The rates are too damn high.
The NH Public Utilities Commission issued its decision in the Eversource rate case in August, which raised the “minimum bill” that every customer pays to $19 a month, and included an automatic $2 per year increase with no limit on how high your bill will go. In the following weeks, we had a full news cycle of finger-pointing and blame-gaming. The Democrats had a press call where they blamed Gov. Kelly Ayotte and her PUC chair for the high rates, and senior Republicans responded with an op-ed that essentially defended the utilities’ costs and said we should “keep the legislators and regulators that we have.” Clearly not pleased with the decision, Ayotte has taken this opportunity to begin a search for a new PUC commissioner.
At the risk of being accused of both-sidesism, this whole back and forth has missed the point.
Neither the NH PUC, Kelly Ayotte, the Democrats, nor the utilities are to blame for why your electric bill is so high. All of these actors are simply following the incentives created for them by the system they’re operating under. The real culprit is the system itself.
It’s no surprise that an electric utility that has been granted a state-sponsored monopoly on a service would ask for rates that make it easier to collect more money with less risk. The monopoly “cost-of-service” model is a “cost plus” business: it builds and maintains the system, and rates are set to pay it back for its costs. The system incentivizes it to deploy capital, and to do so at the highest cost that the regulator will allow, and there’s very little reason to become more capital efficient.
It’s also no surprise that regulators would grant the monopoly most of what it’s asking for. While there is some short-term political blowback every time rates increase, that’s nothing compared to the blowback they’d see if they set rates too low and service started to degrade, and the lights went out. While ideally we want regulators to set rates exactly right, their incentive is to set rates a little too high.
And obviously, the incentives for Republicans and Democrats are to blame each other so that they can win elections, which is almost entirely besides the point.
However, that system was built in a different era and is no longer serving the needs of the modern economy. Lawrence Berkley National Labs has found that the largest driver of increasing electricity costs—accounting for 40 percent of the price increase—is capital expenditures on the low-voltage distribution system. The biggest drivers of those increasing costs are higher costs for overhead poles and wires, undergrounding of utilities, and transformer costs, which is to say traditional hardware.
What to do about these skyrocketing costs? One answer is to make utilities compete.
That was the idea behind the consumer-regulated energy concept, which New Hampshire has just enabled by passing HB672 this past year. It allows independent power providers to step in and deliver power on private grids designed for the 21st century. The theory is simple: when utilities know they will no longer have a guaranteed monopoly, they may have to worry about keeping costs down to keep customers. Once some of these new “consumer-regulated” utilities exist and are able to show that they can keep rates lower, the utilities may feel pressure to put real brakes on runaway costs.
Similarly, there are now easily accessible alternatives that have reached a level of maturity, making them a genuine choice. One can now purchase simple, portable, plug-in, off-grid solar and battery combinations at a combined lifetime cost of about 12 cents a kilowatt hour (including the cost of replacing the batteries after a decade or so). Compare that to what you’re paying to your utility. Increasingly, consumers will have truly competitive options when looking for independence from the utilities.
Electric utilities do provide massive economic benefit to anyone served by them, and, unfortunately, these escalating costs have reached such a tipping point that this is where we find ourselves. Ultimately, if we want to preserve the tremendous societal value that the electric grid provides, it will take smart regulators digging into the incentives of the broken system that has brought us to this point.
Until then, perhaps a dose of free market choice is just what the doctor ordered.
