Should homeowners plug into lower electric costs?

Like 500,000 Rhode Islanders, Kellie Bryda of Cumberland received a letter within the last week from North American Power offering relief from the 28-percent increase in the cost of electricity as provided in the standard offer by National Grid.

North American is offering a fixed rate of 8.99 cents a kilowatt-hour for a one-year contract. The offer expires March 15. The standard offer provided by National Grid increased from 8 to 10.72 cents as of Jan. 1.

North American’s mass solicitation may be the first marketing salvo from one of the 20 companies that currently sell electricity to Rhode Island residential customers, according to Public Utilities Commission records. More offers could come, but Bryda decided not to wait. She looked at her bill for January and found the cost close to what she would be paying in the middle of summer, when her central air conditioning would be humming.

After consulting with her brother-in-law, who looked over the offer, Bryda went online and registered to buy her electricity from North American. She estimated her savings at $200 a year, “which in my opinion is a lot of money.”

But she had apprehensions.

“What is going to happen next year? Will it still be lower?” she added.

That’s a question a lot of people may be asking.

That’s an unknown. But, as Bryda pointed out, she can go back to the standard offer provided by National Grid, or choose to buy from another supplier.

Since the purchase of power was deregulated in 1996, Rhode Islanders have had the option to buy their electricity from a company other than National Grid. In fact, as National Grid spokesman David Graves emphasizes, the company is not in the business of selling power. Its business is to deliver power. It is required, however, to provide a “standard offer,” which becomes the cost of electricity unless the customer opts to buy elsewhere.

The amount paid for the standard offer goes directly to the supplier of the power. It’s a pass through, and National Grid doesn’t profit, says Graves.

The cost of power, whether the standard offer or from another provider, appears on the National Grid bill, and payment is made to them. National Grid remains the point of contact regardless of where the power is purchased. If there is an outage, the customer contacts National Grid.

Although there is competition over the cost of electricity, Graves said, “It hasn’t been a robust market on the residential side for years.” Of National Grid’s 485,000 customers, he said about 25,000 are buying power elsewhere. Most of those, he said, are commercial and big users. The homeowner using an average of 500 kilowatts a month really hasn’t been a player…maybe until now.

According to Lt. Gov. Daniel McGee, who is seeking to promote competition in the supply of power as a means of helping residents and small business, the percentage of customers buying from other than the company delivering the power in other states is much higher than Rhode Island. The spike in the standard offer has triggered not only customers to look at their electric bills but suppliers to sharpen their pencils and gain new business.

Graves, one of those who incidentally received the North American letter, offered some advice. He urged customers to read the fine print.

“Be knowledgeable and make sure it is in your best interest,” he said.

First Point Power, based in East Greenwich, is a provider of power specializing in the commercial and high-end user sector. Andrew Litchfield, associate with the company, said First Point focuses on consumers using 250,000 to 30 million kilowatt-hours a year, including schools, hospitals, shopping centers and commercial entities. He said First Point rates average in the high seven-cent to low eight-cent range, depending on the terms of contracts that can be for 24 months.

Litchfield is not surprised by North American’s bid for residential customers.

Because the standard offer was so attractive, he said, “Until 2013, there wasn’t an opportunity to come into this market.”

The reasoning for the jump in the standard offer is a constriction in the supply of natural gas, which is used to generate about 40 percent of the power used in New England. Residential and commercial users of natural gas are given priority, so during cold months when there is a demand for gas for heating, power plants can’t get enough gas to generate electricity. Some plants close and others switch to oil, pushing costs up. Usually, as a result, the cost of electricity goes up in the winter and drops in the summer. So as to lessen the increase this winter, the PUC voted to spread the increase over the next year.

But if North American can buy and resell power at 8.99 cents, why can’t National Grid do the same thing?

Graves points out that National Grid buys at different times of the year in an effort to stabilize prices. Purchases are made well in advance to delivery.

Tiffany Eddy, spokeswoman for North American, said the company “buys as much as they can on the market. It’s how they’re buying it. They’re able to economically purchase it and pass along the savings to their customers.”

She said the company is limiting the offer to the first 10,000 customers who register by the March 15 deadline. She could not say yesterday how many have already signed up.

PUC spokesman Tom Kogut said, “It’s not that National Grid has failed.” He said the company is following procurement procedures set forth by the PUC and that the standard offer is arrived at under different time structures.

“They’re guessing and gauging where the market goes,” he said. “National Grid is offering the standard rate on the current structure, and we’re not seeing anyone less than National Grid.”

Ironically, Kogut has seen a lower rate, as he, too, received the North American offer. He pointed out North American is not subject to regulation and therefore he does not know under what provisions they bought power for resale. He read through the North American offer and gave them “kudos” for citing the standard offer service billing adjustment. Customers leaving the standard offer are subject to a one-time adjustment that could either mean a charge or rebate in their bill.

He explained the cost of electricity fluctuates monthly. The cost this month is 18 cents a kilowatt-hour, but in May it drops to 6.9 cents. Under a complicated formula, the adjustment takes that into consideration so the customer pays for what has been used rather than a monthly average.

Litchfield is not surprised by the disparity between the standard offer and the North American rate. Referring to National Grid, he said because they are buying power long before it is delivered, “Their rates lag what the current market is.”

Additional information on the North American Power offer is available at napower-ri.com or by calling 877-572-4185. The company is based in Norwalk, Conn. and, according to Eddy, sells power in all New England states with the exception of Massachusetts.