What do taxes, wages, air quality standards, aging power plants, and a lack of indigenous fuel sources have in common? They all contribute to Connecticut’s high electricity rates—and they were among the hot topics at a three-hour seminar held Dec. 14 at CBIA.

Approximately 50 facilities managers, plant engineers, attorneys, and business consumer representatives attended the breakfast meeting to hear about and weigh in on wholesale electricity markets and state energy policy.  Sponsored by CBIA and ISO-New England, the seminar was designed to open a dialogue about the regional electricity market and encourage participation in New England’s new Consumer Liaison Group.

(The CLG provides a forum for consumers and ISO-New England representatives to exchange ideas, views, and information and to communicate about and respond to developments that affect energy prices and reliability.)

Elected and state officials were on hand to discuss policy changes that will impact Connecticut’s business energy consumers as well.

A Decade of Progress; New Challenges Ahead

Anne George, vice president of external affairs and corporate communications at ISO-New England, led off with an overview of the organization’s role in overseeing the region’s restructured electric power system, administering wholesale electricity markets, and ensuring reliable operation of the grid. (New England’s power grid includes over 8,000 miles of high-voltage transmission lines, serves 6.5 million households  and businesses, and has an annual energy market value between $5 billion and $11 billion.)

Investments in major transmission upgrades, she said, have reduced costs associated with congestion and reliability by nearly 80%—or $100 million—from 2008 to 2009. The retirement and/or repowering of aging facilities and equipment, a tight correlation between electricity and natural gas prices, and integration of renewable resources into the fuel mix present continuing challenges, opportunities, and concerns, she added.

Joe Rosenthal, principal attorney at the Connecticut Office of Consumer Counsel, discussed his agency’s role in representing residential, commercial, and industrial customers of the state’s five regulated utilities—electric, gas, water, phone, and cable television—in matters before the Department of Public Utility Control, federal agencies, and courts.

In spite of factors that have helped bring down energy costs, “Connecticut’s electricity prices are still quite high,” he said, citing factors that include higher salaries and lower reliance on coal compared with other areas of the country. Rosenthal predicts that natural gas prices will remain stable at $3.75-$5.50 in the short term but steadily will trend upward and level off at $7-$8 in current dollars in six or more years.  (Electricity prices track natural gas prices.)

Other variables, he added, could cause a spike in natural gas prices. These include a boom in natural-gas-powered vehicles, geopolitical crises that put the U.S. shift from oil to natural gas into overdrive, and environmental concerns that prevent the extraction of Marcellus Shale. (For more on this, see p. 6 of next month’s CBIA News.)

On the other hand, advances in research and technology—such as more efficient energy storage that allows us to better capitalize on wind power—could push prices down.  Businesses, for their part, can hold down their energy costs through what Rosenthal calls “self-help” strategies: reducing consumption, taking advantage of demand response and energy efficiency programs (including some possible new lighting programs on the horizon), using combined heat and power units, and shopping around for energy suppliers. 

Jim Bell, director of products and services for CBIA, talked about Connecticut’s commercial and industrial retail electricity market, which comprises 30 licensed suppliers, now offering the best prices in five years. He discussed short-term, long-term, and block purchasing options as well as fixed and variable plans for businesses.

Price, he cautioned, isn’t the only consideration, however; contract variations in payment terms and bandwidths (also known as “swing factors”) are critical considerations before entering into any agreement. CBIA Energy Connections, said Bell, has been providing market advice and procurement services for member companies for more than 10 years. A licensed electricity aggregator, Energy Connections serves more than 700 member companies, comprising 200+ megawatts of load. 

Policy Is a Key Factor

Kevin DelGobbo, chairman of the Connecticut Department of Public Utility Control, reiterated that a choice of suppliers, commodity price stability, sufficient generating capacity, and a substantially improved transmission system helped lower Connecticut’s electric rates over the past few years.

He noted, however, that operational disadvantages and multiple policy commitments continue to negatively influence costs, keeping Connecticut in second or third place for highest residential electricity prices in the nation. (Most of the top ten states, in fact, are in the Northeast corridor.)

DelGobbo touched on the various public policy components that contribute to Connecticut’s high rates.  One of these, economic recovery revenue bonds, is expected to raise the Connecticut Light & Power electric rate for residential customers by about $2.42 a month in 2011.

But as CBIA Assistant Counsel Kevin Hennessy pointed out, while the revenue bond increase might seem modest, for some business customers that monthly charge will actually amount to $1,500-$2,000, totaling more than $20,000 a year.  “That kind of rate increase,” he said, “affects companies’ decisions to hire, expand, and invest in Connecticut. It’s incumbent on us to make sure elected officials understand that.”

One such official, Rep. Sean Williams (R-Watertown), acknowledged that when it comes to energy policy, “the legislature has been schizophrenic.” Williams is a ranking member of the legislature’s Energy and Technology Committee.

“We need you all to pay close attention this session,” he said, “because the devil can be in the details of an energy bill. And one little detail can end up costing millions of dollars.”

In a Q&A session that followed, audience members discussed renewable energy standards, whether the markets or government oversight can deliver better prices, and the need for a regional view of our energy issues.   —Lesia Winiarskyj

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Lesia Winiarskyj is a writer-editor at CBIA. You may reach her at lesia.winiarskyj@cbia.com<em>.