In a move which has injected uncertainty into the state's retail electric market, the Rhode Island PUC has deferred a portion of the required increase in electric rates for default service customers at National Grid. The increase results from higher-priced electric contracts procured to supply default service customers in 2015.

Default service is electricity supply provided to customers at National Grid who do not choose an alternative electric supplier.  It serves as a backstop for customers who do not shop in the retail electric market.

National Grid procures contracts in the wholesale market to serve default service customers, and the contracts for 2015 resulted in much higher prices due to natural gas pipeline constraints and fears about electricity shortages in New England this winter.  Proposed electric rates resulting from these contracts were 50% higher than current electric rates.

Concerned with rate shock to customers, the Rhode Island PUC has voted to defer a portion of the required default service rate increase.  Instead of paying all of the higher costs now, the PUC will spread the costs over a longer period of time. However, National Grid customers will still have to pay the entirety of the higher electric costs -- just not right away.

While the deferral will temporarily mitigate default service rates starting in January 2015, it means that later this year, when default service rates would normally decrease coming out of the high-demand winter season, National Grid electric rates will have to remain artificially high to recover the previously deferred costs.

Specifically, the Rhode Island PUC set the residential default service electric rate for National Grid at 10.248¢/kWh, effective January 1, 2015.  The rate would have been 12.705¢/kWh without the deferral.

Even with the deferral, the residential rate is 30% higher than the 2014 rate of 7.879¢/kWh.

The PUC also set National Grid's commercial electric rate at 11.659¢/kWh, for the fixed price option -- a 30% increase.  Without a deferral, the National Grid commercial rate would have been 13.375¢/kWh.

The current commercial electric rate at National Grid is about 8.8¢/kWh.

The PUC did not defer industrial electric rates, which will vary by month in 2015, and which will be about 20¢/kWh for January and February, and 12¢/kWh for March.

What is unclear from the PUC's decision is what group of customers will pay the deferred default service costs.  Specifically, when a customer shops for a competing electric supplier, they "bypass" National Grid's default service supply rates; however, it is not clear if the deferral will also be bypassable.

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