QUESTION: Our Power Purchase Adjustment (PPA) portion of your MMLD electric bill is increasing. What is the PPA and why is it causing my rate to increase by 5%?
The Merrimac Municipal Light department rates consists of three components:
- The first cost is the fixed rate portion of the bill which is called the customer service rate. It is a flat rate of $5.50 per residential customer. The customer service rate has not changed in over 10 years.
- The Second cost is the energy cost. The energy cost rate is determined by the amount of energy you utilize (measured in Kilowatts or KW) by fix rate. The average home in Merrimac uses about 674 kW per month
- The last component is the Power Purchase Adjustment or PPA.
- This rate is determined by how much it costs MMLD to deliver energy to customers. Merrimac only produces a small amount of its own energy. Most of our energy is purchased in the wholesale electric markets operated by Independent System Operator New England (ISO-NE). We purchase a diverse portfolio of energy supplies from short-term and long-term resources.
- The only electric generation we produce in Merrimac is the solar field behind the post office that accounts for 7.5% of our supplies and we have a small generator that is fueled by natural gas that operates as a peak shaving device designed to reduce Merrimac’s overall electric load when prices in the ISO-NE markets are at their highest. The other part of the PPA rate is the cost of large-scale transmission that delivers energy to Merrimac’s local electrical distribution system.
If we combine the energy purchases with the large-scale transmission costs, we get our PPA cost. This
cost is increasing at a faster rate than the funds we collect through our existing rates. We anticipate that
this rate will increase by over 5% in 2024. Any costs higher than 5%, MMLD will supplement with the
rate stabilization fund.
Knowing that these costs are increasing on a yearly basis, what is MMLD doing to address these increases:
- We hedge our power purchase costs so that we can budget our power costs. Currently, we hedge about 90% of our energy costs. Note, when we hedge these costs, the electricity market is a dynamic market where electric supply and electric load is never constant, so our hedges are based on historical data. This is not a cost savings program as much as a budget process so that we have stable and fairly known yearly cost of energy.
- We negotiate long-term contracts with various energy suppliers to ensure that MMLD obtains the best negotiated price and most of this is done via a consortium of other municipal light plants to get the possible pricing.
- We have the gas fired generator to shave our transmission peaks.
- Work to be energy efficient- our customers can also lower their bills by being energy efficient as well.
Unfortunately, the cost of energy and large-scale transmission has increased even with these efforts- resulting in the MMLD board approving the 5% rate increase starting in January 2024. MMLD wants to make sure that you are aware of the reasons behind the need for this increase. Please feel free to contact the office if you want to discuss your specific bill. If you prefer to have set amount for your bill each month, please feel free to sign up for Budget Payment Plan option.
Question of the Month is a new program for answering questions we receive from customers at the office.