It’s no secret Connecticut residents pay among the highest electric bills in the country, although the reasons why are more of a mystery to many customers.
John Blair, an energy expert with the Connecticut Business & Industry Association, said electric customers often do not understand what they are paying each month.
“People are aghast at what goes into their energy costs,” Blair said.
Connecticut residents pay the highest electric bills in New England – $147 a month on average, compared to $128 in Massachusetts and $88 in Maine.
In fact, the Nutmeg state has the highest electric rates in the contiguous United States, and the third highest in the nation, topped only by Alaska and Hawaii, according to the U.S. Energy Information Administration.
So why are electric costs so much higher in Connecticut – a geographically small state with few natural obstacles to drive up the cost of delivering power?
A variety of experts pointed to the state’s historically high taxes and cost of doing business, past deregulation of the power industry, using electric rates to fund social programs and renewable energy, carbon reduction goals and the distance from natural gas supplies.
Patrick McDonnell, vice president for regulatory affairs for United Illuminating, said high electric bills in Connecticut is nothing new.
“Connecticut is a high-cost state to operate in,” McDonnell said.
McConnell said there are many reasons why electric rates differ from state to state, including New England’s position at the end of the natural gas pipelines that supply the Northeast, which adds transportation costs and increases rates.
“Where New England is predominately nuclear and natural gas, Michigan is mostly coal,” McConnell noted. “That’s the first place to start.”
Coal is a cheaper way to produce electricity but it’s also considered far worse for the environment and a driver of climate change.
“When you look at the tax rolls, the number one or two taxpayer (in Connecticut towns) is the utility,” McConnell said. “That is not uniformed across the country. We pay a gross receipts tax that is almost as much as the property tax.”
Examining the bill
A close look at a Connecticut electric bill reveals charges that have nothing to do with the cost of electricity. The money is used to fund social and energy programs created by state lawmakers.
For example, ratepayers pay a 0.1 cent per kilowatt hour each month to the state’s Renewable Energy Investment Fund, which helps fund renewable energy projects.
Other so-called public benefit charges fund financial assistance and education programs for low-income customers, provide fuel assistance for needy families, help replace aging boilers and pay for conservation and energy efficiency programs.
State officials estimate that an average $150 a month electric bill includes $20 in fees mandated by public benefit charges.
“They don’t have to pass those programs,” said Blair, the CBIA official, referring to lawmakers. “They think it’s important public policy but they have to understand it comes with a cost.”
Blair also pointed out that renewable energy is more expensive than oil and gas fired electricity, and Connecticut discourages development of new pipelines and transmission lines.
Connecticut requires that electric companies purchase a percentage of renewable energy. Gov. Ned Lamont recently mandated that Connecticut buy only carbon free power by 2040.
“Other states have not added so many components to the delivery charge, such as getting to zero carbon,” Blair said. “It’s a laudable goal but getting there quickly is likely to add more costs to an already costly state.”
State Sen. Norm Needleman, D-Essex and co-chairman of the energy committee, acknowledged renewable energy sources initially cost more to build than traditional oil or gas-fired electric plants.
But Needleman said over time non-carbon sources, such as wind and solar, become less expensive to operate.
“Any power source that doesn’t have a fuel is going to do better when you get to the point that you can use it for baseline power,” he said.
Connecticut has been aggressive in securing contracts for renewable energy, recently inking deals for 252 megawatts of power. That includes the Revolution Wind venture set to provide 200 megawatts of electricity from a wind farm off Rhode Island’s coast.
Other New England states are pursuing renewable energy, although at varying speeds. Maine expects that 80 percent of its power will come from renewable sources by 2030; Massachusetts 35 percent; and Connecticut 44 percent.
In a statement on its website, ISO New England, which operates the regional grid and oversees the energy market, said the race is well underway to buy renewable energy, while noting it comes with a cost.
“Because large-scale renewable resources typically have higher up-front capital costs and different financing opportunities than more conventional resources, they have had difficulty competing in the wholesale markets,” the agency said.
“Competitive with neighbors”
The Regulatory Assistance Project, a Vermont-based think tank dedicated to clean energy, pointed out in a 2019 paper that the average household in Massachusetts pays 34 percent more for electricity than the average Maine household, while the average household in Connecticut pays 60 percent more.
“This variation in electricity bills is greater than in any other U.S. region,” RAP noted. “This does not make sense.”
RAP considered a variety of factors – geography, transmission lines, labor costs, utility performance, wholesale prices, monthly usage and the renewable energy mix – in assessing why New England’s electric rates vary greatly from state to state. Their conclusion? They couldn’t figure it out.
“The answers may be historic and particular to each utility and jurisdiction, which is even more unsatisfying because these are real prices people face every day,” RAP said.
“Acknowledging and defining a problem is the first step toward addressing it,” the group said. “Perhaps adopting rate and efficiency benchmarks and examining utility performance for what customers pay is a good place to start.”
Marissa Gillett, chairwoman of the state Public Utilities Regulatory Authority, said there are numerous factors involved in why Connecticut’s electric bills are higher.
“There are three different driver components of the bill: supply, delivery and state and regional cost,” Gillett said.
“We are competitive (on supply) with our neighbors but not with rest of the country and on delivery we are competitive with our neighbors but not the rest of the country,” she said. “The public policy (charge on bills) is something that the state has leveraged, and not every state has chosen to do that.”
Gillett pointed out that PURA sets only about 30 percent of the state’s electric rates.
The biggest component in the price of electricity – the cost of buying power – is set by the market. Other fixed costs include federal state mandates and the public benefit charges.
Still, Gillett said a more aggressive PURA can use its authority to limit electric rate increases.
“I think there is room for improvement in how PURA holds utilities accountable and the degree we apply our oversight role should have downward pressure on the distribution side of the bill,” Gillett said.
PURA is considering new performance standards to judge the state’s electric companies and change the criteria that must be met to obtain a rate increase. The new standards would apply to all aspects of their business, from restoring power after big storms to day to day operations.
“You reward a profit based on how well or not they performed,” Gillett noted.
Needleman, the state senator, pointed to deregulation as a major factor in high electric rates.
Twenty years ago, electric companies in Connecticut and most of New England – Vermont did not deregulate – were prohibited from operating power plants and the generation responsibility was transferred to the private sector. Consumers were given the choice of buying electricity from a traditional electric company or a third-party provider.
The overlying theory was that increased competition for production and electric contracts would drive costs down.
“I’ve met very few who think deregulation was a good idea,” Needleman said. “Most of us say this has not worked the way people thought.”
Needleman said that while energy prices fell after deregulation, most of that decrease is attributable to a huge drop in natural gas prices.
“When you say you can no longer make the product you sell, the guy making it is going to make the profit,” Needleman said. “It has not offset the cost of distribution. They (utilities) can only make money on that.”
Mitch Gross, a spokesman for Eversource, the state’s largest electric company, said Connecticut’s distribution cost – the price for delivering electricity to homes and businesses – is in line with utilities across the country.
“Roughly half of New England’s electricity is produced using natural gas, and since we’re at the end of the gas pipeline, the transportation costs to get that fuel here drives prices up,” Gross said.
He said there are “mandated state policies” that must be included in the electric rates and that the rates reflect expensive rebuilding of lines and other improvements designed to increase reliability and resiliency.
“Connecticut has also experienced a reduction in its large and commercial manufacturing customers, which results in less revenue and higher rates,” Gross added. “We pay a significant amount of state taxes, including property and sales taxes.”