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National Grid seeks to mitigate effects of electricity supply prices

By: Clarence Bee |

National Grid has received approval to implement a number of changes to help mitigate the effect of dramatic swings in monthly electricity supply prices for its upstate New York customers if there is a repeat of last season’s weather.

According to National Grid officials, last winter’s polar vortex brought prolonged, below-normal temperatures that resulted in higher-than-normal wholesale electricity prices, increased customer usage and dramatic swings on the supply portion of monthly bills for residential and small commercial customers.

The New York Public Service Commission recently approved National Grid’s recommendations that will provide the company flexibility to better manage the impact that volatile wholesale electricity supply prices can have on these customers’ bills. The changes, which took effect last week, allow National Grid to:

• Reconcile supply price forecasts by region to better align costs for customers. For residential and small commercial customers, the monthly electricity supply portion of energy bills is based on a forecast set at the end of the previous month. If actual prices are higher or lower than forecasted, the differences are either credited or charged to customers in subsequent months. The company will now credit or charge customers based on the actual regional variances in supply costs, rather than across upstate New York as a whole.

• Have greater flexibility in the timing of its reconciliations for its mass market customers. This flexibility will allow the recovery of significantly higher than forecasted supply costs over multiple months, instead of in a single month, to reduce the spikes that reconciliations can cause on customer bills, like those experienced last winter.

• Tailor its hedging strategies by region, as it locks in prices in advance and passes those hedges to those regional customers. As a result, National Grid will maintain two electricity supply hedging portfolios for its mass market customers, one for western and central New York, where pricing characteristics are similar, and another for eastern New York, which typically sees higher supply prices because of electricity transmission and natural gas pipeline constraints in the region.

The company had already taken steps for the coming winter to mitigate month-to-month supply price volatility for its residential and small commercial customers, including further hedging electricity supply prices for customers who choose to have National Grid purchase their supply.

National Grid representatives said that while the steps should help reduce the dramatic swings on the electricity supply portion of bills, the company cautioned that severe cold can affect both the market price for supply and the amount of energy a customer uses. On average, residential customers use 30 percent more electricity from November through March than they do in the fall and spring months.

National Grid officials said they have projected electricity bills to be 3 to 9 percent lower than last winter, depending on location and assuming a return to more typical winter weather. Natural gas bills for home heating are also expected to drop from last winter by 10 percent or more, again assuming more typical weather.

National Grid representatives said a customer’s bill consists of two components — energy delivery and electricity supply. The energy delivery portion of the bill includes National Grid’s costs to operate and maintain its networks, including emergency services and storm restoration. Delivery rates are regulated by the Public Service Commission and are lower today than they were just a few years ago.

When it comes to the electricity supply portion of the bill, National Grid officials said customers have the option to choose from a variety of electricity suppliers, some of whom now offer fixed prices. Information regarding energy suppliers can be found at www.nationalgrid.com under the “Supplier Choice” section or at www.newyorkpowertochoose.com.

Additionally, customers who elect to have National Grid purchase their electricity supply will see those costs passed along without markup. The company does not profit from purchasing electricity on customers’ behalf.