Electricity suppliers overcharged New England consumers billions of dollars over past decade, report says

Electricity suppliers have charged New England consumers billions of dollars in excess costs over the past decade, helping explain part of the surge in monthly utility bills, according to a new report from Cambridge-based energy think tank Synapse Energy Economics.

After reviewing the wholesale cost of electricity and comparing it to the prices consumer were charged from 2015 through 2024, Massachusetts customers on basic service paid a premium of 43 percent, or about $22 extra per month, Synapse calculated. Customers who bought their electricity through municipal aggregation systems like Boston’s haven’t made out much better, paying an average premium of 24 percent, the report said.

“In recent years, this retail premium cost many electricity consumers even more than the price of the energy itself,” the report said. “Consumers deserve a system that better reflects the real cost of procuring electricity.”

The report comes at a time of simmering discontent over electricity costs in Massachusetts. Customers here pay about twice the national average price for power, according to data from the US Chamber of Commerce. Aiming to fend off a voter backlash, Governor Maura Healey and the Legislature have cobbled together a set of reforms aimed at reining in price increases. But the legislation remains tangled up in a House-Senate conference committee.

The premiums don’t come from utilities like Eversource and National Grid, which don’t generate the power they sell.

Instead, they purchase it from independent power companies and sell it to end users at the same price they pay. The suppliers make their profit from the premium while the utilities make their profit by charging for delivery of the electricity to homes and businesses. Charges for supply and delivery each make up about half of a user’s monthly bill.

The supply price is set every six months, after the utility companies ask power suppliers to compete to offer the best fixed rates for consumers. But the cost of generating electricity at any given time — the so-called “spot rate” — varies by the minute, and Synapse found that the suppliers’ six-month fixed rate consistently overshot spot rates to the tune of $12.3 billion in total for all residential and small businesses in New England over the decade.

“Those customers are getting hosed,” said Pat Knight, director of analysis at Synapse.

The Synapse report conceded that power supply companies are right to charge some premium. It provides their profit, and serves as a hedge against spikes in energy costs or surging power demand due to bad weather.

But the premium has been rising, reaching 49 percent of the median monthly charge over the past five years, the report said. In some months, power company premiums were higher than the cost of the electricity they sold.

Knight and a team of Synapse researchers reached their conclusion by studying historical spot market data. ISO New England, the organization that manages the region’s electrical grid, maintains a history of spot market prices.

For instance, an electric power company might have set a fixed rate of 16 cents per kilowatt-hour, but the real-time cost on a given day might have been 10 cents. The extra 6 cents would be the power company’s premium.

“We looked at what the prices that people were being charged on basic service were,” Knight said, “and then we looked at what the actual real-time pricing was, and compared the two.”

The research found that the basic service rate for electricity was consistently well above its real-time pricing.

Texas-based NRG Energy, one of the companies that sell power in Massachusetts, pushed back against Synapse’s claims, arguing that part of the blame for high premiums rests with the state’s environmental policies.

Massachusetts requires electric suppliers to purchase power directly from renewable sources or in the form of renewable energy credits. Renewable energy is significantly more costly than conventional power and a major driver of high power prices.

William Hinkle, a spokesperson for electric utility Eversource, said the Synapse study is unfair to electric suppliers, who face tough challenges in calculating how much to charge for power. “Suppliers take on unknown volume and price volatility when they offer fixed prices for electric supply,” Hinkle said, “with inherent uncertainty around how weather will impact customer usage.”

It’s especially tough in winter, because Massachusetts has tightly constrained supplies of natural gas used in many electric power plants. When there’s a cold snap, surging demand for gas to heat buildings makes it more expensive for use in power plants. The electric suppliers, who must set their rates six months in advance, must factor in these cost spikes, Hinkle said.

To lower electric costs, Synapse suggested a program in which utilities would sign fixed-price contracts for only some of the power they expect to need over the next six months. Then they’d purchase the rest in real time on the spot market.

But Hinkle warned that real-time markets go up as well as down. A surge in natural gas prices in winter could make electricity a lot more expensive. And that could lead to rate spikes that could make today’s electric prices seem like the good old days.

Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him @GlobeTechLab.