Connecticut tops continental U.S. in electricity prices: what gives?
When David Watson looked down at his utility bill in 2003, the last year he lived in Boise, Idaho, electricity cost about 8 cents per kilowatt hour.
Now Watson, a 67-year-old retired mechanical engineer, lives in New London, where he pays 18, 19, sometimes 20 cents per kilowatt hour. Watson and his wife, Maggie, find themselves in the state with the highest average retail electricity price in the continental U.S.: Connecticut residents paid an average 20.29 cents per kilowatt hour in 2017, according to the U.S. Energy Information Administration's most recent data.
Folks in Idaho, meanwhile, paid a smidgen more in 2017 than Watson did more than a decade ago: an average of 10 cents per kilowatt hour. The average retail price in Connecticut among all sectors including residential, commercial and industrial, is 17.55 cents per kilowatt hour, about 7 cents higher than the national average.
"They deliver it the same way — telephone poles and power lines. When you think of it that way, it's staggering," said Watson, who noted he's "lived all over the place," including Ohio and Pennsylvania, one of many reasons Connecticut's rates have stunned and stumped him since he moved here five years ago.
Watson recently asked The Day a winning question — "Why are electricity costs in Connecticut among the highest two or three states in the nation?" — as part of the CuriousCT series, which provides insight after letting readers vote on topics they want explained.
Energy and utilities experts consistently point to a few key factors driving Connecticut's costly power: the state's reliance on natural gas, which is cheap and abundant nationally but not found or stored underground here; regional pipelines with limited capacity, leading to price spikes, especially in winter; deregulation in the late 1990s, which led to about 40 percent of customers buying electricity from a third-party retail supplier, some charging more than utilities; and basic geography.
"Here in the Northeast, we're at the end of the pipeline whether it's natural gas or oil, so the transportation costs to get that fuel here drives prices up," Eversource spokesman Mitch Gross said recently.
It's the pipelines
Natural gas accounted for about half the state's power in 2018, according to EIA. Nuclear power from Waterford's Millstone Power Station supplied another 43 percent of the state's electricity last year. The lack of other in-state sources, combined with congestion in gas transmission lines, hits residents' electricity bills.
Sue Tierney, a senior advisor for economic consultant Analysis Group and former assistant secretary of energy for policy in the Clinton administration, said Connecticut and all of New England rely on natural gas more than other parts of the country, and "we're not close to the basins."
"We are connected to the supply basins in the Gulf states, as well as the Appalachian basin, through pipelines that get full in the winter," Tierney said. "So prices reflect a shortage condition, and they spike." Bringing liquefied natural gas to the region by tankers is yet another source of increased costs, she added.
A 2015 report by the Office of Legislative Research noted that interstate gas transmission lines "have not expanded in proportion to the increase in supply and demand."
ISO New England, which operates the power grid and manages electricity markets in the region, noted that overall electricity demand rose by almost 2 percent in 2018. Consumer demand is influenced by the economy, weather, energy-efficiency measures and power collected by solar arrays, ISO New England said.
Each of the New England states ranks among the top 10 most expensive for electricity. And each relies on natural gas more than cheaper coal power, in part due to stringent emission standards, according to OLR.
Meanwhile, aggressive targets for renewable energy initially could drive up prices, OLR said. But renewables like solar and offshore wind still "may also help mitigate other expenses by limiting increases in peak demand, reducing system congestion and transmission costs, and reducing the need for various distribution system infrastructure upgrades."
Tierney said it was "extremely unlikely that there will be large new pipelines built to serve the region, so that doesn't help prices."
But she said one reason states are pursuing renewables, which cost more up front than fossil fuels, is that they're weighing those costs against climate change impacts, like sea level rise and public health problems, which will hit the overall economy and, in turn, ratepayers' pockets.
Watson spent the last decade of his career at General Electric Transportation in Erie, Pa., and he's worked with government programs and commissions focused on building cleaner engines. He said he saw many jobs migrate from Pennsylvania, which also had energy infrastructure limitations, to Texas.
