It was an unsettling summer in Connecticut on the energy front.
Record July heat and a reversal in wholesale energy prices combined to create a spike in consumer electric bills. That touched off protests and the inevitable political maneuvering that is shaping up as a November election issue.
Then Connecticut invited questions about its commitment to a carbon free world when it abruptly and without explanation backed out of a groundbreaking, three state, offshore wind energy auction – an auction it promoted and helped organize.
In the background, regulators and the state’s utilities were not budging in a bitter disagreement over profitability that has consequences for an orderly transition to an all-electric, carbon-free economy.
In an expansive recent interview on the subject of energy, Gov. Ned Lamont began to answer questions that have piled up in recent weeks. In doing so, he laid out what he sees as parts of the state’s energy future, something to which he referred repeatedly as perhaps Connecticut’s greatest vulnerability.
“It is the biggest Achilles heel the state has,” said Lamont, a two term Democrat and the subject of speculation about whether he will pursue a third. “The high price of electricity.”
“Everybody says it’s politics and protesting, which is true,” he said. “But ever since I came here, the location firms, which are talking to corporations about where they want to locate, have said, ‘Connecticut, you know, they are slowly getting their fiscal house in order. Labor is something you can manage, especially the trades. But their electricity prices are in the top five in the country.’”
“And so we have been focused a lot on reliability and affordability and green, in that order,” he said.
Among other things, he said:
Connecticut is committed to offshore wind energy. It has an existing contract with Rhode Island to buy a relatively small amount of energy from Revolution Wind, a project staged from New London and under construction south of Block Island, and is simply waiting for the right price point to jump back in.
The state’s power purchase agreement with Dominion Energy’s Millstone nuclear power station, which he negotiated and which is at the center of rate protests, is misunderstood, Lamont said. It has saved consumers as much as half a billion dollars in recent years as the price of natural gas relative to nuclear power has shifted, in addition to accounting for most of the state’s contribution to the New England-wide energy supply .
He continues to support Marissa Gillett, his appointee to chair the Public Utility Regulatory Authority, in her protracted dispute over what the state’s two electric utilities argue are unfair decisions that threaten their financial stability. He called the dispute a distraction from the more important issue of expanding the regional energy supply as Connecticut and New England prepare for the jump to decarbonization and an all-electric economy.
The state is working with private contractors to develop a residential energy efficiency program that would allow homeowners to pay for solar panels, heat pumps, insulation and similar improvements by sharing their savings in energy costs with the contractors.
Wind energy
Offshore wind is an extraordinarily expensive, capital intensive proposition. Supply chain constrictions, inflation and years of increases in interest rates killed several projects involved in an earlier round of wind solicitations, including Park City Wind, which was to have been Connecticut’s largest.
Lamont said he believes wind prices have yet to bottom out, meaning the first of its kind, tri-state Connecticut, Rhode Island and Massachusetts auction — designed to cut costs by increasing project scale — was scheduled too early, particularly in view this week of the first of what could be a succession of interest rate reductions.
“I killed the Park City deal a couple of years ago,” Lamont said. “I just thought it was too expensive. That was before anybody was paying attention to affordability. I thought we should wait. I thought wind was peaking as a cost.
“We have some time. We will take a look at what they have come to terms with. I mean, if I was part of that negotiation, I would say, ‘We had a fifty basis point cut today, let’s assume we are going to have another over the next couple of months.’
“And we are waiting to see some of the noise coming out of Washington, D.C. Maybe some of the investment tax credit for wind will be increased, maybe 25 percent. That would make a big difference.”
In the meantime, Connecticut’s absence could threaten one offshore project. Massachusetts committed to buying 800 of the 1200 megawatts of electricity to be produced by Vineyard Wind 2, one of the three winning wind projects in the auction. Without a commitment by one of the states to buy the remaining 400 megawatts, the project may be in jeopardy.
“They would like it to be Connecticut, to be frank about it,” Lamont said. “I’ve reserved judgment on that. I said. ‘Let’s see the bid and see what it comes in at.’ Then everybody has a different appetite depending on the cost.”
