For years, Connecticut residents have paid some of the highest electric rates in the country, causing many homeowners and businesses to wonder why their bills are so steep.
Connecticut residents pay the highest electricity rates among all 48 continental states, according to the U.S. Energy Information Administration.
Customers in Connecticut on average pay 17.24 cents per kilowatt hour of electricity, almost seven cents higher than the national average of 10.41 cents. On a standard monthly residential bill of 750 kilowatt hours of energy, Connecticut residents pay $51 dollars more than the national average. Electricity rates across the Northeast are higher than other areas of the country. All six New England states and New York rank in the top-ten.
In light of recent electrical bill spikes seen by some Eversource Energy customers, the Record-Journal examined some of the factors that experts say result in the high cost of electricity in Connecticut and the Northeast.
1. Reliance on natural gas
New England depends more heavily on natural gas to generate electricity, while other regions rely more on less-costly coal.
According to a report last year by the state Department of Energy and Environmental Protection, “the use of natural gas to generate electricity in the New England region has grown from 15 percent in 2000 to 49 percent today. At the same time, oil and coal have declined from 22 percent and 18 percent in 2000 to 2 percent and 4 percent respectively in 2016.”
Much of the increase in electricity costs is tied to fluctuations in natural gas prices. In 2016, New England’s wholesale electricity prices were the lowest in 13 years, largely due to low natural gas prices, according to ISO-New England, the independent operator that maintains the region’s electricity market.
New England’s reliance on gas is partly driven by environmental legislation.
“Part of the reason why New England uses more natural gas and less coal than other regions is its air quality standards. The New England states have among the most stringent emission standards in the country for nitrogen oxides, sulfur oxides, and other pollutants. Emissions of these pollutants from natural gas plants are lower and easier to control than those from coal plants,” a 2014 report from the state Office of Legislative Research said.
There are several clean and renewable energy requirements approved by New England states that factor into the price of electricity.
“All of the New England states, except Vermont, have mandated renewable portfolio standards (RPS) that require part of the power sold in these states to come from renewable resources,” the 2014 OLR report said. “Connecticut has also directed its electric companies to enter into long-term commitments to purchase electricity from various renewable energy projects. These commitments and the RPS requirements could increase the overall cost of power if the price for the renewables is higher than the price for power produced from other sources. However, renewables may also help mitigate other expenses by limiting increases in peak demand, reducing system congestion and transmission costs, and reducing the need for various distribution system infrastructure upgrades.”
2. Lack of indigenous resources
While Connecticut relies heavily on natural gas for power, the state does not have any natural gas reserves or underground natural gas storage facilities. Connecticut receives its natural gas supply from interstate pipelines.
“Historically, natural gas was brought in from producing areas in Canada and from the U.S. Gulf Coast and Mid-Continent regions,” according to the U.S. Energy Information Administration.
New England’s geographical position puts it at a disadvantage, Eversource Energy spokesman Mitch Gross said.
“It’s our geography,” Gross said about the region’s high costs. “Here in the Northeast, we’re at the end of the pipeline, so the transportation costs to get that fuel here drives our prices up.”
“We’re at the end of the energy pipeline,” said Eric Brown, senior counsel for the Connecticut Business & Industry Association.
In some cases, Connecticut lacks the infrastructure to tap into closer natural gas deposits, such as the Marcellus Shale in Pennsylvania.
“Our current pipeline system is not sufficient to import the amount of gas from the Marcellus Shale deposits that we need,” Brown said. “We have existing pipelines, but the capacity of those pipelines needs to be increased in order to get sufficient gas to the power plants.”
Because the demand for electricity in Connecticut has grown faster than the state's electric infrastructure in recent years, the transmission system became increasingly congested, according to a 2010 report by OLR. This congestion decreases the physical efficiency of the transmission lines, which increases the cost of power.
“While the region has seen a significant increase in demand for natural gas, the pipelines that carry the gas into New England have not expanded at the same pace, and have become increasingly constrained,” according to ISO-New England, the non-profit independent operator that maintains the region’s electricity market.
Connecticut's deregulation of the electric industry in the late 1990s required the electric companies, such as Eversource Energy, to sell their power plants and buy power on the wholesale market.
Deregulation gave customers the choice to purchase electricity through their electricity company, who would purchase electricity from generating companies and pass the cost to their customers, or get power through third-party electricity suppliers that they choose. Twenty-six percent of Eversource Energy electricity customers in Connecticut purchase power through a third party supplier, according Gross.
The legislature’s decision to deregulate was made with the belief that ending electric utilities’ monopolies and allowing marketplace competition would result in lower energy costs for consumers. However, since deregulation went into effect in 2000, the state’s rates have risen from 9.96 cents per kilowatt hour in 1999, the year before deregulation, to 17.24 cents in 2016.
“Deregulation has failed,” longtime Wallingford Mayor William W. Dickinson Jr. said.
A 2016 analysis by the state’s consumer counsel showed that “Connecticut consumers who used third-party retail electricity suppliers to allegedly save money in 2015 paid about $58 million more than they would have if they'd kept their standard service,” the Hartford Courant reported.
Deregulation also failed to yield lower electricity costs in 17 states that have pushed it since the late 1990s.
“An Associated Press analysis of federal data (in 2007) showed that consumers in the 17 deregulated areas paid an average of 30% more for power in 2006 than their counterparts in regulated states. That’s up from a 24 percent gap in 1990,” a 2007 story from the Associated Press stated.
4. Economic impact
A 2010 OLR report noted the “relatively high-cost” of doing in business in Conencticut affects electric companies, leading them to charge more for services in some cases.
Many municipal and business leaders say the state’s high electricity costs have an adverse effect on the business climate in Connecticut.
“It certainly has an effect that discourages location of business in the New England region,” Dickinson said. “Connecticut has the highest rates in the country. If you're a large company and you spend a lot for power, that would be a big deterrent to locate here. That’s a subject that needs to be dealt with by the elected people in the state capitol.”
Dickinson said lowering costs will take a “complete restructuring of electrical energy market.”
“It’s an absolute cornerstone to improving the economy in Connecticut and without reforms to that, it will be very difficult to restore the economy in Connecticut,” Dickinson added.
Brown agreed that the issue of high energy costs is “very important to focus on,” and he fears prices may hinder potential manufacturing growth in the state.
“Manufacturing potential is one of a few areas we have right now that's growing,” Brown said.
“But one thing that does challenge that growth is energy, because manufacturing, in general, is a high energy intensive type of business.”