energy forum presentation by rep. vickie nardello
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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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1998 Deregulation Passed
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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1998 Deregulation Passed
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
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