Facts show Millstone bill would fleece ratepayers
Last month, Energyzt Advisors, LLC released a study evaluating the financial position of the Millstone Power Station and ratepayer impacts of proposed legislation to provide support to Millstone (S.B. 106). S.B. 106 is a bill that would allow Connecticut utilities to buy Millstone’s nuclear-produced power under five-year contracts – a mechanism historically used to support new renewable projects. In response to the study, Millstone’s Virginia-based owner, Dominion Resources, has put forth misinformation. Given the potential impact on ratepayers, it is important we revisit the facts.
Energyzt’s study found that S.B. 106 could significantly increase electric rates for Connecticut ratepayers. Assuming prices stay at 2016 levels and Millstone bid up to the lowest cost of recently-awarded contractual prices for renewables, the bill would create a wealth transfer of more than $300 million per year from ratepayers to Millstone’s owners. That figure represents a 15 to 20 percent increase above retail supply prices seen last year, or over $90 per year for the average residential ratepayer.
Millstone claims the plant would never bid such a high rate, but Millstone is the only nuclear plant that would be allowed to “compete.” A bidding process with only one bidder will not result in a competitive outcome. Furthermore, language in the legislation would not prevent such a high price if a politically-appointed evaluator were to decide that such a price was in the legislatively undefined “best interests” of ratepayers.
Regardless of what Millstone bids, however, every dollar will go from the pockets of Connecticut ratepayers into the coffers of Millstone’s equity investors. Energyzt’s study found that Millstone historically has been profitable (earning at least $3 billion in after-tax income since 2001 and average annual returns to investors exceeding 25 percent) and will continue to be profitable (even under the worst-case scenario of a continuation of 2016 energy prices). Millstone already is profitable from New England’s competitive energy, capacity and hedging markets (an estimated $150 million in profits in 2016), and would receive even more from ratepayers who would then have less choice under the proposed bill.
These claims are not debatable. They have been validated by the available evidence listed in the Energyzt study, as well as the findings of a recent report issued by the New England States Committee on Electricity (“NESCOE”), a not-for-profit entity representing Connecticut and the other five New England states’ governors. Millstone’s claim that Energyzt cost assumptions are too low are unfounded, unsupported, and inconsistent with third-party sources that support Energyzt’s conclusions regarding Millstone’s past and future profitability.
Three other independent sources provide confirmation of Millstone’s profitability: 1) study from the Massachusetts Institute of Technology issued March 2017; 2) recent comparison of nuclear plant profitability issued by energy industry information maven SNL Energy; and 3) equity analyst reports. Millstone’s positive financial position cannot be disputed, nor can the wealth transfer from ratepayers to Millstone equity holders under S.B. 106 be doubted.
The term “wealth transfer” is worth further explanation. Millstone already has made market commitments to operate through mid-2022. The deadline for delisting and retiring before 2022 has passed. Hence, the Energyzt report concludes that “Connecticut ratepayers are being asked to pay more money for no incremental benefit.”
Dominion representatives argue that ratepayers will benefit because S.B. 106 will get rid of an unidentified “middle man.” Who is this hypothetical middle man? Millstone is a competitive generator and can participate in Connecticut’s competitive retail electricity markets directly or through an affiliate. If Millstone wishes to eliminate the “middle man,” this already can be done by becoming a competitive retailer and selling directly to end-users.
Alternatively, Millstone could respond to one of the many requests for proposals to supply service to Connecticut’s utilities for Standard Service and Supplier of Last Resort Service. The fact that neither has happened, despite Dominion’s business experience in retail markets, indicates that the value proposition of eliminating the “middle man” is purely hypothetical. Apparently, Millstone will not eliminate the “middle man” unless it receives above-market rates from captured ratepayers under legislated contractual guarantees.
In the end, S.B. 106 would force Connecticut ratepayers to purchase nearly one-quarter of their energy supply from Millstone, raising costs and reducing Connecticut customer choice. The facts are simple: Millstone is profitable, and it’s not retiring before 2022. For these reasons and others given in the study, S.B. 106 clearly offers no benefits in exchange for the higher costs that would be incurred by ratepayers.
Tanya Bodell is the Executive Director of Energyzt Advisors, LLC.