He said part of the reason he asked about electricity prices is "how it impacts Connecticut competitively, in terms of bringing, and keeping, businesses and well-paying jobs to the state. Also keeping retired people here."
While admittedly complaining about the high cost of electricity, Watson, who "in the early days of the Internet" ran FTexploring.com, an energy education website, said he vehemently supports renewable energy coming to Connecticut.
"Diversity in energy sources will help keep prices steadier with less dramatic fluctuations, and as we develop and experiment with more renewable resources, the costs will come down relative to petroleum, coal and nuclear," he said. "In the long run, it is dangerous and shortsighted to be dependent on only one or two energy sources. The more dependent we are on one source, the more an interruption in that source can impact our cost."
'Everything in Connecticut is expensive'
When told of Watson's experience in Idaho compared to Connecticut, Tierney chuckled and let out a sigh of sympathy. Residents in Idaho and Pacific Northwest states, she said, reap the benefits of hydroelectric facilities, including Grand Coulee Dam on the Columbia River in Washington and 31 federal hydro projects operated by the U.S. Army Corps of Engineers and the Bureau of Reclamation and administered by the Bonneville Power Administration.
"They used federal incentives to build them in the first place and they run on water — it's the cheapest power we have in the country," Tierney said. "By contrast, everything in Connecticut is expensive."
Connecticut's relative high-cost "in terms of salaries, taxes, land and other costs" is another factor, OLR said in 2010.
Tierney said that could help explain why Connecticut customers appear to pay, on average, about 15 percent more in wire and other infrastructure costs — worked into the "delivery" portion of utility bills — than Massachusetts, for instance.
"It could be land values, union costs, more spent on grid modernization in Connecticut," she said. "It's not an insignificant portion of the bill."
The "delivery" section of the bill, broken into multiple line items, is what the utility collects to run the business, as well as state and federal taxes and fees, Gross said.
Tierney broke down the delivery section. Transmission charges help pay for New England's high-voltage transmission system. The distribution customer service charge pays for meters and wires to each house to give customers access to the system, whether or not power is used that month. The Federally Mandated Congestion Charge helps cover congestion costs on the local electric system when local demand is so high, it forces higher-cost Connecticut plants to run and more expensive power has to be brought in from other parts of the grid. Electric system improvement charges pay for upgrades like smart meters, and distribution charges cover local delivery lines, linemen, tree-trimming and other operational costs.
While some of the individual delivery line items are cheaper in Connecticut than other parts of New England, the combined charges overall are higher here "than in other parts of the region and in the country more broadly," Tierney said.
Gross noted that the "Generation Service Charge" in the "Supplier" section on an Eversource bill is the amount that goes directly to suppliers that Eversource buys power from, with no markup or profit to the utility. The rate is adjusted twice annually, on Jan. 1 and July 1, "based on the current price and demand for natural gas, which is the primary fuel used by electric generators across New England," Gross said.
The Public Utilities Regulatory Authority reviews and approves "every item on the customer bill," he added.
Tierney noted that while electricity prices are high in Connecticut, the average homeowner uses less electricity here than in many other states.
Also, Connecticut is closer to the middle of the pack when it comes energy affordability according to at least one metric: residents spend about 2.2 percent of their household income on electricity bills, compared to the national average of 2.15 percent. In 2018, Connecticut had the highest per capita personal income of any state — nearly $75,000, according to EIA. In lower-income states like Mississippi, residents spend almost 3.5 percent of their annual income on electricity.
But plenty of Connecticut customers making less than $75,000 still feel the pinch when they open their utility bill.
"We're always mindful of the effect these costs have on our customers, particularly those who are facing difficult financial circumstances," Gross said. "That's why we urge our customers to make full use of our energy efficiency programs to help reduce their usage, tighten-up their homes and find ways to save."
Thousands of Eversource customers save hundreds of dollars through such programs, such as the popular Home Energy Solutions, through EnergizeCT, Gross said. Interested customers can visit Eversource.com or call (877) 947-3873.
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