No Other State is Experiencing the Rate Shock Connecticut’s Regulatory Policies are Now Producing

James Daly is Eversource Vice President of Energy Supply


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To the Editor:

“Here we go again,” is what people across Connecticut are saying about the recently publicized electric rate increase.  No news is good news when it comes to customer bills.  Under state law, Connecticut’s electric companies must do a good job of keeping the power flowing for customers and fulfilling state policy mandates along the way.  Equally, state law protects the financial integrity of the electric companies paying costs on behalf of customers to ensure continued access to highly reliable electric service.  In between, is the need to avoid customer “rate shock.” It’s complex, but one thing is certain — the facts are different than headlines suggest.

Of the $784 million owed to Eversource, approximately $605 million is the cost of state-mandated contracts that require Eversource and United Illuminating to purchase electric supply from the owners of the Millstone and Seabrook nuclear generating units.  Another $160 million is to cover the cost of state initiatives that benefit low-income and medical hardship customers.  Are these state policies causing the “rate shock?”  No.  More than half of the $784 million owed to Eversource are costs from last year that state regulators pushed forward to this year — to avoid a rate increase on May 1 of last year.  Continually pushing costs forward to the future is not good for customers.  If it is hard for customers to pay their bill today – it is even harder for customers to pay tomorrow’s bill pancaked with costs carried over from the past. 

Is there a gamble here that someone has lost?  Not in relation to the nuclear contracts.  State law mandates that electric companies take the supply purchased through those contracts and sell it back into the competitive market, with customers receiving 100% of the revenues produced by that sale.  Over the past five years, the fixed contract costs paid out by Eversource totaled about $1.5 billion – and the revenues received from the market totaled about $1.48 billion, with a net cost for customers of $20 million.  In this model, electric utilities do not profit from the contracts — not even by a penny.  Instead, customers are the sole beneficiary of a state policy designed to stabilize rates in a volatile price market, while also serving a critical role in protecting the reliability of the bulk electric system and reducing carbon emissions.  All at a cost of about $1.50 per year for the average residential customer over the past five years.

How does this work?  New England is a deregulated market for electric supply.  Natural gas is the main fuel source used to generate electric supply, accounting for about 45% of the electric generation in New England.  This causes natural gas prices to be the single biggest driver of the cost of electricity.  In 2022, natural gas supplies were severely constrained in New England due to well-documented global supply issues.  High demand for natural gas caused price volatility, pushing the cost of electric supply skyward across New England.

In Connecticut, the electric companies sold the nuclear power they’re required to buy into the open market – which was high at the time – producing profits well above the fixed contract which, by law, are passed to customers through a supply credit on their bill.  In 2022, the net benefit to Eversource customers was in the range of $310 million, with dollars flowing to customers through a supply credit in 2023, lowering last year’s rates. 

Why then, rate shock?  Current state regulatory policies prohibit the utilities from addressing market conditions on a real-time basis.  Contract costs and revenues are estimated at a single point in time – early in the year – looking backward.  When differences arise between estimated and actual costs, costs are pushed forward for collection in future periods to avoid rate impacts, while rate credits are accelerated and sometimes even over-paid to customers – requiring customers to pay the credit back.  In May 2023, state regulators held the “Public Benefits” rate at zero on customer bills rather than reflecting last year’s cost on last year’s customer bill.  Blackjack, anyone?

Across New England, state regulators are exploring ways to help customers manage the high volatility in electric supply prices due to natural gas constraints.  Connecticut had the foresight to lock into nuclear generating contracts to enable rate stabilization.  But that pragmatism has given way to rhetoric and muddying of the waters on the need for utilities to recover their costs.  Connecticut now has an ominous distinction:  No other state is experiencing the rate shock that Connecticut’s state regulatory policies are now producing.  Other states recognize that customer interests are best served where electric company costs are factored into customer rates on a systematic and predictable basis – consistent with state law and policy.

How do we fix this?  The complexities of the situation demand collaboration.  We have solutions to address this year’s rate shock and to stabilize the situation for customers going forward.  We are working closely with officials from Gov. Lamont’s office, the Office of Attorney General William Tong, the Department of Energy and Environmental Protection and the Office of the Consumer Counsel to find solutions.  We can get there working together with the facts and a common set of goals.  Let’s start now.

James Daly is Eversource Vice President of Energy Supply