Bids in the recent tri state auction won’t result in power generation for years. But industry experts have said that, if wind energy were added to the regional energy grid at a currently estimated prices, it could cause Connecticut bills to double or triple
The previously awarded and under construction Revolution Wind project is expected to deliver electricity to Connecticut at about 10 cents a kilowatt hour, Lamont said. The bid awards earlier this month are believed to have prices approaching twice that.
“So anyway, we will see where we are,” Lamont said. “I think wind is going to be a big piece of our energy future, whether you do this round or the next round. It depends on interest rates and shipping and delivery costs. But I’m really cautious about our electric rates right now.”
Millstone Nuclear Power Station
Lamont said a decision on the future of the Millstone power station in Waterford was waiting for him when he arrived in office in 2019.
“I’ll tell you, it was the first thing on my agenda on day one when I came into this office because at that point Dominion was ready to or at least threatening to pull the plug on Millstone and I figured the first thing on energy is to do no harm,” he said.
Cheap natural gas was closing nuclear plants around the country and Dominion wanted a guarantee from Connecticut, a power purchase agreement, before it would commit to continued operation. Former Gov. Dannel P. Malloy and the legislature approved a deal in 2017 and Lamont said he was faced with negotiating the terms.
“We are at the end of the supply chain and we don’t have a lot of control over our sources,” he said. “That is why keeping Millstone going was so important.”
Connecticut also had a commitment to producing energy to supply the New England region, which is treated by federal regulators as a single entity.
“At that point, the other governors said, ‘Well, Millstone is in your backyard so why don’t you do Millstone?’ So we did Millstone.”
The power purchase agreement was negotiated as a hedge against fluctuations in energy costs, meaning it was written to ameliorate big swings in the costs of various kinds of energy, which in Connecticut means, essentially, natural gas and nuclear.
Lamont said he insisted on a contracted price of 4.99 cents a kilowatt hour. If natural gas rises above that price — and it soared above it following the Russian invasion of Ukraine — Connecticut consumers benefit by paying the lower, contract price for nuclear power. But if natural gas falls, as has now happened, the state is locked into buying nuclear energy at the higher price.
Most of the rate shock that led to the widespread utility bill complaints over the summer was the result of increased power consumption during the hottest July on record. Exclusive of the heat related consumption, there was an average $7.58 monthly increase for Eversource and United Illuminating customers to cover the cost differential between unusually low gas prices and the Millstone contract price.
Although Lamont would not discuss it in detail, industry and government officials elsewhere in New England said Connecticut is interested in somehow spreading out its Millstone costs by bringing other New England states into a Millstone deal when the state’s contract runs in 2029.
“Look, it’s better if we do it together,” Lamont said. “Right now Connecticut takes all the risk. We have all the down side and all the upside. We made $250 million on the Millstone trade back when Putin was invading Ukraine and the price of natural gas was through the roof.
“But now we are getting crushed because natural gas is almost free, there is so much of it. And it is costing us something like $250 million and that is why we are hearing from ratepayers. And so, if we could share that with the rest of the region, wouldn’t that be good? The answer is yes.”
Industry observers have suggested a trade of sorts is possible: A Connecticut commitment to Vineyard Wind 2 over the next three months while terms of the current tri-state solicitation are being hammered out. In return, Massachusetts would join in a new Millstone contract. Earlier this month, Massachusetts Gov. Maura Healy asked for legislative authority to participate in energy purchases, like a Millstone deal, with other states.
Lamont declined to discuss the matter.
“You’d have to ask her,” he said.
He sounded hesitant as well on a subject related to Millstone, a proposal to build a massive data center in Waterford that would receive power by plugging directly into the nuclear generating plant.
“I have strong thoughts,” Lamont said. “I’d love to have a data center there. When it comes to AI, I want Connecticut to be positioned as a leader. Not a follower. And data centers help tell that story.
“The problem is that they suck energy like there is no tomorrow. It was explained to me that the one they are proposing alongside Millstone will use as much power as Bridgeport and Waterbury combined.
“And remember this is baseload power. So if there are brownouts and it is super hot in July, you’re dimming the lights at nursing homes but keeping the data center going. So I think you pay a premium for that type of luxury. So that is part of what that negotiation is about.”
Public Utility Regulatory Authority
When it comes to what has at times looked like a death match between the state’s major utilities and Lamont’s chief regulator at the Public Utility Regulatory Authority, Marissa Gillett, Lamont remains in Gillett’s corner.
