As the majority of residential electric customers across the state brace for increases of as much as $80 per month in their electric bills, Connecticut lawmakers at the state and federal level are vowing to make every effort to soften the blow of the increases and make changes to the rate-setting process that continues to allow them to escalate.
Thursday's submission of generation costs for the first half of 2023 by Eversource Energy and The United Illuminating Co. set off a torrent of indignation against the distribution companies and calls for a special session of the Connecticut General Assembly. The state's two legacy utilities on Thursday submitted what it will cost them to procure electricity for standard service customers for the first six months of next year.
Representatives of Eversource Energy and United Illuminating have cited a variety of factors as reasons for the increase in generation costs, including global energy market problems associated with the Russia-Ukraine war. Rates change twice per year: Jan. 1 and July 1.
The way the state's electric utilities are regulated, they are not allowed to charge customers anything more than what it cost them to purchase the electricity from power providers. While the proposed rates go before the state's Public Utilities Regulatory Authority, the three-person board's duty is "to make sure the utilities followed the proper process," said state Sen. Norman Needleman, D-Essex, co-chairman of the state legislature's Energy and Technology committee.
PURA and the state's elected officials "have next to no ability to challenge these supply rates, which is frustrating," Attorney General William Tong said.
"Our supply rates always fluctuate between winter and summer, but this is not normal," Tong said.
Sweeping changes
Needleman, along with other state and federal lawmakers contacted by Hearst Connecticut Media on Friday, called for sweeping changes to the process through which standard service electric customers get their power from the utility customers. As far as he's concerned, "all options are on the table as we take a look at what it will take to make this market more stable."
State Sen. Saud Anwar, D-South Windsor, said "there is something that is fundamentally wrong with this process." Anwar is deputy president pro tempore of the state Senate.
"Enough is enough: This model of operation has to change," he said. "The people using a public utility are a captive audience and the first priority of these customers is shareholders. The consumer should be the most important part of the equation and so in a special session, we need to do anything we can to give them a break and fix the intrinsic conditions that led to this problem."
Lawmakers stopped short of calling for a return to the heavily regulated process that existed prior to 2000 in which Connecticut utilities owned power plants as well as the distribution networks. Under that system, regulators allowed the companies a guaranteed rate of return on their investments in generation that was substantially lower than the per-kilowatt-hour prices UI and Eversource customers will be paying in January.
"There's still a legitimate argument to be had whether or not that was a good thing," Needleman said of electric deregulation in Connecticut. "The reality is it has made us more vulnerable."
Needleman said the high electric generation prices are a reflection that power plant operators "buy their fuel almost exclusively on the spot market" rather than through firm contracts. The majority of power plants that serve New England operate on natural gas.
"Price volatility on the spot market represents the difference between the wholesale price of natural gas and what customers without firm contracts pay," he said. "Customers without firm contracts pay four times what natural gas costs on the wholesale market."
What can be done?
David Cadden, a professor emeritus at Quinnipiac University's School of Business, said beyond "making sure supplemental money will be available for fuel oil and for this electric rate increase, there is very little that (state lawmakers) can do in the short term to reduce electric prices.
"Part of the problem is that there has been no systematic policy at the regional level," Cadden said.
Implementation of electric deregulation in Connecticut was designed to bring competition to the generation component of consumers' electric bills while regulating distribution costs.
Although a significant number of third-party providers of generation are doing business in Connecticut, only a small portion of the residential utility customers in the state avail themselves of the service. Buying electricity through a third-party provider requires a significant time commitment to understand the terms of the contracts, although it results in a savings over the standard service offer.
Before the state's electric utilities were deregulated in 2000, UI and Eversource were able to own power plants. But following deregulation, consumers had two options: To purchase their electricity from the legacy utilities or buy it on their own through third-party power providers.
The vast majority of the two electric utilities have opted over the past 22 years to let UI and Eversource continue to purchase their electricity through what is known as standard service offers.
U.S. Sen. Richard Blumenthal, D-Conn., declined to call for a re-regulation of UI and Eversource, but said sweeping changes must be made to the way electric utilities are regulated in Connecticut.
"I'm not recommending that re-regulation be adopted; the whole system has changed (since deregulation has occurred)," Blumenthal aaid. "But we should not be taking the utilities claims on face value; there should be an intense and penetrating investigation of what is behind these prices. And nothing should be off the table."
Blumenthal said some of the responsibility for high electric costs should be laid at the feet of federal energy regulators.
"FERC (the Federal Energy Regulatory Commission) has to be completely reformed," he said. "Historically, it's inefficient and for years, I have argued it needs to be completely reformed to be more consumer focused and less focused on those in the industry."
Needleman said there is plenty of blame to go around for the escalating energy costs, including the electric utilities themselves.
“Demonstrate that you care for you customers," he said of UI and Eversource officials. "Whatever you are doing now, you can do more. Drop $50 million into the state’s home heating oil fund. How you prioritize says a lot about you as company and right now, your priorities seem focused more on shareholders and executive compensation than on the average consumer."
Needleman said Connecticut lawmakers can't mandate that the utilities show more compassion to their customers.
"You should do it because it’s the morally right thing," he said. "Have a heart here."
State Senate Republican leadership called for an immediate hearing to address the proposed rate increases.
“We must work together to help Connecticut’s struggling families from shouldering this outrageous burden,” Senate Republicans wrote in a statement Friday night. “That starts with transparency about these rate increases and the public policies that led to this point. ... We must ask the tough questions of our energy stakeholders: the utilities, regulators, and state officials. We must identify the 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 Counsel Claire Coleman, echoed Neddleman's sentiments. Coleman represents the interests of Connecticut consumers in rate cases before utility regulators.
"I hope that Eversource and United Illuminating will consider sharing some of their recent healthy profits with customers to help them through the winter," she said.
Craig Gilvarg, a spokesman for Orange-based Avangrid, the corporate parent for UI, said officials at the utility share "Senator Needleman’s concern for his constituents, and wholeheartedly agrees on the need to come to the table to identify solutions for our customers and residents across Connecticut."
"UI also believes the energy-generation companies, including Vitol, NextEra, and Constellaton, which profit from these prices on the competitive market and generated revenue in excess of $342 billion in 2021, must come to the table and provide relief to customers across Connecticut," Gilvarg said. "UI understands that the unprecedented state of the global energy market, and the prices determined by energy generators on the competitive market, are having real, burdensome impacts on the everyday lives of families across Connecticut. UI is committed to making sure our customers are aware of, and prepared for, these rising supply costs and understand the programs we have to help."
Tricia Taskey Modifica, an Eversource Energy spokeswoman, defended the company's commitment to Connecticut and its residents.
"We are one of the largest employers in the state, and our commitment to Connecticut is second to none," Modifica said. "From the Hartford Marathon to the United Way, our philanthropic involvement is a recognized accomplishment. We have attempted to explain that this increase is not due to our actions; we hope our state leaders can join us in accurately explaining the process to the public."
She said regulators and legislators know the higher electric bills this winter will be due to the supply cost which is based on market conditions that we do not control.
"We purchase power on behalf of our customers and only charge them what we pay generators for producing the power – we do not earn a profit on the cost of electricity," Modifica said.
luther.turmelle@hearstmediact.com
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