You asked for a summary of the presentations made to the speaker's panel on electric rate reductions. OLR report 2010-R-0022 presents the recommendations made to the panel and other options to reduce electric rates and bills.

SUMMARY

The panel heard presentations on January 4 and January 11, 2010. On January 4, the panel heard from two Department of Public Utility Control (DPUC) commissioners and representatives of the Office of Consumer Counsel (OCC) and the Attorney General's office. The commissioners described DPUC's responsibilities, how it sets rates, and the status of competition in the retail electric market. The OCC representatives compared electric rates in Connecticut to other parts of the country and presented several explanations for the state's high electric rates. The attorney general's representative described several facets of the wholesale electric market.

On January 11, the panel heard from a variety of consumer groups, the electric companies, and the Connecticut Municipal Electric Energy Cooperative (CMEEC), which serves the state's municipal electric utilities. The consumer groups represented were the Manufacturers' Alliance of Connecticut (MAC), the Connecticut Business and Industry Association (CBIA), the Connecticut Conference of Municipalities (CCM), the Central Connecticut Chamber of Commerce, Connecticut Legal

Services, and AARP. The representatives of these groups described the state of the retail electric market and how Connecticut's electric rates affect their constituencies.

The representatives of the electric companies described the history of standard service, which they provide to small and medium size customers who do not choose a competitive supplier. They stated that the rates for this service are largely driven by the price of natural gas. They stated that four factors are likely to affect future electric rates: the price of natural gas, generating capacity costs, the costs of renewable energy, and federal requirements addressing greenhouse gas emissions.

JANUARY 4, 2010 PRESENTATION

Department of Public Utility Control

DPUC commissioners Kevin DelGobbo and Jack Betkoski began by describing DPUC's role in regulating the various types of utility companies. With regard to services that are still regulated, they noted that DPUC must balance the public's right to safe, adequate and reliable utility service at reasonable rates with the provider's right to a reasonable return on its investment. They also noted that DPUC also must address the adequacy, reliability, safety, and affordability of service and enforce consumer service protection laws.

They described the components of electric rates, including the generation service charge (the cost of power purchased by the electric companies) which accounts for about half of the total rate. They next described the process by which the companies procure power for their customers. By law, the companies must purchase overlapping contracts for this power. This mechanism partially insulated customers from the rapid increase in wholesale prices a few years ago, but also means it will take several years for customers to benefit from the subsequent decline in wholesale prices.

The commissioners described the status of the competitive market, noting that 16.8% of all customers have chosen a competitive supplier. DPUC has posted the rates charged by suppliers on its website.

In addition to setting rates for regulated companies, DPUC approves and electric company procurement for standard service; certifies Class I, II, and III renewable energy projects; and periodically adjusts the generation service and systems benefits charges, among other components of electric bills.

Office of Consumer Counsel

Joe Rosenthal and Richard Sobelewski began by describing OCC's responsibilities. They then compared Connecticut's electric rates to those in the rest of the country, noting that they are second only to Hawaii and higher than other New England states. They noted that standard service rates had declined slightly as of January 2010 as some high price wholesale electric contracts had expired. They also noted the close relationship between natural gas prices and electric rates and anticipated that natural gas prices should be stable in the foreseeable future, potentially reducing the volatility of electric rates.

Rosenthal and Sobelewski discussed the components of electric rates, noting that Connecticut's rates for transmission and distribution, as well as the power itself, are higher than the national average. Among the reasons they offered for these high rates are the fact that Connecticut does not use coal as a generating fuel, congestion on the transmission system which necessitated building new transmission lines, the generally high cost of doing business in the state, and the law that restructured the state to permit retail competition.

Attorney General's Office

Rich Kehoe described several facets of the wholesale electric market. In this market, generators whose production costs are above market rates but whose power is needed to ensure system reliability receive reliability-must run payments. These payments are negotiated between the generator and the Independent System Operator-New England (ISO-New England) based on the generator's cost of service and are subject to approval by the Federal Energy Regulatory Commission. All of the contracts expire in June 2010.

Another component of the market is the forward capacity market (capacity is the availability of a power plant to serve the market). ISO-New England determines the market's daily capacity requirements. Kehoe believes this process may reduce wholesale prices when the capacity market is competitive, as it is now.

Kehoe also described ISO-New England's Market Rule 1, which determines how energy prices are set in the spot market. Under this rule, ISO-New England estimates the amount of energy needed in the next day and meets this amount by choosing the lowest cost bids first. However, all of the successful bidders receive the price bid by the last successful bidder.

Kehoe also discussed the impact of ISO-New England's administrative costs on rates and the transmission planning process.

