Electricity is available when you turn on a light, plug in the refrigerator, or power on the television, but this simple convenience has a complex story. On a very basic level, electricity is produced by generators, transported by high voltage transmission lines, scaled down into the local distribution system, and finally arrives at your home.
HG&E owns, maintains, and operates a large portion of the equipment needed to generate and process electricity, but ultimately connects to the regional power grid, accessing additional resources to meet system demand and for reliability purposes.
As a residential HG&E customer, generation, transmission, and distribution costs are simplified and bundled together on your bill as “All kWh” and “Purchased Power Adjustment”. Over the last ten years, the cost of generation and transmission (for those components outside of HG&E control) have increased significantly. In spite of these increases, as you can see in the chart below, HG&E has managed to keep rates relatively stable for customers over this period. Even though HG&E customers have some of the lowest electric rates in the region, we'd like to help you understand the three major components of your bill: Generation and Capacity, Transmission, and Distribution.
Generation and Capacity – In New England there are a variety of generation sources, including solar, hydro, natural gas, nuclear, coal, wind, and oil. Throughout the Northeast, generators must produce enough electricity to meet the regional peak electrical load, which was approximately 23,508 MW in 2017. Owners of electric generators get compensated not only for the energy that they sell, but also for their capacity available to generate. Over the last few years, as many power plants have retired, the cost of capacity has increased significantly due to supply and demand. With a net cost of $1.7 million in 2016, these costs will more than triple by 2018 to over $5.1 million.
Transmission – The transmission system is primarily made up of the high-voltage lines you see while driving throughout the region. Due primarily to federally mandated reliability improvements, transmission owners have spent billions of dollars to expand and modernize the transmission system. These costs are passed on to all electric consumers in New England. While HG&E owns and maintains 9.25 miles of regional transmission lines located in Holyoke, we are still required to contribute to regional costs. Over the last seven years, transmission costs have increased by 50% and are forecasted to continue to climb.
Distribution – The distribution system is made up of the equipment used to provide service to your home after the electricity is stepped down from the transmission system; this is the final stage in the journey from generation to your light switch. Distribution expenses are made up of primarily local components, including: maintaining distribution wires, reading and managing your meter, issuing your bill, and other operating costs related to running HG&E's business. HG&E has greater control over these costs.
In the next edition, HG&E will describe some of the measures we have taken throughout the years to stabilize rates.