Michael Nadeau: PREP Talks – The ups and downs of electricity rates

Michael Nadeau COURTESY PHOTO
Published: 01-24-2025 8:33 AM |
Why can’t the rate we all pay for electricity stay at a reasonable, consistent level? In 2022, Eversource’s electricity supply rates were as high as 22.6 cents per kilowatt hour (kWh). Its proposed rate for the next period, starting Feb. 1, is 8.9 cents per kWh, as is the Granite Basic rate for the Community Power Coalition of New Hampshire (CPCNH).
That decline is good news, but it also reflects the complexity and uncertainty inherent in predicting energy costs and setting electricity rates. An unexpected event could easily cause electricity rates to spike, as they did after Russia’s invasion of Ukraine in 2022.
Utilities such as Eversource and organizations like CPCNH put a great deal of effort into analyzing the energy market and assessing risks. What follows are the factors they consider that will have the biggest effect on what you pay for electricity in 2025.
This information applies only to the supply side of your electricity bill. The delivery side, which mostly includes costs associated with the transmission infrastructure, has its own set of risks and costs.
Most of New Hampshire’s electricity (52.1%) comes from nuclear generation, according to the U.S. Energy Information Administration (EIA). Natural gas-fired plants provide 35.4%. Electricity generated by renewable sources is at 12.3%. The state’s two remaining coal-fired plants are currently used only during peak demand periods. One is scheduled to be retired this year and the other by 2028.
Nuclear energy costs have generally been stable and predictable because the output is consistent and no new nuclear plants will be coming online in the region in 2025. The most-variable energy source is liquid natural gas. Wholesale LNG prices are affected by global and regional demand – LNG fuels half of all electricity generation in New England – and regional supply chain efficiency.
“Natural gas-fired generation is the marginal resource (sets the power price) in the majority of hours during the year. Therefore, as natural gas prices rise (or fall), power prices rise (or fall),” said Eversource spokesperson William Hinkle.
New Hampshire’s renewable portfolio standard requires that renewable sources (hydropower, solar, wind, and biomass) must generate at least 25.2% of the electricity delivered in 2025. Wholesale prices for renewable energy can vary depending on source and capacity. Prices for renewable energy tend to go down as new sources are added.
Article continues after...
Yesterday's Most Read Articles






Nationwide, utility-scale solar and onshore wind systems cost less per kWh than coal- or LNG-fired plants, and those costs have been dropping. New renewable energy sources are scheduled to come online this year, but delays in connecting them to the grid are common. A delay might force a utility or other provider to buy from another source at a higher price.
CPCNH, which provides rate options with a higher percentage of renewable energy than the utilities, does not expect renewable energy connection issues to impact its ability to set competitive rates or purchase energy from renewable sources in the energy market.
“Longer term, we would like to help members develop local energy resources and generate renewable energy, and achieving those objectives would be impacted by delays,” said Scott May, senior energy analyst at CPCNH.
Electricity demand for a given purchase period is determined by the number of customers and the average demand they put on the grid. New high-demand customers such as large manufacturing facilities or data centers can affect the state’s energy market, but none are expected in New Hampshire for the coming year.
“We’re continually updating and refining our load models so that we can predict how much energy we need to purchase,” said May. “Similarly, we stay on top of what the future pricing looks like for energy so that we’re prepared when we enter into a rate-setting period.”
Another major factor in predicting demand for electricity is weather. An extended heat wave, for example, could spike demand as residents and businesses use air conditioning more heavily. Cold snaps can increase demand for LNG across New England and beyond. This stresses an already stretched regional LNG supply chain and could force purchases from more-expensive LNG sources.
“Lack of adequate pipeline infrastructure in New England prevents sufficient domestic natural gas to supply both residential/commercial heating and gas-fired power plants during winter months, necessitating reliance on global LNG to balance supply and demand,” said Hinkle.
For this reason, energy analysts pay a lot of attention to weather forecasts and models.
Competition, particularly the growth of community power in the state, also adds uncertainty when estimating demand for Eversource. CPCNH, for example, has gained about 70 municipalities and counties in New Hampshire since its inception in 2021.
“We are unable to determine whether or how much suppliers may adjust their bid prices to account for load migration to community power aggregators,” said Hinkle.
The most-significant potential rule change in 2025 that could affect your electric bill is a recent New Hampshire Public Utilities Commission order for the state’s utilities.
