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Mass. DPU Orders Nstar to Modify, Re-file Proposed Changes to Nstar Green Rates

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October 8, 2010

The Massachusetts DPU has denied Nstar's petition to revise the adders applicable to the Nstar Green product, and will require Nstar to propose a method for calculating, and schedule for updating, its wholesale energy market price forecasts used to set the adders (Docket 10-12).

Nstar had been seeking to reconcile an under-recovery of $1.15 million relating to providing Nstar Green, which resulted from lower wholesale prices which reduced Nstar's revenue from selling the energy from renewable contracts associated with Nstar Green into the wholesale market (Only in Matters, 3/11/10).  Nstar sought to increase the Nstar Green adders to account for this under-recovery, but did not propose any adjustment in the underlying wholesale market price assumption used to set the adder to reflect its reduced opportunity for wholesale revenues.  Adjusting the wholesale market price assumption would have required a further increase in the Nstar Green adder.

The DPU found that, although the tariffs do not specify the frequency of a forecast update, "recalculating the NSTAR Green adders on an ongoing basis to take into account updated forecasts of wholesale energy market prices is essential to the effective and efficient implementation of the NSTAR Green program."

"First, calculating the NSTAR Green adders based on updated market price forecasts results in adders that send more accurate price signals to both existing and potential new program participants regarding the premiums of the renewable energy and RECs supplied by the Contracts during the upcoming program year.  Existing NSTAR Green participants who continue to find the adders a reasonable price to pay for the renewable products will remain in the program; similarly, potential new NSTAR Green participants will decide whether the value of the renewable products merit the newly estimated premiums.  Second, recalculating the NSTAR Green adders based on updated forecasts of wholesale energy market prices better aligns the adders with actual market prices, thus reducing the magnitude of future reconciliations," the Department noted.

"Further, one important way in which fixed-priced contracts for renewable products can provide value to customers is in their ability to act as a hedge against potentially volatile wholesale energy market prices.  For NSTAR Green participants, the renewable products purchased through the Contracts can serve as a hedge against the potential volatility of basic service rates.  See D.P.U. 07-64-A at 66," the DPU added.

"In order to maximize the hedging benefits afforded to participants, it may be appropriate for the timing of the recalculation of the NSTAR Green adders to occur on a schedule consistent with changes in basic service rates.  Further investigation is warranted, therefore, as to whether the Company should update its energy market price forecasts semi-annually, in line with basic service rate updates," the DPU said.

The Department ordered Nstar to submit a revised filing which proposes, with appropriate support, Nstar Green Service Rider tariffs that contain the energy market price forecasting method used in D.P.U. 07-64-A, and addresses the frequency with which the energy market price forecast will be updated.

The DPU also noted that adding any under-recovered revenue amount to the revenue requirement of future adders, "would result in values that overstate the premiums that are required to support the purchase of the renewable energy and RECs supplied by the Contracts during the upcoming program year, sending inaccurate price signals to existing and potential new NSTAR Green participants regarding the market value of the renewable products over that period of time."

"We find that further investigation is required to determine the appropriate balance between (1) providing the Company with the opportunity to collect cost under-recoveries during previous program periods and (2) ensuring that the NSTAR Green adders send accurate price signals to existing and potential participants," the DPU said.

The DPU directed Nstar to file an alternative approach regarding collecting any under-recoveries which strikes such an appropriate balance.

Finally, the DPU ordered Nstar to propose a customer notification section in its Nstar Green Service Rider tariffs, which is to provide Nstar Green participants 30 days notice prior to an Nstar Green program change.  In addition, the Department directed the company to update all Nstar Green advertisements to reflect future program changes, where appropriate.

As of December 31, 2009, approximately 7,760 customers were enrolled on Nstar Green.  Approximately 5,780 customers were enrolled on the 100 percent option and approximately 1,980 customers were enrolled on the 50 percent option.

   
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