“I think the utilities think that Marissa has been too tough on them,” he said. “And Marissa thinks that maybe they got away with a lot over the years. And I say the idea of giving everybody a guaranteed rate of return regardless of their performance runs counter to my life experience.
“So let’s think about performance based regulation where they earn more if they deliver the goods and less if we have another icey situation where their performance is subpar.”
Lamont’s suggestion that, under Connecticut’s regulatory scheme, utilities are guaranteed profit at a predetermined level regardless of performance not only infuriates utilities, it is wrong.
Under state regulatory law, after a year or more of analysis of utility spending — an investigation that can cost the companies as much as $1.5 million — PURA sets a rate of Return on Equity for the companies. The ROE is a measure of how much the utilities are allowed to profit on the hundreds of millions of dollars they invest annually in the delivery of electricity.
The ROE is the maximum the utilities are allowed to earn. If they exceed the ceiling, they are required to return the excess to ratepayers.
Nationally, utility ROEs average at about 10 percent; in Connecticut they have historically been slightly lower.
Eversource said that ROE for its CL&P and Aquarion water units are in the 6 percent range. United Illuminating president and CEO Frank Reynolds said last month that UI’s ROE plummeted to 3.94 percent, meaning the company is making less that it spends to borrow the money it spends on distributing electricity.
Lamont’s office and the state Office of Consumer Counsel have said any unprofitability is the result of poor management.
Both utilities deny the characterization and assert that they are earning far beneath their ROE limits because what they call arbitrary and unfair decisions by PURA are preventing them from recovering, through customer electric rates, money they invest in their electric distribution systems.
Wall Street, where the utilities turn for the capital and debt to fund operations, has joined the dispute on the side of the utilities
In June, Moody’s Ratings downgraded Eversource’s Connecticut Light and Power unit to a negative outlook based largely on “an inconsistent and unpredictable regulatory environment.” A month earlier, S&P Global Ratings lowered United Illuminating from stable to negative in “view of an increasingly challenging regulatory environment in Connecticut.”
Eversource has said it is redirecting money it planned to invest in its Connecticut operations to other states, such as Massachusetts, where it believes it has a greater likelihood of recovery.
Neither side in the dispute has shown signs of backing down, in spite of attempts by Lamont at mediation, and rate cases appear to be headed to court.
Energy Efficiency
Lamont said too much attention is paid to regulatory issues, like what percentage of customer bills pays for delivering of electricity and how much is directed to public benefit programs, like government-mandated clean energy initiatives and social welfare programs.
“Sometimes we spend too much time on PURA and not on asking, ‘What are our energy sources going to be in the future?’” he said. “It is a matter of supply and demand. Our demand is going up and our supply is not going up fast enough.
“On the demand side, utilities drive you a little crazy. They run around telling the legislature that the whole reason your energy bills went up is because of the public benefit stuff. That is just nonsense. We are coming out of the hottest July in history. Twenty percent of the energy bill is public benefits and 80 percent of the 20 percent is related to Millstone, which everyone in the legislature agrees we ought to do together. So everybody is arguing about 20 percent of 20 percent.”
Thousands support petition demanding CT dump public benefits charge on energy bills
Lamont said he is working to increase the state’s participation not only in wind, but in battery storage, solar and hydro-power, which has proven difficult because most of the hydro capacity in northern New England and eastern Canada is taken.
Over the short term, he believes efficiency has been overlooked.
“It saves middle class homeowners money, he said. “It saves demade on our grid. And the energy it uses doesn’t pollute.”
Lamont said the administration is working with private companies to develop a program under which contractors would be hired by homeowners to run an energy audit and carry out an array or improvements such as the installation of solar panels, heat pumps, improved insulation and more.
The contractors would be paid through the savings in energy costs. On savings of 20 percent year, the contractor might take 15 percent until he recovers his cost. The contractor would assume the risk while taking care of tax incentives, clean energy grants and related paperwork.
Lamont said the state would probably contract out administration for the program to a private company. He said there already is a company that performs the service now for commercial clients.
“They take all the capital costs, all the maintenance and share the energy savings with the company,” he said.
