Gov. Dannel P. Malloy’s latest strategy to reduce the state’s energy costs comes less than a year before the state is scheduled to sunset a first-of-its-kind tax on electricity generators.
It was the only part of the second largest tax increase in the state’s history to include a sunset provision, but industry insiders are wondering if Malloy and the legislature will allow the tax to expire or if they will keep it on the books to help balance the two-year budget.
“I don’t think we’ve reached any conclusion with respect to that,” Malloy said last week after unveiling his new energy strategy to a group of business and industry leaders.
“Clearly, we’ve been effective in lowering the cost of energy in our state by over 12 percent on average and even more in the industrial arena,” Malloy said. “So with or without the tax we’re lowering the costs.”
But Dan Dolan, president of the New England Power Generators Association, said he’s hopeful the governor and the legislature will allow the tax to expire because it is having an impact on rates.
“It’s already added to the price of electricity,” Dolan said. “Ratepayers haven’t felt it yet because of the historically low natural gas costs.”
Aside from nuclear, most of the state’s generators are fueled by natural gas.
“Even though rates came down, they came down despite that tax,” Dolan said.
He said he hopes Malloy will consider allowing the tax to expire because it does make Connecticut less competitive in the energy market than neighboring states like Massachusetts.
He said rates may have come down 12 percent in Connecticut, but they’ve gone down 20 percent in Massachusetts.
“It’s a punitive tax on a single sector,” Dolan said.
Sen. John Fonfara, co-chairman of the legislature’s Energy and Technology Committee and a supporter of the generation tax, doesn’t disagree with Dolan.
He said they’re gathering evidence and information which tells them the tax is having an adverse impact on electricity rates in Connecticut.
Rep. Vickie Nardello, the other co-chairwoman of the Energy and Technology Committee, said the tax needs to be looked and it needs to be determined whether the state needs it to balance the budget.
Good government groups like the Connecticut Citizens Action Group have called on the legislature to tax the “windfall profits” of electric generators for years arguing that ratepayers have been footing the bill for far too long.
“We feel it’s only fair in these times that corporations that had made excess profits be taxed at a rate that will still give them a fair rate of return,” Paula Panzarella, a member of consumer group called Fight the Hike, said back in 2011 when the tax was being debated.
“We did that because we felt there was an unfair element to the way that people were being able to take advantage of the current system,” Nardello said explaining the impetus for the tax.
However, Nardello and Fonfara don’t believe the governor’s proposal took into consideration how electricity is sold on a regional basis or the difference between gas generators and nuclear generators.
Since generation is sold regionally, if there’s an out-of-state generator who isn’t being taxed, it’s more likely to be chosen than a Connecticut generator.
“We’re gathering that information to see if that kind of perverse impact is happening,” Fonfara said.
He said he understands the governor did not intend for the tax to cause electric rates to go higher, but “that is a consequence of a Connecticut only tax.”
“If it disproportionately affects gas generators — the way it was set up did — what John said is exactly right,” Nardello said.
She said it’s not the power from the nuclear plants that clears first, but the power from gas powered generators. She said nuclear power runs no matter what, so Dominion which owns the Millstone plant, is being impacted the most by the tax.
Fonfara and Nardello did offer an alternative generation tax which raised more money, but did it in a way they thought would “be much fairer to generators and less costly to ratepayers.”