JANUARY 11, 2010 PRESENTATIONS

Consumer Groups

Jeff Gaudiosi from MAC noted that the vast majority of large electric company customers with demand over 500 kilowatts (approximately 90%) have chosen competitive suppliers rather than remaining on last resort service provided by the electric companies. He noted that the high rates charged for last resort service also affect customers served by suppliers, since these suppliers set their prices to be somewhat below last resort rates. He stated that he was not able to precisely determine the economic impact of high rates, but that it is significant.

Kevin Hennessey of CBIA discussed a survey the association had recently conducted. The survey found that 97% of the approximately 1,000 CBIA members who responded to the survey liked having the option of choosing a competitive suppler. The survey also found that energy costs remain a concern for CBIA members. He stated that CBIA staff have found that companies have become more sophisticated in understanding their options and how the market works. They also have found that companies are interested in using energy efficiency as a way of controlling their energy costs and have some interest in renewable energy.

Gian Carl Casa from the CCM noted that municipalities are subject to the same energy cost pressures as other customers. He noted that energy is a substantial cost for municipalities – for example Waterbury spends $2.7 million per year for its town facilities and $4 million for the Board of Education. Case noted that CCM serves as an aggregator for 130 municipalities, school districts, and related entities to provide them the lowest possible rates. He also observed that CCM's members are becoming more sophisticated about the energy market. He noted that performance contracting is another tool for reducing municipal energy costs that is explicitly authorized in other states but not Connecticut.

Mark Nicastro, president of the Central Connecticut Chamber of Commerce noted that the chamber represents a wide variety of businesses and other organizations. A major concern for his members is the certainty of costs. Members have also expressed concern regarding their ability to understand competing offers from suppliers. Nicastro also noted that the growth of information technology firms may increase electric demand.

Shirley Bergert from Connecticut Legal Services described the impact of high energy costs on low-income customers. She noted that New England has the country's fastest growing energy affordability gap (the difference between what a low-income household can afford to pay for energy and its actual energy bills) and that the gap is growing faster than in the rest of New England. She estimates that the average low-income household faces a shortfall of $2,400 after accounting for energy assistance.

John Erlingheuser from AARP noted that energy costs have increased at twice the rate of inflation as the overall consumer price index. He presented detailed information about the characteristics of households receiving energy assistance, including a finding that 24% of such households use medical equipment that requires electricity. He also noted that seniors pay a larger share of their income for energy costs and are more susceptible to death and illness due to extreme weather than younger customers.

In addition to these presentations, the Connecticut Industrial Energy Coalition (CIEC) which consists of major manufacturing companies, submitted written testimony. The testimony observed that Connecticut consumers currently pay the highest electricity prices in the contiguous United States and the second highest prices in the country. The average consumer in Connecticut currently pays nearly $0.18 per kWh, 75%, more than the national average and the state's industrial consumers pay more than double the national average price for electricity.

CIEC asserts that these high energy costs are a significant contributing factor to the decline in Connecticut's manufacturing and commercial sectors. Over the past decade, Connecticut's manufacturing sector employment declined by more than 27%, resulting in a loss of more than 65,000 jobs. Similarly, the state's retail trade sector has suffered significant contraction over the past decade. During this time, Connecticut experienced a loss of more than 16,000 jobs from its retail trade sector - a decline of nearly 9%.

Electric Utilities

Representatives of the electric companies made a joint presentation. They described the history of standard service and stated that the goals of the electric restructuring legislation were to provide access to electric service at stable rates while promoting development of a competitive retail market. They argued that DPUC rules have limited the options that electric companies have in procuring power for standard service and that this has contributed to high rates. They noted that gas prices are the principal factor affecting the price of electricity and that rates in Connecticut have closely tracked prices in Massachusetts. They stated that four factors are likely to affect future electric prices: the price of natural gas, generating capacity costs, the costs of renewable energy, and federal requirements addressing greenhouse gas emissions. They noted that natural gas prices are likely to be stable and that New England currently has adequate generation capacity, which could moderate electric prices.

Julie Cammarata described CMEEC and the municipal utilities it serves, which account for 4% to 6% of Connecticut's electric demand. She stated that CMEEC's primary role is to procure power at the lowest reasonable cost for the customers of the municipal utilities. She observed that CMEEC benefits from its tax-exempt status and is able to enter into long-term contracts. She noted that nationally the rates charged by public power utilities are below those charged by electric companies. In Connecticut municipal utility rates for all types of customers are lower than the rates charged by the electric companies. The current average residential bill for a residential customer using 800 kilowatt-hours per month ranged from $101.60 for customers of the Wallingford municipal utility to $148.25 in Bozrah, compared to an average of $168.15 for Connecticut Light and Power residential customers.

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