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Updated on November 29, 2010

The Deregulation of Law and Reason in Massachusetts

March 1 of 1998 appeared to be a great day for Massachusetts energy consumers, both gas and electric. The so-called de-regulation of energy took effect with the implementation of chapter 164 of the Acts of 1997 of Massachusetts General Laws. Retail energy customers realized an immediate 10% savings and a further 5% savings followed in 1999. In spite of the loud and well financed efforts of utility companies doing business in Massachusetts to convince the legislature that they needed the traditional protections they enjoyed, most would say monoply, in order to survive in the brutal business of energy generaton and transmission, Massachusetts lawmakers felt otherwise.

Energy deregulation in Massachusetts, as in other states where it has passed, did two important things:

1. The production of energy, both natural gas and electricity, was separated from the transmission of energy to retail customers. This made possible something remarkable: see # 2.

2. Retail energy customers are allowed to opt out of the so-called standard offer of service (SOS). This means that instead of having only one choice for their energy supplier consumers are allowed to purchase energy from suppliers who compete with each other to offer lower prices and different contract features.

How deregulation works is simple in principle, but can become very complicated in practice. Boston Edison is a good example. It is known as an investor owned utility (IOU), as opposed to a municipal utility ( a untility owned by a city or town or MUNI). Prior to deregulation Boston Edison owned and operated the power plants that produced the electricty it sold to retail customers. The company also owned the transmission lines, rights of way and equipment used to deliver this electricity to its customers. Deregulation separated energy generation and delivery. The new monthly utility bills showed an energy charge in one column and various service and equipment charges that added together make up the delivery charge. Retail customers, from individual residential customers to the largest industrial, commercial and institutional customers are now allowed by deregulation to seek competitive bids for their business. They receive one bill every month for electicity and another for gas, but although the bill is sent by Boston Edison, for example (now part of NSTAR), Boston Edison's portion is only for delivery charges.

Boston Edision, as did most other utility companies, sold its generation facilities but retained its transmission assets. It then entered the competitive market as a wholesale customer, soliciting bids negotiating pricing and contract terms with the new energy generation entities known as commercial power generators. Some of these merchant generators are huge industrial organizations with billions of dollars in annual sales. Competition among them is fierce at best, brutal at worst.

Jim Gordon, CEO of Cape Wind Associates LLc, the man who today paints himself as the Prophet of the new green energy movement, holds an interesting place in this tale of energy deregulation. In my opinion he is more likely the Pied Piper of new energy, leading throngs energy consumers over the Cliffs of Cost. He was ostensibly the founder and in fact the original CEO of the New England Competitive Power Alliance. This was a group of interests banded together in the early 1990s to promote energy deregulation in New England. This fact is key to understanding the travesty of the recently approved power purchase greement (PPA) betwen Cape Wind and National Grid (NATGRID):

The fundamental premise of the energy regulation acts passed as a result of the efforts of Jim Gordon's efforts is that consumers would benefit from competition in the energy market place and that they could only receive this benefit if they were allowed to opt out of the standard offer of service.

As soon as deregulation passed Jim Gordon went into action, earning enormous cash profits by doing what would have been impossible before passage of the bill which he personally pushed to success. Under the guise of concern for retail energy customers Gordon, the Prophet of the New Energy Paradigm, made out like the bandit one might think he is. He cloaked greed in the color of a law intended to protect and benefit ordinary citizens.

Jim Gordon became a wealthy man by building and then selling six gas-fired power plants in New England. All of his merchant power profits, well into the nine figures, happened after deregulation was passed. It appears to me that Gordon always negotiated above market contracts for the sale of his electricity, a habit he continues with the cape Wind PPA. He charged more for his power than other generators, thus guaranteeing a handsome operating profit and enhancing the value of his power plants when he sold them because the PPAs he had negotiated were part of each sale. Clever guy, our Jim Gordon. Gordon's claim appears always to have been that his higher initial price would ove the long term yield savings as the prices of natural gas rose well above the prices locked in to his PPA. The current decline of natural gas prices by more than 50% over the past two years shows just how risky accepting such claims can be. Only one thing mattered to Jim Gordon in the late nineties and only one thing matters to him now, in my opinion: profit for Jim Gordon. All the rest, the claimed environmental concern and the dedicaton to a fair deal for ordinary energy consumer is just the garb and guile of the energy whore he is. As with any whoring transaction, Gordon seems to deliver wholesome gratification, doing something that feels good for a short time but fills his coffers long term, leaving the customer unsatisfied and poorer.

