Utility Merger A Threat To Competition
Much has already been argued before the Massachusetts Department of Public Utilities about the appropriate standard of review for the proposed merger of Northeast Utilities and NStar.
Initially, the companies filed their case under the long-standing precedent of “no net harm” to ratepayers. Later, the Department of Energy Resources advocated for a change in that standard to state whether or not the merger provides a “substantial net benefit” to ratepayers. The DPU resolved the debate by changing the standard to a requirement that it provide a net benefit, though not a substantial one.
But whatever happened to good, old-fashioned analysis about the impact on the competitive energy market, which means so much to businesses, institutions and consumers?
The New England Power Generators Association (NEPGA) raised this issue over the intent of these two utilities to get back into the electricity-generation business, which could significantly hurt competition. NEPGA recommended the merged company be prohibited from lobbying or otherwise seeking to change laws that prohibit the distribution companies from re-entering the generation business.
Thirteen years after restructuring, which expressly got distribution companies out of the generation business through divestitures, it’s amazing how many have forgotten why we did what we did. One of the primary goals was to shift the risk of generation investment away from customers and to the merchant generators. Letting utilities back into the business, even for cherished renewable energy projects, shifts the risk of these projects back to customers, with significant potential business advantage to the companies.
The Green Communities Act mandates some level of generation involvement by distribution companies. But we must ensure these companies are prevented from pressing further by seeking to have their transmission project, Northern Pass, move from being a business venture to becoming ratepayer-supported.
A marriage of these companies will create a formidable force for making legislative changes necessary to allow that to happen. They will be able to bring their substantial clout to regulators and legislators in three New England states to achieve their goals. The concerns raised by NEPGA are very real and justified.
While the issues raised by the generators address competition at the region-wide market level, they also have ramifications for the utilities' retail, or end-user, customers. The burden of utility ownership of generation or long-term contracts for electricity ultimately falls on customers and raises significant issues related to cost recovery. Suffice it to say, the larger the resource commitment, the bigger the charges and the greater the desire to try and shift those costs onto all customers. This could cause a re-examination of customer choice, referred to as retail competition, undermining today's competitive market that has been very beneficial for consumers. If there is not robust competition at the consumer level, there cannot be robust wholesale competition. They work together.
We should not allow utilities to be in a position to make the same mistakes again and, in their drive to create a more profitable merger, place undue risks on customers.
Cynthia A. Arcate is president and CEO of PowerOptions, a Boston-based energy-buying consortium.
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