On the Friday before Christmas, while families in Connecticut were dealing with the first major storm of the winter season, United Illuminating’s President & CEO published an op-ed blaming power plant operators and an “irrevocably broken” electricity market for rising rates. As the head of the organization that represents those plants, I feel compelled to set the record straight.
United Illuminating is owned by Avangrid, which in turn is owned by Iberdrola, the behemoth utility conglomerate headquartered in Spain. UI, Avangrid, and apparently Iberdrola, are playing a duplicitous game that should leave no one amused.
In recent years, Avangrid has been failing in everything from cost controls and budget management to project execution, storm response, and customer service. These shortcomings have resulted in millions of dollars in fines and apparently prompting them to lash out. This utility company looks desperate, and its claims would be laughable if they were not also dishonest and misleading.
Electricity production and delivery can certainly be a challenging industry and 2022 has seen extraordinary inflationary cost pressures across the economy. A person only needs to go to the grocery store, the gas station, or apply for a mortgage to see the changes this year. Nowhere are these increased prices more acute than for energy supplies and inputs. Everything from natural gas and oil, to lithium, copper, and steel – key components in batteries and renewable generation – have seen massive volatility and scarcity in supplies.
We here in New England are feeling these impacts acutely, exacerbating an already tight operating environment for electricity in the winter months. That overall situation has led to electricity supply costs in utility default service rates to rise significantly. For more details, my organization recently put together an explainer on this.
Fortunately, consumers in Connecticut – and across New England – have real alternatives. Thousands of residents and businesses in Connecticut do not receive their electricity through the utility default rates but instead are seeing significant discounts through municipal aggregation, or competitive retail supply. For example, in the UI service territory there are over a dozen offerings for fixed prices 6, 12, and 18 months at nearly a 30% discount to the default electricity rate.
Connecticut, and its utilities, also have choices in how electricity is purchased. The default procurement structure of buying all electricity needs in a single year does not provide the stability that many want, and reforms can be thoughtfully considered by the legislature and regulators.
UI and Avangrid though point to a more nefarious cause of coordinated actions of power plants to drive up prices. These are serious accusations. Although, the facts get in the way of the fairy tale Avangrid would have you believe.
What the Competitive Electricity Market Really Provides
Nearly 25 years ago Connecticut and other states across the country got utilities out of the business of building and owning power plants with guaranteed profits. Plants today compete against each other every single day in a New England-wide market. Just this past weekend, through a storm and freezing temperatures, a diverse set of fuels and technologies helped keep the New England grid going even as public calls for energy conservation occurred in other regions.
It is that competitive pressure that drives enormous gains. The efficiency of power plant operations has gone up 20%, while wholesale electricity prices dropped 40% since Connecticut restructured the electric industry. Even with some seasonal volatility, and inflation impacts this year, the overall trendline is creating consistently more affordable energy prices coming out of power plants.
At the same time, tens of billions of dollars in new and upgraded plants have been invested in Connecticut and neighboring states without profits guaranteed through regulated rates. New power-generating units in places like Bridgeport, Oxford, Wallingford, and more, along with upgrades at dozens of other communities in Connecticut are providing jobs, higher community funds for public services, and economic growth for the state. Dozens of plants across Connecticut employ nearly 2,000 workers dedicated to serving their communities.
Electric competition has also helped lead to a remarkable 60% reduction in carbon dioxide emissions from power plants in New England since utilities stopped owning these facilities. These reductions will help to enable electrification to supercharge economy-wide decarbonization in the years to come.
Avangrid’s Troubling Track Record
Now that they don’t own power plants with assured returns, over the last 25 years Avangrid and other utilities have been building out the transmission and distribution network – considered to be one of the last natural monopoly areas left in the U.S. economy.
With that monopoly the cost of large-scale transmission has gone up by 800%. That is a fact worth underscoring: Wholesale transmission rates have gone up 800% for consumers.
All of that transmission spend has occurred with guarantees of cost recovery for every dollar spent by Avangrid and its utility companies, plus double-digit rates of return. Not a bad business, if you can get it.
Avangrid’s Failures to Fulfill Promises
Avangrid and others now see a new opportunity for big revenues – offshore wind.
In the rush to establish New England as a hub for offshore wind, utilities have been signing 20-30 year contracts to develop those projects. But upending the market structure of the last 25 years, they are now on both sides of the agreement – as the developer and the entity signing contracts, purportedly on behalf of consumers.
In Massachusetts, Avangrid is developing a 1,200-megawatt project called Commonwealth Wind. Avangrid signed and agreed to contracts just this spring, after receiving a guaranteed fixed price from ratepayers for the power it would produce. Less than six months later Avangrid demanded to renegotiate those prices. Massachusetts regulators told them no.
Now, Avangrid is walking away from their obligations to Massachusetts because they could not compete and deliver on the price they themselves promised.
Avangrid has lumped Park City Wind, a similar project to be paid by Connecticut consumers, in the same precarious category. Is the Massachusetts experience the ghost of Christmas future for Connecticut?
Avangrid’s failings go to even the most basic functions of a utility: to build out the transmission wires and maintain confidence in customer relationships.
Just a couple of weeks ago Avangrid announced that one of its major transmission projects is nearly 75% over budget, costing consumers at least $150 million more than expected. It’s not even finished yet, so consumers could be on the hook for even more.
Worse still, Avangrid’s Maine utility, Central Maine Power, has ranked dead last in customer service among all utilities in the country.
This is the very company that is now saying that it should be the one to manage the electricity supplies for Connecticut consumers. That’s a return to the worst parts of the old monopoly utility regime.
Really?
How to Actually Move the Ball Forward
What I do agree with is that the electricity markets need to continue to evolve. For example:
- Connecticut policymakers have a critical role to examine and improve how default service is secured.
- New England as a whole needs to better value electric reliability, and what resources deliver that reliability, to get through these tough winter seasons.
- Decarbonization mandates should be priced into the market to facilitate large-scale clean energy investments and discipline operations.
- The services that are necessary to meet changing consumer needs should be constantly examined, particularly with more electric vehicles, heat pumps, rooftop solar, batteries in garages, and more coming.
As the calendar turns to 2023, generators welcome the opportunity to engage with the new legislature and the second term of the Lamont administration. But let’s dispense with the blame game and focus on solutions to create competitive prices that support reliability in meeting a decarbonized future.
Let’s now do the hard work of making the electricity market function even better and power Connecticut’s economy for years to come.
