How Basic Service Electricity Works
It’s never a good idea to shop for anything you don’t understand. Because having knowledge protects you from locking in bad deals and high prices. And the MA electricity market is no different. That’s why you should know the basics of MA basic service energy before shopping for the best Massachusetts electric rates. Let’s talk about what basic service is and how it can effect your electricity bills.
What Is Basic Service Energy?
MA energy choice rules divide your electricity bill into two pieces. On one hand, there’s a distribution (or delivery) charge from your local utility to bring power to your home. On the other hand, there’s an energy supply charge which covers the market cost of the energy you use. This set up lets MA energy customers choose to where they can buy their electricity supply. They can shop offers from retail providers or go with their local utility.
If you get your power from your local MA utilities (Eversource, National Grid, or Unitil) then you are paying basic service rates.
How Are Basic Service Rates Set?
Basic service rates come from 3 cost components:
- supply costs
- renewable portfolio standard compliance costs
- administrative costs
Supply costs make up the largest part of these rates. Twice per year, utilities hold auctions to procure the electricity they need to cover what retail customers need for a 6 month period. Generators compete to sell power a the lowest price to local utilities. Basic service rates are the weighted average of the 6 monthly prices. MA utilities must also buy a minimum amount of energy from renewable sources. The cost to meet this requirement makes up the RPS portion of basic service rates. And there are administrative costs to cover the price of doing business (including hiring employees).
One key thing to remember is that MA utilities can not profit from selling basic service power. They must pass the supply costs straight to customers without markup.
But most of our power comes from natural gas fueled generators. and because natural gas market prices can fluctuate, electric rates can also change, too. As a result, basic service customers can see their rates change twice a year.
It’s also important to know that the MA DPU must approve basic service rates. This process can take a long time and can sometimes lead to higher prices. That’s why some customers shop for third party prices.
What About MA Retail Energy?
Third party energy companies do things a little different. These companies shop around for the best prices throughout the year. They do this by contract, the Day Ahead Market (DAM), and the Spot Market.
Generators can contract to sell power to retail energy companies at set pricing for a set period of time. The terms for these deals can be anything the two companies want. On the other hand, retailer can shop for energy for specific time blocks (usually 15 minute intervals) on the DAM. These prices are based on predictions for supply and demand during the next day. Finally, companies can procure power on the day it’s needed on the Spot Market. This is the riskiest choice for supplier and generator. That’s because minute to minute demand, grid conditions, and weather can change the price of electricity instantly.
As you can see, third party suppliers have more options to shop for better prices. They also do this far more often than the two auction periods utilities use. This means that third party prices can be considerably cheaper.
You can always shop for the best prices at https://www.maenergyratings.com. We’re also the best place for news and tips that could affect your bills.