NStar says power firms overcharged consumers
By Peter J. Howe, Globe Staff, 5/15/2001
Star Electric asked federal regulators yesterday to order two big local generating companies, Sithe Energies and PG&E, to return potentially tens of millions of dollars in overcharges to Greater Boston residential customers and businesses.
In a 50-page complaint filed with the Federal Energy Regulatory Commission, NStar - the parent of Boston Edison and Cambridge Electric - said Sithe and PG&E have exploited their stranglehold over local generating capacity to overcharge consumers more than $5 million a month recently.
Sithe and PG&E denied NStar's claims, saying they have been raised and refuted previously. They also said grid managers have and regularly use authority to stop any price gouging.
NStar's filing came as New England power plant owners are facing a growing bandwagon of critics questioning whether, as in California, power plant owners here have manipulated newly competitive wholesale markets to reap windfall profits.
Last week, grid managers ISO-New England and Massachusetts Attorney General Thomas F. Reilly disclosed they have hired a California researcher to probe whether generators here exploit ''market power'' to increase profits across the region.
The ISO also is due to release a report soon addressing claims generators are frequently withholding operable plants from service, or crimping their output, to jack up prices in a classic supply-demand squeeze. Generators deny any improper moves.
Despite claims the 1998 Massachusetts electric deregulation law would cut rates for consumers by 15 percent, in the past year many NStar customers have seen their cost of power soar by 15 to 85 percent, with the highest increases for homeowners and businesses on ''default service'' plans.
Generating companies, from which utilities buy power, staunchly deny engaging in any uncompetitive practices. They say a major reason for recent soaring electric rates is the increased price of gas and oil to run power plants.
Barry Sullivan, vice chairman of New York-based Sithe Energies Inc., said last night: ''We strongly disagree with NStar. Their comments are simply erroneous and overlook existing market rules that are specifically designed and utilized to address precisely the concerns raised by NStar.''
Sullivan said NStar ''is attempting to mischaracterize the market to its customers, and we intend to vigorously contest their claims.''
Lisa Franklin, a PG&E spokeswoman, said in three previous probes FERC has found ''no evidence of market power'' in New England.
ISO-New England, the Holyoke organization that runs the power grid, has power to ''step in when and where it sees market abnormalities'' and order prices lowered, Franklin said. ''We trust that ISO is doing its job.''
NStar's filing yesterday focuses on market failures in region of New England that includes Greater Boston and areas within Route 128 and southern Essex County.
Because of limited high-voltage transmission line capacity, particularly during periods of high demand, grid managers are forced to buy most power used in the region from Sithe and PG&E, who control more than 85 percent of local generation.
Sithe owns the big waterfront power plants in Everett and South Boston, as well as smaller units in Framingham, Medway, and Weymouth that it bought from NStar after Massachusetts regulators pushed utilities to divest their plants as part of industry restructuring. PG&E's National Energy Group owns the 700-megawatt Salem Harbor unit.
Peak power demand in the affected region can reach 5,200 megawatts, but only 3,200 megawatts can be transferred from other regions, NStar said. That leaves customers beholden to paying prices Sithe and PG&E demand, NStar claims.
''The two largest generators [have] a market share that is unambiguously anticompetitive,'' NStar said in a filing by Washington attorney Stephen L. Teichler of Duane, Morris & Heckscher LLP.
''With only two firms controlling over 85 percent of the available resources, the potential for oligopolistic behavior is irresistible,'' the filing said.
Paul Vaitkus, NStar's vice president of energy supply, said Sithe and PG&E ''have the ability to corner the market and dictate excessive prices that we and our consumers believe are unjust and unreasonable.''
In its filing, NStar said a ''`Go forth and sin no more' option'' banning future overcharges would be an inadequate sanction.
''The punishment must substantially exceed the ill-gotten gains'' and must include rebates of windfall profits, NStar argued.
NStar said when transmission lines are full and cheaper power cannot be brought into the Boston area, FERC should cap Sithe and PG&E revenue at their actual costs for running plants.
During 2000, NStar charged, Sithe - which controls about 60 percent of the affected area's power-generation capacity - more than quadrupled its average charge for running the South Boston unit, way over its actual increased costs of about 33 percent because of higher gas fuel costs.
At the same time, NStar said, Sithe repeatedly manipulated its ''low operating limits'' for one of its Everett turbines - how much power it said it had to produce if the plant was ordered to run - to make higher profits, NStar charged.
Overall, in the nine months from September 1999 to May 2000, NStar estimated that the ''northeast Massachusetts'' region paid $53.7 million in overcharges related to the transmission-constrained, uncompetitive local market.
For all of 2000 those overcharges reached $70 million, NStar said.
Peter Howe can be reached by e-mail at howe@globe.com.
This story ran on page E01 of the Boston Globe on 5/15/2001.
© Copyright 2001 Globe Newspaper Company.
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