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Why Connecticut Light & Power’s Energy Rates Are Dramatically Increasing

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Gas Pipeline Constraints as Electricity Prices Rise

Last year, the Independent System Operator-New England (ISO-NE), which manages the region’s transmission grid and wholesale electricity market, has warned the region about becoming increasingly dependent on natural gas for both electricity and home heating, to the exclusion of all else.

Although shale gas from the Marcellus formation is plentiful and inexpensive, physically getting it to New England is a huge challenge. The six New England states are supplied by only two major pipelines and both are at full capacity. The ISO-NE knows that low diversity in sources for electricity is dangerous. As demand for natural gas in home heating spikes in the winter, there is much less fuel for power plants. This limited infrastructure in an area with growing natural gas demand has significantly increased the price of electricity in the winter when natural gas is also primarily used for heating. Additionally, due to plant retirements and imposed stringent environmental regulation, New England power plants have shifted away from nuclear and coal to clean burning natural gas. This transition to gas-fired generation has further exacerbated the pipeline constraint resulting in increased electricity prices in Connecticut and New England, as a whole.

For years, energy experts have warned New England policy makers that there will be a price to pay for using more natural gas for heating and electric power generation without making investments in expanding natural gas pipelines. 

Although big interstate pipelines in New England are on the drawing board, they won't be built until 2018 at the earliest to help alleviate the region’s pipeline constraint. Additionally, there is mounting local grassroots and political opposition to the development of the new pipeline infrastructure creating uncertainty whether these projects will be built in a timely manner. Kinder Morgan, for example, is facing environmentalist opposition to constructing a new 177-mile pipeline across the northern side of Massachusetts, with a cost of about $3 billion. Northeast Utilities and Sempra Energy have proposed a $3 billion plan to upgrade the capacity of existing pipelines that transverse Connecticut, Rhode Island, and Massachusetts, serving dozens of gas-fired electric generators. It is likely to be several winters, however, before either plan receives federal approval, is constructed, and is put into operation*.

Self-Managing Wholesale Electricity Market Bids

During the 2011 legislative session, the Connecticut General Assembly passed Public Act 11-80, an Act Concerning the Establishment of the Department of Energy and Environmental Protection and Planning for Connecticut's Energy Future. The Act (now codified at Connecticut General Statutes section 16-244m) required the Power Procurement Manager to “develop a plan for the procurement of electric generation services and related wholesale electricity market products that will enable each electric distribution company to manage a portfolio of contracts to reduce the average cost of standard service while maintaining standard service cost volatility within reasonable levels.”  

Direct Energy Business opposed this legislation because it believes Connecticut investor-owned utilities should not have a role in the competitive wholesale market but rather, focus strictly on the maintenance of the grid and ensuring the grid is equipped for a major energy event or emergency. If utilities want to get involved on the retail market side, they have an opportunity to establish a competitive affiliate to do so.

Direct Energy Business thinks it’s imperative that ratepayers, market participants, and other stakeholders are provided as much transparency as possible into the State’s procurement activities so that they can be assured that those activities are providing fair, efficient, and cost-effective results.  Standard Service is a utility cost-of-service product. As such, the public should have access to as much information as possible about the costs and benefits associated with CL&P’s self-management activities and how those activities impact the rates they must ultimately pay for such service.  

Learn more about the CL&P rate increases

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Posted: January 26, 2015