State Greenhouse Gas Regulations to Raise Business Electric Costs

Regional agreement makes the regulations essentially a “done deal”

The Department of Energy and Environmental Protection (DEEP) held a public hearing this week on proposed regulations that will make electric energy generation more expensive in Connecticut and raise businesses’ energy costs by at least 1% per year for the next 10 years.

Unfortunately, DEEP’s hearing was essentially a formality as the regulations are part of a nine-state agreement under the Regional Greenhouse Gas Initiative (RGGI, commonly known as “Reggie”). RGGI requires all of the participating states—including Connecticut—to revise their regulations as proposed, in this case in a manner that will result in higher electricity costs.

How RGGI works

Under the current RGGI program, electric generators must purchase allowances–essentially tokens that allow them to generate electricity–at a rate of one allowance for each ton of carbon dioxide emitted in the electricity generation process. These costs are then passed on to Connecticut ratepayers–residential and business customers alike.

The proposed regulations will make the allowances more expensive–possibly much more expensive.  Some analysts predict that DEEP’s estimate of a 1% increase in energy costs per year for businesses is low.  

With Connecticut continuing to hover near the top of the list of most expensive energy states in the country, many are concerned that the new regulations will further hinder the challenge of making Connecticut more competitive for energy costs. In a recent national survey, 85% of businesses said that energy costs were an essential factor in their ability to be competitive. 

Action needed

Supporters argue that the proposed regulations will provide significant additional funding for the state’s energy efficiency programs. That’s true, and those programs have helped many businesses across Connecticut save money on their energy bills. 

But not enough is known about the actual costs and benefits to businesses of the efficiency programs—key data that must be better quantified and more transparently available to the public.  The programs also need to be made more accessible to businesses through, for example, efficient web tools that allow businesses to quickly determine what programs address their specific situation and assess the value of those programs. 

Connecticut also should take action to mitigate the cost impacts of RGGI—for example by limiting participation in the allowance auctions to the electric generators who require them for RGGI compliance. Currently, speculators can participate in the auctions, which unnecessarily drives up the cost of allowances.

It’s also critically important for the state to stop raiding the funds, as it has done on occasion, to fill state budget deficits. If there has to be a RGGI program, it should be a national program so that Connecticut and other Northeast states are not unfairly burdened with an energy tax that that most other states don’t have.

CBIA has been very supportive of the state’s energy efficiency programs and we will continue to work with policymakers and stakeholders to ensure those dollars are used as effectively and efficiently as possible.  But the targeted benefits of these programs need to be continually evaluated relative to the overall impact on Connecticut’s economy of the higher energy costs that come with them.

For more information, contact CBIA’s Eric Brown at 860.244.1926 or eric.brown@cbia.com.