Lawmakers urged to protect electricity ratepayers by rejecting new DEP standards

(June 17, 2008) With energy prices already high, the legislature’s Regulations Review Committee will meet on June 24 to consider new state regulations that will likely result in even higher consumer costs. The regulations would impose a fee on the emission of carbon dioxide by Connecticut electric generation units.

When they meet, lawmakers won’t know how much the fee will be — but they should be well aware that business and residential consumers will end up paying it.

Under the Department of Environmental Protection’s proposal, electricity-generating facilities will have to purchase a quantity of “CO2 allowances” at least equivalent to the amount of CO2 they emit in generating electricity. Allowances initially will be sold at auction, where anyone, including financial speculators, can bid on them.

The first auction is scheduled to take place on Sept. 10. Until then, there is no way of knowing how much the program will cost electricity generators and, ultimately, ratepayers.

Estimates vary widely on how much generators will have to pay and what impact the fees will have on electric rates. The DEP estimates that allowances will cost between $2 and $5 per ton and that the effect on electric bills will be minimal. However, others are predicting a price of $10 to $20 or more per ton — which could result in increases of 7% - 14% or more on business and residential electric bills.

Avoiding the shock
Recognizing the potential shock to energy consumers and their local economies, other states implementing similar programs are including protections for ratepayers in the event that the fees exceed regulators’ expectations. Governors of states participating in the Regional Greenhouse Gas Initiative (RGGI) agreed that states should have the option to use some of the auction proceeds “to directly mitigate electricity ratepayer impacts.”

Unfortunately, the DEP’s proposed regulations don’t allow any portion of the funds raised through these auctions (estimated in the hundreds of millions of dollars) to limit the impact on electricity consumers. The DEP claims it has no authority to allocate any of the money for ratepayer protection because, under a law passed in 2007, use of the funds is limited to energy conservation, load management and renewable energy programs; special projects; and DEP funding.

Auctions are expected to be held quarterly for the next five years or longer. Even if allowances are relatively inexpensive at first, costs will likely rise. Connecticut can’t afford this kind of risk when commonsense protections, such as those implemented in other states, are so readily available.

With the faltering economy and the unknown cost associated with the DEP’s regulations, the proposal must include safeguards for ratepayers. CBIA is urging the Regulations Review Committee to reject the proposed regulations until the legislature, or the governor through executive order, requires a provision for protecting ratepayers.

For more information, contact CBIA’s Eric Brown at 860-244-1926 or eric.brown@cbia.com.