As Energy Prices Soar, Avangrid Places Blame on Companies Generating the Electricity


TwitterFacebookCopy LinkPrintEmail

High electric bills have become a fact of life for Connecticut residents, who paid the highest bills in the country outside of Hawaii in 2021, and combined with lingering frustrations over lengthy power outages after recent damaging storms, so is outright public anger at United Illuminating and Eversource.

It was no surprise then, that announcements that electric bills would rise between 40 and 50 percent in January would spark a fresh wave of outrage from Connecticut’s electric customers.  And explanations from the companies and state officials that the hikes are simply passing along the high cost of buying energy haven’t placated customer anger towards the companies.

But Avangrid, the parent company of United Illuminating – which serves 17 towns in the Bridgeport and New Haven areas – said that anger is misplaced, and should be directed at power generators that they say are allowed to operate with too little scrutiny.

Avangrid: Generators should open their books

Catherine Stempien, President and CEO of Avangrid Networks, said the supply rate increases are hitting everyone in New England’s deregulated electricity market, regardless of how their state procures electricity. 

In Maine – where customers of the state’s largest electric company will see their supply rate jump nearly 50 percent in January, on top of an 83 percent increase last January –  the state is responsible. In Connecticut, the utilities participate in an auction overseen by PURA and OCC.

The key issue, she said, is that nobody has real transparency into the generators’ costs. The companies can say that they’re just passing along the cost of fuel, or recovering other costs, and nobody knows if that’s true, she said.

“Our delivery rates are very highly regulated by PURA. Every line item that we have in the books and records is reviewed and challenged by [PURA] staff and intervenors. It’s a very open and transparent process,” Stempien said.

Avangrid pointed to the profits of the five companies that bid to provide standard service through United Illuminating – the supply rate that customers pay if they don’t sign with a third-party supplier. 

NextEra reported more than $4.7 billion in adjusted earnings in the first three quarters of 2022, and more than $2 billion when excluding the profits from its subsidiary utility company Florida Power and Light. Its CFO Kirk Crews told investors that high gas prices have driven demand for new renewables from the company.

Constellation reported adjusted earnings of more than $2 billion for the same period. DTE reported $930 million. And Vistra reported adjusted earnings of more than $2.3 billion, telling investors that their outlook is improving as rates rise in the Northeast and Midwest, and commodity prices like natural gas start to decline.

The biggest of all, global oil trader Vitol, made close to $4.5 billion in the first half of 2022, after earning $4.2 billion in all of 2021, according to a report from Reuters on the finances of the privately-held company.

When utilities owned their own power plants before deregulation in 1998, regulators had the same level of scrutiny over how much they spent on generation, she said.

“Now with the market, nobody has any idea what the actual costs of some of these generators and the fuel suppliers are,” Stempien said. “They just say, that’s the market price, and we’re subject to that.”

Generators push back

Dan Dolan, president of the New England Power Generators Association – an organization that represents generators in the region and supports competitive markets – said that those companies are all very large with diverse holdings. 

Avangrid, which is part of “massive multinational utility” Iberdrola, is the same way, he said. The difference for them is that they are effectively guaranteed a profit on the distribution side, while none of the companies competing to provide generation are.

Avangrid – which has expanded into offshore wind development in recent years – reported earnings of $749 million for the first three quarters of 2022, up from $609 million for the same period in 2021, and almost as much as the $780 million profit it reported for all of 2021.

“At the top corporate level, all that may be true, and they may be profitable companies overall,” Dolan said. “But that doesn’t mean that the divisions providing generation supply here in New England are seeing the same thing.”

Dolan said that after the Russian invasion of Ukraine in February, increases in the cost of gas and oil – as well as materials like lithium for batteries and copper – had to be “eaten” by suppliers who were still locked in to prices that had been set in 2021 or earlier when their costs were much lower.

“Now that is starting to be reflected back in the higher standard offer rates,” Dolan said. “But you are still seeing companies who are providing electricity at far below the cost that it takes to produce it. It’s a natural tension within the market.”

Avangrid executive Stempien said some generators could be playing the market, benefiting from the high market prices driven by the price of natural gas – which fuels a majority of the generation in New England. But Stempien said she can’t know for sure without additional transparency.

“I think it’s probably a combination of higher commodity prices and taking advantage of the market,” she said.

Is there a way forward in a deregulated market?

State Sen. Norm Needleman, D-Essex, chair of the Energy and Technology Committee, said it’s become clear that Connecticut’s decision at the turn of the century to deregulate and force the utilities to sell their power plants has had unintended consequences. 

It may have saved customers a few cents per kilowatt-hour over the past 25 years, but it’s also loaded them with more risk, exposing them to global market forces through the unregulated supply side of their bill, he said.

“Now, it’s sort of a perfect storm, with a war 5,000 miles away added to the winter reliability issues we’ve had for years now,” Needleman said. “What you have is, what was known to be a possibility in an unregulated market has turned into a reality.”

Dolan said that how standard offer rates are procured is up to the states, and now in Connecticut, the system effectively uses “snapshots in time” to set the rates for six months. There are ways to “smooth” out that volatility by layering in longer time periods.

“That means you’re going to limit how high the price will jump in any one procurement,” Dolan said. “But as prices drop, it also means the price [for customers] isn’t going to drop as quickly. The balance that only policymakers can really address is what level of risk tolerance is appropriate for customers to bear.”

Stempien said she thinks the way forward is a hybrid between vertically-integrated, regulated utilities, and the deregulated market Connecticut has today. The benefits of a vertically-integrated utility, which owns its own generation, is that all of the fixed costs of power plants are tightly regulated, and would act as a hedge against the volatile price swings of natural gas.

Needleman said some of his colleagues have suggested “nationalizing” the utilities, so the state owns them as a public trust. Others have raised the idea of reversing deregulation, going back to vertically-integrated utilities that own both the distribution lines and power plants – all regulated by the state. Needleman isn’t convinced either is feasible.

“How would you do that? Are we going to buy out Eversource’s interest and UI’s interest in the grid?” Needleman questioned. “We’re talking billions and billions of dollars. And, quite frankly, the state doesn’t have a great track record of running that many things.”

Asked what the motivation is for Avangrid, a company on its way to posting record profits for the second consecutive year, to make significant changes to the electric market, Stempien said it’s in their interest as a company headquartered in Connecticut to see the communities they’re a part of succeed. Generators, she said, are “in and out,” while United Illuminating has been in Connecticut for over 100 years.

“It sounds a little corny, but it’s truly what we believe,” Stempien said. “We think the pairing of our interest and being embedded in the community helps make it a win-win for everybody.”

More practically, Stempien said it’s in their interest for customers to be able to afford to pay their bills.

“If we don’t have customers to pay their bills, we don’t exist as a company,” Stempien said. “It’s in our interest to have a robust community in which our employees and our customers can thrive.”

Needleman said he understands the electric companies don’t like “taking it on the chin” for a rate increase that isn’t their fault, but they’re both multinational conglomerates that aren’t seeing their profits drop.

Still, he said he also wants to look at how Connecticut can open more transparency and control into the supply costs of electricity.