Competitive Electric Market Is On Its The Way to Concord Electric/Exeter and Hampton Service Areas

By Steven V. Camerino

Customers of Concord Electric Company and Exeter and Hampton Electric Company, are likely to have access to competitive electric markets early in 2003 if state utility regulators approve a plan that the companies submitted for consideration earlier this year. The two companies, both subsidiaries of Unitil Corporation, have put forth a proposal under which their existing power supply portfolio would be sold off and customers of the two companies would be able to shop for their own power supply at market-based rates.

Until now, customers of the Unitil companies have purchased electricity as a "bundled" service, in much the same manner that customers of other electric utilities did for decades. Under that structure, the local electric utility was a regulated monopoly that was responsible both for procuring electric supplies and delivering that electricity to its customers. The cost of that service was set by state regulators at a level that enabled the utility to recover its costs plus a reasonable profit.

As a result of legislative changes in the mid-1990s, electric customers in New Hampshire and much of New England have gradually become free to purchase electricity on their own at the best price they can obtain, while the local electric utility has remained responsible for delivering that electricity to the customer over the utility's poles and wires. Under this new industry structure, the customer's total electric cost consists of the price paid to the competitive electric supplier for the electrons consumed by the customer plus the price paid to the local utility for delivering the electrons. Until now, however, the Unitil companies have not unbundled the electric generation portion of utility service from the delivery portion, largely because the attention of key players in the state was focused on trying to resolve the difficult issues involved in restructuring PSNH. In addition, the relatively low rates of the Unitil companies reduced the pressure on regulators and other policymakers to address Unitil's situation.

As time has gone by, however, Unitil's power prices have become increasingly volatile because the maturity of its power supply portfolio has been steadily diminishing. In essence, as Unitil has become more dependent on short-term supply arrangements, the price at which it purchases power for resale to its customers has become more subject to the wild swings in gas and oil prices that has been experienced in the commodity markets.

The Unitil companies have now submitted their own restructuring proposal, rather than wait for others to negotiate an agreement with them. The Unitil plan consists of three main parts. First, Unitil will sell off the power supply contracts it currently has with electric wholesalers. Unitil expects these contracts to have a net negative value, meaning that it will have to pay a third party to purchase the contracts from Unitil because they require Unitil to buy power at a price that is currently above the forecasted price of power. The price paid by Unitil to rid itself of the obligation to buy power under these contracts will be passed through to customers of Concord Electric and Exeter and Hampton Electric in the form of a stranded cost charge, similar to the charge that is currently paid by customers of PSNH, Granite State Electric and New Hampshire Electric Cooperative as a result of their sale of their power supply assets. The duration and exact amount of the charge is yet to be determined, and will depend on the bids received by Unitil for its power supply portfolio.

The second component of Unitil's restructuring plan is to combine Concord Electric and Exeter and Hampton Electric into a single company, to be called Unitil Energy Systems. This will eliminate any differences between the two companies' rates and other aspects of service provided to the customers of the two companies.

Third, Unitil customers will be free to begin purchasing electricity on the competitive market at the best rate they can negotiate, but customers who do not wish to buy from a competitive supplier immediately will be able to continue to purchaser power through arrangements made by Unitil under what is known as "transition service". The rates for power purchased under transition service are currently proposed to be based on wholesale prices of 4.7¢ in 2003, 5.0¢ in 2004 and 5.3¢ in 2005, which would translate into slightly higher prices at the retail level for Unitil customers. (The transition service price must then be added to the stranded cost charge, the charge for delivery of power and state imposed charges such as the energy efficiency charge, low-income program charge and electric consumption tax to determine the total cost of power.) By gradually increasing the cost of transition service, Unitil hopes to encourage customers to begin accessing the competitive market, from which they will effectively be required to buy electricity in 2006, while offering a relatively stable pricing plan against which customers can compare their opportunities in the competitive market.

The Unitil proposal is currently undergoing review by the New Hampshire Public Utilities Commission and is not likely to take effect until at least the first quarter of 2003. It remains to be seen what opportunities smaller commercial and industrial customers and residential customers will have to purchase electricity from competitive suppliers in the next year or two, but it is likely that larger customers will begin to be contacted by potential suppliers, particularly if market prices for electricity are near or below the prices set for transition service. In other words, at long last, all the waiting that Concord Electric customers have endured as they listened to the talk of electric restructuring over the past five years may finally be coming to an end.

Steven V. Camerino is the Managing Director of the Concord office of McLane, Graf, Raulerson & Middleton, P.A. He concentrates his practice in the areas of energy and public utilities, as well as closely held businesses. In the energy and utility field, he has extensive experience representing utilities in the gas, water and telephone industries. In the electric industry, he has represented industrial customers, municipalities, small power producers and other competitive electric providers, including the owner of a significant interest in a nuclear power facility. Attorney Camerino has had extensive involvement in issues related to the effort to bring competition to New Hampshire's electric industry and has worked extensively on restructuring of the gas industry in New Hampshire.