energy forum presentation by rep. vickie nardello

8/14/2019 Energy Forum Presentation by Rep. Vickie Nardello

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Addressing High Energy Costs

A Historical Perspective andRecommendations for the Future

Vickie Nardello

Connecticut State Representative

Chair, Energy & Technology Committee


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1998 Deregulation Passed

Leap of Faith

Promised lower electric costs

No regulation of electricitygeneration

Private unregulated companiesallowed to own electric plants


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Customers received an 8% discount

Utilities purchase power fromindependent power producers

Utilities no longer control price ofproducing electricity

Electricity rules set by ISO-NE


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Price is capped through January 1,2004

Price is set above actual cost ofpower

Competitive suppliers do not enterthe market because they need a

higher price to cover their costs


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Restructuring in 2003

Customers split into two groups

Residential and Small Business

Large Industrial Those with a peak demand of over

500kilowatts

Large customers forced into the market to

buy power


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Options for Electricity Purchasing

Buying it from the market through acompetitive supplier Purchasing through the public utilities

Utility price set by the cost of contractswith private generators

10% increase for small customers

Variable increases to large customers

Price volatility introduced


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January 1, 2007 Full Market System

Two Classes of Service

Prices for small users based on themarket

Standard service product

93% of customers remain withutility

Utility purchases one, two and threeyear contracts


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Standard of Last Resort (SOLR)

Service

Only for large users (over 500 kW)

Very large increases to large customersUtilities are required to offer this to anyone

at any time who leaves a competitivesupplier

Customers can leave this product at any timeand choose a competitive supplier

Volatility results in the high risk premium

Creates an artificially high rate forcompetitors to beat


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Unintended Consequences

High benchmark price Cost to state businesses rise dramatically Prices increase 30 -50% for businesses Prices for homeowners increase 30% Businesses are forced to seek out

competitive suppliers

Competitive price their product on thebenchmark price instead of cost Not real competition because suppliers

know the price they are competing

against


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Limitations of Bidding System

Initially private generators sold directly toCL&P and UI

Now private generators sell to hedge

funds Hedge funds trade the electricity and then

sell it back to Connecticut at high markup Some of the same companies that bid to

set the price now sell it in the competitivemarket Connecticut consumers overpay


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Options for the Future

Our Two Main Choices: Option 1:

Staying with a competitive market even if it

does not yield lower prices Option 2:

Seeking new policies that lower prices for allratepayers


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New England States See Higher Rates

Since 1999 rates in Connecticut have gonefrom 68% higher to 109% higher thanregulated states

Connecticut and Massachusetts ratesdoubled in the last 10 years

Rates in states that did not sell their electricplants did not increase as rapidly


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New Hampshire and Vermontsrates rose 19% and 17%

New Hampshire still owns someplants

Vermont kept regulation

Rate Increases Differ Between

New England States


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Integrated Resource Plan

The Integrated Resource Plan for Connecticut showed that ifConnecticut went back to a system where electricity was pricedbased on cost rather than the market it would save 82% in 2011,72% in 2013, and 68% in 2018

The plan demonstrates that cost of service prices fall belowmarket prices


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Electricity Markets are Different

Electricity is an essential need

Electricity cannot be stored

No product differentiation betweensources of electricity

High barriers to entry

Inelastic demand


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Consumer Paid Too Much

Since 2000, Connecticut consumerspaid 1.5 billion dollars more forelectricity than those in regulatedstates

The benefits of eliminatingregulation went to the power

producers not the ratepayer


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Markets Raised Prices for Consumers

an average difference of 2-3 centsof electricity costs result from themarket

The market created efficiencies

Efficiencies did not go to consumersbut rather to generators


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Robert McCullough demonstratedthat non fuel price differencebetween regulated and unregulatedstates was 2.5 cents in 2007


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Market Policies Leading to Costs

Limitation on how utilities procure power Long term contracts discouraged Plants paid as gas plants regardless of fuel type Utilities no longer own plants for customer benefit Customers pay for capacity separate from the

energy price Splitting customers into two groups Pricing for large customers monthly and based on

spot market prices Risk factor introduced in pricing


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Results of Market Policies

Electricity contracts based onhighest possible price

Old plants are paid extra becausewe need them

Risk transferred to consumer Generators no longer sell directly to

utilities -sell to hedge funds Sell at $65 a MWH but funds bid for

the contract at $120


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Results Continued

Extraordinary profits for owners ofinexpensive non gas generation

Connecticuts nuclear plant earned 56%

profit in 07 and coal plant earned 110%profit Brokers and aggregators act as

middleman raising costs and keepingprices high

Middleman set price of electricity thencompete against a price that they set.


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Legislative Solutions that Give

Immediate Rate Relief

Create a utility product for largecustomers to produce the lowestpossible rate to compete with

Tax generators with extraordinaryprofits

Use the tax to fund a rebate oncustomer bills

Rates will be reduced by a minimumof 10%


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Long Term Solutions to Reduce

Electricity Costs

Allow utilities to own generation

Support a public power authority

Require power from future plants tobe sold based on the cost toproduce the power

Invest in efficiency measures


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Legislative Solutions

Public Power Authority

Support a Public Power Authority Authority mission is lowest reasonable

cost Authority will provide transparency and a

benchmark price Authority has no shareholders, power of

the state for financing and favorable taxpolicies

Authority will cost $2 per year perratepayer and can save 20% Authority takes back state control


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Legislative Solutions

Windfall Profit Tax

Nuclear and coal plants are currently paidas if they are gas generating plants

Cost to produce electricity are 5-6 cents

yet plants get paid 10-12 cents Windfall profits are created by the market

rules that are set by the industry

Windfall profits tax directly rebated to

customers estimated at 416 million


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What Did Competition Bring Us?

Ten years of increasing prices 92% of customers pay higher price to

give 8% of customers choice Customer choice benefits sellers not

buyers Customer choice raises prices through

middlemen Competition in name only

Price to beat is set artificially high Complex electricity contracts for our

towns and businesses


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The System is Broken

Electricity is an essential need

It should be reasonably priced

based on cost The wholesale market is easy to

manipulate

Do we want the ability to choose ordo we want lower prices

We need to fix this system now


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Action Needed

Contact Senators and State Representatives Express dissatisfaction with the current system Stress electricity as an essential need that must

be reasonably priced not based on what the

market will bear Testify at public hearings Build coalitions with other supportive groups Email and ask a friend to email your reasons why

high prices hurt your budget

energy forum presentation by rep. vickie nardello

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