WESTFIELD – The Municipal Light Board last night discussed its policy of requiring the Westfield Gas & Electric Department managers to maintain gas and electric rates within 5 percent of the state average of all gas and electric utilities.
That discussion focused not on the failure to attain that goal, but rather on the success of maintaining lower gas and electric rates in Westfield compared to the state average of rates set by other utilities.
Historically, since the policy was adopted by the board in 2006, the municipal utility has maintained rates well below the 5 percent goal, at times consistently 10 to 12 percent lower than the state average which initiated the discussion Wednesday night.
Ward 6 Commissioner Robert Sacco requested the issue be included on the MLB agenda to allow commissioners to review the board’s policy.
“Over the last five or six years the rates have been closer to 10 percent than the 5 percent below goal,” Sacco said. “Given the volatility of the (energy) markets, should it be closer to five percent?”
The volatility issue relates directly to the transportation cost of natural gas which has spiked the past two winters. The fact that more than 50 percent of electrical generation in New England is gas-generated means that those spikes in the cost of natural gas also cause increases in the cost of purchasing electricity.
The transportation cost of natural gas in April, when historically it declines, was $5 per MMbtu, a number still above average, but considerably lower that January when it spiked to $25 per MMbtu. In February it was at $20 per MMbtu and in March it was at $15 per MMbtu.
The department used gas stabilization funds last year to buffer the rates paid by city residents and businesses, but avoided further draining that fund this winter by adopting a strategy of adjusting its base rate purchases.
WG&E General Manager Dan Howard said that volatility will continue to exist every winter until new gas pipelines are constructed to increase the flow of natural gas into the region, a process which will require several years before it is achieved.
Commission Chairman Tom Flaherty of Ward 5 suggested that a rate structure closer to the 5 percent goal would generate more revenue.
“Keep the rate higher and put more money into stabilization,” Flaherty suggested to the managers.
Howard said once the municipal utility chose to drain the stabilization fund of between $5 and $10 million to lower rates, when that stabilization account is drained, rates will be linked directly to market prices and will reflect the cost spikes.
Sacco agreed, stating that while that approach of draining stabilization “works for now, but four or five years down the road it may not. It’s a bad business practice. They’re taking a risk that their rates will have to be more commiserating with the market and not have the comfort of stabilization.”
The board will reconsider the policy at its next meeting to better define it as a guideline rather that a fixed policy.