One wonders if a particular story about Jim Gordon is true - that Boston Edison refused his attempts to seduce them into an above market PPA with his company, Energy Management Inc. Could this explain why NSTAR whose curent CEO was a senior executive at Boston Edison when all this is alleged to have occurred will not do business with Cape Wind? So many questions but so few answers...Did Gordon use his press contacts to inspire a scathing expose in the Boston Globe of what some viewed as excessive compensation packages among utility executives...particularly at Boston Edison? If so, did this play a part in garnering support for energy deregulation or did it simply punish people who opposed Gordon's energy piracy? Does he still have the magic touch at the Boston Globe? Has it helped win Globe support for Cape Wind?

And, why is the Boston Globe silent on the most amazing single feature of the Cape Wind NATGRID PPA?

The recently approved PPA in question flies in the face of the spirit and perhaps the letter of the very deregulation law that Jim Gordon worked so hard to push through New England legislatures: It denies choice to electric customers served by NATGRID - it requires them to pay the exctra cost of Cape Wind's energy even if they actually buy their electricity from someone other than NATGRID. The Cape Wind PPA will add 18.7 cents for each kilowatt hour produced by Cape Wind to the delivery side of NATGRID's bills. That is the charge that every NATGRID cusomer must pay, without any ability to seek competitive prices. The Massachusetts Department of Public Utilities and the Masachusetts Attorney General (Martha Coakley) have together and in direct negotiations with both ape Wind and National Grid shredded the very fabric of a law intended to protect Massachusetts consumers from such abuses. These negotiations were, of course, very private. Once again the cloak of respectability, in this case standard legal ethics, is used to conceal the true and foul nature of the doings on Beacon Hill.

Consider, during her failed campaign for the U.S. senate seat vacated by the death of Ted Kennedy Martha Coakley, while still serving as Attorney General, stated her support for Cape Wind long and loud. She went so far as to say that Cape Wind must happen. She did so in spite of knowing that hers is the ultimate responsiblity for reviewing a Cape Wind PPA and for protecting the interests of the Massachusetts consumer above all else. One hopes that Coakley is simply inept as a politician because in all other respects she comes across as a sincere and competent consumer protector. She lost her senate bid to Republican Scott Brown, an avowed Cape Wind opponent.

So, we have in Massachusetts a law that says consumers ae fre to choose how much they wish to pay for electricity but we now have a PPA which forces customers fo the company buying Cape Wind's power to pay all of the costs for that power as part of the delivery charge, not the energy charge. To make matters worse, every year the Cape Wind cahrge will increase at a compounding rate of 3.5% plus a simple annual ad-on of 4%, both payable without any competition. And, NATGRID is allowed over 10% above all this. Today's 18.7 cents will be more than 38 cents at the end of the PPA's fifteenth year.

Ronald Gerwatowski, deputy general counsel for NATGRID has been widely quoted saying that it was necessary to lock customers into the delivery side of the bill for Cape Wind costs because otherwise they would likely leave the Standard Offer. Is that not precisely what the deregulation law is designed to allow...that consumers have the right to seek competive prices for the energy they buy? Apparently not. It appears that a law in Massachusets is only a law for as long as the Commonwealth and its Attorney General say it is a law in full force and effect...and perhaps only then with Jim Gordon's approval.

Mr. Gerwatowski's incredible statement fascinates this observer. Since its very beginnings Cape wind has enjoyed, according to Gordon and his supporters, the full support of the "...vast majority of Massachusetts citizens." Commissioned polls showed this support at as much as 87%. Gordon, Governor Patrick and legions of Cape Wind supporters have told us that people would gladly pay the minimal extra cost for Cape Wind's clean energy. Now Natonal Grid's deputy general counsel and primary spokesman in this matter tells us that they would not, that retail customers would in fact "flee" these costs.

There are shadowy figures in the back alleys and Statehouse stairwells on Boston's Beacon Hill menacing passing comsumers, "Stand still so I can rob you! If you don't stand still I will MAKE you stand still!" Police reportedly are searching for a medium height blond woman who claims to be a general as well as unidentified males calling themslves regulators and advocates and at least one male wearing glasses who says he is an energy philanthropist. At this point it is unclear whether arms are involved in what appears to be intended as an ongoing criminal enterprise or simply and by some unknown means the threat of legal action against unwilling victims.

Jim Gordon should be very careful. He is known to be quite wealthy and he actually lives a stone's throw from the statehouse. It appears that Martha Coakley and the DPU take the proverbial highwayman's order serously...Stand and deliver! Their modern version is...To hell with the energy bill, we'll hide it in delivery!

It is sad day for law and justice in Massachusetts.

COPYRIGHT 2010 By Peter A. Kenney


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