Connecticut electric rates set to skyrocket, no clear solutions

Like the majority of residential electric customers across the state accolade for increases of up to $80 per month on their electric billsConnecticut lawmakers at the state and federal levels pledge to do everything they can to soften the blow from the increases and make changes to the rate-setting process that continues to allow them to escalate.

Thursday’s submission of production costs for the first half of 2023 by Eversource Energy and The United Illuminating Co. sparked a torrent of outrage against distribution companies and calls for a special session of the Connecticut General Assembly. The two former state utilities presented on Thursday what it would cost them to procure electricity for standard service customers for the first six months of next year.

Representatives from Eversource Energy and United Illuminating cited a variety of factors as reasons for rising production costs, including problems in the global energy market associated with the Russian-Ukrainian war. Rates change twice a year: January 1 and July 1.

The way the state electric utilities are regulated, they are not allowed to charge customers anything more than what it cost them to buy the electricity from the electric providers . While the proposed rates are subject to the state’s utility regulator, the duty of the three-person board is to “ensure that the utilities have gone through the proper process,” the senator said. State Norman Needleman, D-Essex, Co-Chairman of the State Legislature. Energy and Technology Commission.

PURA and state officials “have virtually no ability to challenge these supply tariffs, which is frustrating,” Attorney General William Tong said.

“Our supply rates always fluctuate between winter and summer, but that’s not normal,” Tong said.

Radical changes

Needleman, along with other state and federal lawmakers contacted by Hearst Connecticut Media on Friday, called for sweeping changes to the process by which standard electric service customers get their electricity from utility customers. For him, “all options are on the table as we examine what it will take to make this market more stable”.

State Senator Saud Anwar, D-South Windsor, said “there is something fundamentally wrong with this process.” Anwar is Vice President Pro Tempore of the State Senate.

“Enough is enough: this operating model must change,” he said. “People who use a public service are a captive audience and the first priority of those customers are the shareholders. The consumer should be the most important part of the equation and so in a special session we have to do everything that we can to give them a break and repair the intrinsic conditions that led to this problem.”

Lawmakers stopped short of calling for a return to the heavily regulated process that existed before 2000 in which Connecticut utilities owned power plants as well as the distribution networks. Under the scheme, regulators gave companies a guaranteed rate of return on their generation investments that was significantly lower than the prices per kilowatt-hour that UI and Eversource customers will pay in January.

“There’s always a legitimate argument to be had about whether that was a good thing or not,” Needleman said of Connecticut’s electricity deregulation. “The reality is that it made us more vulnerable.”

Needleman said high power generation prices reflect the fact that power plant operators “purchase their fuel almost exclusively on the spot market” rather than through firm contracts. The majority of power plants that serve New England run on natural gas.

“Price volatility in the spot market represents the difference between the wholesale price of natural gas and what customers pay without a firm contract,” he said. “Customers without firm contracts pay four times what natural gas costs on the wholesale market.”

What can be done?

David Cadden, professor emeritus at Quinnipiac University’s School of Business, said that beyond “making sure that additional funds will be available for fuel oil and for this increase in electricity rates, there is very little that (state legislators) can do in the short term to reduce electric rates.

“Part of the problem is that there hasn’t been a systematic policy at the regional level,” Cadden said.

The implementation of electricity deregulation in Connecticut was designed to bring competition to the generation component of consumers’ electricity bills while regulating distribution costs.

Although a significant number of third-party generation providers do business in Connecticut, only a small portion of the state’s residential utility customers take advantage of the service. Purchasing electricity through a third-party provider requires a significant time commitment to understand the terms of the contracts, although this translates into cost savings compared to the standard service offering.

Prior to the deregulation of state electric utilities in 2000, UI and Eversource could own power plants. But following deregulation, consumers had two options: buy their electricity from traditional utilities or buy it themselves through third-party electricity providers.

The vast majority of both electric utilities have chosen over the past 22 years to let UI and Eversource continue to purchase their electricity through what are known as standard service offerings.

U.S. Sen. Richard Blumenthal, D-Conn., declined to call for new regulation of Unemployment Insurance and Eversource, but said sweeping changes needed to be made to how unemployment insurance utilities electricity are regulated in Connecticut.

“I don’t recommend the adoption of re-regulation; the whole system has changed (since deregulation took place),” Blumenthal added. “But we shouldn’t take utility claims at face value; there should be an intense and thorough investigation into what’s behind these prices. And nothing should be ruled out.”

Blumenthal said part of the blame for high electricity costs should rest with federal energy regulators.

“FERC (the Federal Energy Regulatory Commission) needs to be completely reformed,” he said. “Historically it’s been inefficient and for years I’ve argued it needs to be completely reformed to be more consumer-focused and less industry-focused.”

Needleman said there’s a lot of blame for escalating energy costs, including the electric utilities themselves.

“Show you care about your customers,” he said of the UI and Eversource executives. “Whatever you do now, you can do more. Deposit $50 million in the state heating oil fund. How you prioritize says a lot about you as a company and your priorities right now. seem more focused on shareholders and executive compensation than the average consumer.”

Needleman said Connecticut lawmakers can’t demand that utilities be more compassionate toward their customers.

“You should do it because it’s the morally right thing,” he said. “Have a heart here.”

The state Senate’s Republican leadership called for an immediate hearing to address the proposed rate increases.

“We must work together to help struggling families in Connecticut from carrying this outrageous burden,” Senate Republicans wrote in a statement late Friday. “It starts with transparency about these rate increases and the public policies that have led to this point. … We need to ask the tough questions of our energy stakeholders: utilities, regulators and state officials. We need to identify actions that can be taken to reduce costs and make our state more affordable, including and especially when it comes to energy costs.

Connecticut consumer advocate Claire Coleman echoed Neddleman’s sentiments. Coleman represents the interests of Connecticut consumers in rate cases before utility regulators.

“I hope Eversource and United Illuminating will consider sharing some of their recent profits with their customers to help them get through the winter,” she said.

Craig Gilvarg, a spokesperson for Orange-based Avangrid, UI’s parent company, said utility officials share “Senator Needleman’s concern for his constituents, and wholeheartedly agree on the need to come to the table to identify solutions for our customers and residents across Connecticut.”

“UI also believes that energy companies including Vitol, NextEra and Constellaton, which are taking advantage of these competitive market prices and have generated revenues of over $342 billion in 2021, need to come to the table and bring relief to customers in Connecticut,” Gilvarg said. “UI understands that the unprecedented state of the global energy market and the prices being determined by power generators in the competitive marketplace are having real and heavy impacts on the daily lives of families across Connecticut. is committed to ensuring our customers are aware of and prepared for these rising procurement costs and understand the programs we need to support.”

Tricia Taskey Modifica, spokeswoman for Eversource Energy, defended the company’s commitment to Connecticut and its people.

“We are one of the largest employers in the state, and our commitment to Connecticut is unmatched,” Modifica said. “From the Hartford Marathon to the United Way, our philanthropic involvement is a recognized achievement. We have tried to explain that this increase is not due to our actions; we hope that our heads of state can join us in explaining with clarify the process to the public.”

She said regulators and lawmakers know that the higher electricity bills this winter will be due to the cost of supply which is based on market conditions that we do not control.

“We buy electricity on behalf of our customers and only charge them what we pay generators to produce electricity – we do not make a profit on the cost of electricity,” Modifica said.

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