lists several decisions made by state lawmakers and others that have put Massachusetts on a successful path, including:

“- Streamlining the power plant permitting process allowing market forces, instead of the government, to determine the need for new plants;

“- Allowing cities, towns and non-profit organizations to aggregate or bundle their electricity purchases, resulting in significant volume discounts; and

“- Continuing energy efficiency programs which have created a conservation ethic that could result in cost savings of close to $300 million for program participants over the life of the equipment installed.

“Despite a long list of successes and positive milestones—which no other state or region can match—we still see areas for some additional evolutionary changes for regulators and lawmakers to consider,” Lord said.

According to the report, among those areas are:
“- While a competitive retail market for medium and large commercial and industrial users is emerging, a robust market for residential consumers and small businesses remains elusive.

“- The congestion in transmission lines at peak periods needs to be addressed. New investment in transmission infrastructure needs to be encouraged.

“- Before restructuring, the region’s fuel mix was more diverse than it is today with natural gas currently making up about 50 percent of the region’s electricity. While there is great benefit to the environment from natural gas power plants, this fuel diversity issue needs to be watched.

A full copy of the report is available by calling 617-262-1180 or by visiting www.aimnet.org, under “AIM Foundation report.”

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