Saturday July 14, 2012

PITTSFIELD -- A plunge in natural gas prices over the past year will provide some relief for residential electrical customers in the Berkshires.

Natural gas, which is used to produce nearly a third of the country's power, is 43 percent cheaper than a year ago. In many states, electricity prices are still expected to rise this summer, but the bidding system for suppliers in Massachusetts is tapping into the downward trend.

Massachusetts power companies bid for supply contracts in the public market every six months. Supply costs make up the majority of a residential customer's bill.

The average Western Massachusetts Electric Co. residential customer using 600 kilowatt-hours (kWh) of electricity each month, for example, can expect to see monthly bills reduced by nearly $6 for the period between July and December. WMECo's supply rates fell from 7.74 cents per kWh, to 6.733 per kWh.

"We've been seeing a continuing decline in supply prices," said Sandra Ahearn, a WMECo spokesperson. "That's helped hold down electricity bills in our service territory."

At National Grid, the county's other major electricity supplier, rates dropped from 8.26 cents per kWh to 6.71 cents for residential customers in May. That rate will remain in place until November and follows a downward trend dating back to March 2009, when rates were at 12.66 kWh. The average National Grid customer using 500 kWh per month is saving approximately $7.74 each month.

Ahearn said WMECo is seeing considerably different results from those in other states, which lock in rates years in advance to avoid spikes in supply costs. Companies using that model are seeing their customer bills rise, despite the drop in natural gas prices.

The semi-annual bidding system is beneficial to customers when market prices are in their favor, but it can also lead to considerable increases when the prices of coal and gas rise.

Adjusted for inflation, the national average retail electricity price has been drifting mostly lower since 1984, when it was 16.7 cents per kilowatt-hour. The national average is currently around 12.4 cents per kWh, though its above 14 cents per kWh in Massachusetts.

There is one significant caveat to the recent price decreases. About 40 percent of a residential electricity bill is tied to distribution, the prices of which are regulated by the state Department of Public Utilities. National Grid and WMECo asked for and received distribution rate increases in 2009 and 2011, respectively.

Natural gas has plummeted in price because of a dramatic increase in U.S. gas production over the past few years and a warm winter that allowed supplies to build up.

Even though coal accounts for 38 percent of all power produced in the U.S., natural gas plays an outsized role in determining the price of electricity. The price paid for electricity from the last power plant fired up to meet demand at any given moment is what sets the wholesale price for a given region. And since gas-fired power plants are usually the most expensive, they tend to be fired up last.

Material from The Associated Press was also used in this report.

To reach Trevor Jones:
tjones@berkshireeagle.com,
or (413) 496-6214.
Follow him on Twitter: @BE_TrevorJones.