“We now participate in market-based procurements from the ISO-NE daily spot and capacity markets to self-supply 30% of load for residential customers and 100% of load for large commercial customers starting on Feb. 1, 2025,” said Hinkle.
ISO-NE is a nonprofit independent system operator responsible for managing the flow of electricity in New England. Bulk energy purchases in the region go through ISO-NE.
The PUC has said that it wants 100% of the residential load to be purchased on the daily spot and capacity market by the end of the year. This means that Eversource will be buying energy on a daily basis. The PUC’s reason for the change is to allow utilities to avoid the “risk premium” that energy suppliers charge to account for risk associated with longer-term contracts. If all goes well, in theory energy costs for utilities will be lower than expected and those savings will be reflected in ratepayers’ bills.
The potential downside is that utilities will at times buy at a much higher-than-average rate. Utilities set rates twice a year on Feb. 1 and Aug. 1. If the total cost that the utilities pay is more than was expected when the rate was set, then the utilities might pass that along to customers in the next rate period.
“As this process is a new approach in New Hampshire, there is inherent risk with any untested strategy, and we believe the only way to move forward is in a measured manner to better understand the potential benefits and risks before reaching definitive conclusions on the new methodology,” said Hinkle.
The PUC is considering a new proposal to pass on higher- or lower-than-expected energy costs represented on the supply side of your electric bill to all customers, including those whose electricity is from CPCNH or another third-party supplier. So, if Eversource collects less or more revenue from its customers than its cost of the electricity provided, it can add a charge or credit to the delivery side to all customers, including those of third-party supply customers, to account for the difference.
Eversource says this is justified, as the risks and benefits are shared by all its customers because it is the electricity supplier of last resort.
“We ultimately have an obligation to ensure the availability of default service universally for all those customers as the provider of last resort (i.e., we have to be able to serve any customer who decides to leave an alternative supplier or opt out of a community program, as well as be able to serve customers in the event one of these supply options no longer exists),” said Hinkle.
CPCNH sees this potential rule change as anti-competitive.
“What is problematic is in the event of cost overruns, which is likely because the methodology may be systematically underpricing the market, then the PUC is proposing pulling supply costs out of the supply charge and putting them in the stranded cost charge. While a utility supply rate may give the appearance of lower supply costs, in reality those supply costs would just be shifted elsewhere onto the customer bill,” said Henry Herndon, director of member services at CPCNH. “Then folks who are buying from community power or from competitive suppliers would have to pay for cost overruns associated with utility supply that they didn’t buy.”
Herndon added that CPCNH is working with state legislators in both parties to file legislation they believe will protect electricity market competition in New Hampshire.
Utilities are limited by regulatory requirements regarding when they set rates and purchase supply, and how much renewable energy must be in their mix. Eversource is prohibited from generating electricity and makes its profit on the delivery of electricity and not supply, which is a pass-through cost to consumers.
Third parties and community power have more flexibility. They can buy energy on long-term contracts when prices are favorable or on the spot market when needed. “We’re purchasing forward contracts in the wholesale market,” said Herndon. “The price of those contracts is based on market fundamentals, and we’re buying future strips of power at fixed prices to cover certain percentages of our expected customer sales. Our risk management committee oversees that process. We have an energy portfolio risk management policy that sets the parameters around making sure we’re not overly exposed to real-time commodity pricing and things of that nature.”
It’s similar to how a financial broker works, constantly tweaking investments to optimize return.
“The key term here is portfolio management,” said Herndon. “It’s not one contract that we’re buying back to back. We’re managing a portfolio of different power contracts. The rate is set by looking at what’s our revenue. How much revenue do we need? What are all our expected power costs? What are our operating expenses for staff and vendors and overhead, and then how much money do we want to accrue into a reserve account to meet our reserve targets?”
A reserve account refers to a cash reserve. A healthy cash reserve tells banks and business partners that the organization is financially stable.
As ratepayers, the best defense we have against the volatility of energy markets is knowing what our options are for electricity providers and making our homes as energy efficient as we can.
“You can choose whatever option you’d like through CPCNH or another community power program, and you can go to the New Hampshire Department of Energy Shop Electric Rates webpage (energy.nh.gov/engyapps/ceps/shop.aspx) for other options there,” said Herndon. “There’s always energy efficiency or looking into self-generation by installing solar panels. There are a lot of options and some cost money up front, but just being educated is a good starting point.”
Michael Nadeau is a member of the Peterborough Renewable Energy Project.