Wholesale energy prices are rising and one of our suppliers has recently filed for bankruptcy. Is this a foretaste of what is in store for us with deregulation?

Let’s take a quick look at what deregulation has brought to date in New England. Investor-owned utilities have divested of their generation plants, selling them to out-of-state deregulated utility affiliates and non-utility “merchant” companies at sometimes twice their book value. With the expectation of higher market prices, these companies also built new generation plants, all of them fueled by natural gas. As natural gas prices go up and up and up, so go the wholesale market prices. Despite higher market prices many of these companies are not earning a profit.

Since they supply a neighboring town, let’s see how Fitchburg Gas & Electric (formally Unitil) has been affected by retail competition. (If retail choice would benefit anybody, it should benefit them since their rates are about 40% higher than ours.) As of December 31, 2003 not one residential customer had a competitive generator. About 2% of their medium commercial and industrial customers were taking advantage of retail choice, as were a whopping 84% of their largest industrial customers.

The picture for the entire commonwealth is similar. Of the large commercial and industrial customers, 49% are choosing other generators and 13% of the medium commercial and industrial customers are using competitive generators. When it comes to residential choice, less than 3% of the commonwealth is participating. This is six years after retail choice was enacted! Even that 3% number is a little deceiving as over 75% of those residential customers belong to one unique Cape Cod cooperative.

From what we can see from various industry reports is that no segment is reaping the expected benefits. There is presently a glut of generation available causing many companies to go bankrupt; companies have not invested in the transmission sector, which badly needs it, because they thought the money was to be made in the generation sector; and the vast majority of consumers, in whose name this experiment was undertaken, have neither real choice nor lower rates.

The architects of deregulation continue to modify the design so the final structure may end up to be a towering success; but at this stage, deregulation appears to be an expensive experiment created to provide lower energy costs for the large commercial and industrial consumer.

As a utility with an above-average growth rate, we are finding it more difficult to secure our energy supply in this new market, because suppliers are not willing to make long-term contracts. Presently we have between 5 to 10% of our energy needs purchased on the spot market and many of our long-term contracts expire in a few years. We are partnering with MMWEC to undertake a comprehensive look at how to fill our needs.

When retail competition began, the legislation exempted municipal light systems. It does provide however that the town governing body conduct a study of retail choice if by March 2003 the municipal light plant has not offered retail choice. It gives no time frame within which this study must be done. The decision to open up the municipality rests with the Light Department.

We continue to believe as we did in 1998 that retail choice would cost Groton Electric tens of thousands of dollars to implement and provide no benefits to our customers. Currently Dominion Retail of Virginia is the lone company willing to sell in this region. Their generation offer is over a penny per kWh higher than ours. If you factor in the early pay discount and the hydropower credit on the first 500 kWh of your bill, our generation price is over four cents per kWh lower than Dominion for the first 500 kWh.

There are a host of complicated issues to be addressed before a final decision to open up the town to retail choice could be made. As the market evolves, we will assess the changes in light of the benefits to be provided to our customers, our highest priority.