Unplugged: The $7 Billion Tax in Your Electric Bill
It seems everybody in Connecticut loves to hate their electric company, especially after the latest two rounds of rate increases. But the question is, should they?
Eversource, Connecticut’s largest electric distribution company, and United Illuminating are privately owned companies, beholden to shareholders, but they are also regulated companies – they have to work hand in hand with the government. They cannot just raise rates; they must get permission to do so.
So, when the Public Utility Regulatory Authority (PURA) approved a massive rate increase in July of 2024, amounting to roughly $48 more per month for the average Eversource residential customer, people were understandably angry at their electric provider; but more and more, they were also pointing the finger at Connecticut lawmakers who, in turn, began pointing the finger at each other.
That’s because residents’ higher electric bills were not due to the cost of natural gas, or oil, but rather because of the public benefits charge on their bill. The public benefits charge is the cost imposed on the utility company to implement policies and programs passed by the General Assembly. Essentially, lawmakers pass a bill or approve a program that requires the utility company to spend money implementing that policy or program. Since these are expenses imposed on the utility by the government, the government allows the utility to recoup their losses with an additional charge to ratepayers levied as a percentage of their overall electricity spending.
It essentially acts as a hidden cost that lawmakers could – until fairly recently – impose on the public who would, in turn, get angry at the utility company instead of their elected politician. However, when PURA approved the rate increase to the public benefits portion of ratepayers’ electric bills in July, the utility companies made it clear the costs were so high due to state regulators and lawmakers. The public took notice; in this case, there were few people to get mad at other than politicians.
Connecticut’s sky-high electric rates are nothing new; Connecticut has been in at least the top five states in the continental United States for the cost of electricity for a long time, but the latest rate increase for public benefits, which had been allowed to build up over the course of two years, appears to be a watershed moment; there is outrage all around. Roughly 77 percent of the nearly $737 million owed to Eversource and UI stemmed from a power purchase agreement with Millstone Nuclear Power Plant, that can be traced back to an executive order issued by Gov. Dannel Malloy and a 2017 bill passed during a special session with the full support of Republicans – who at the time had control of half the Senate and nearly half the House – and some Democrats.
In 2017, Dominion Energy was threatening to shut down the nuclear power plant that supplies 37 percent of the Northeast’s energy supply – clean energy at that – plus over a thousand well-paying jobs in Connecticut. Dominion no longer wanted to compete with natural gas on the energy market and instead wanted a guaranteed return through a power purchase agreement, which mandates the amount of energy Connecticut’s utility companies purchase from them at a set rate — in this case roughly 5 cents per kilowatt hour.
Officials from [DEEP and PURA] issued a report saying it was better to contract with Millstone than risk nearly 40 percent of the region’s energy. The legislature in 2018 could have rejected DEEP and PURA’s report, but instead they “took no action and the results were thus deemed approved.” DEEP secured a 10-year contract in 2019. That power purchase agreement with Millstone can help or hurt. Natural gas, which supplies most of the Northeast’s energy demands, can fluctuate wildly depending on market conditions. During those times of rising natural gas prices, the power from nuclear stays the same, lowering the overall supply cost for ratepayers.
Most of the remaining cost was for a COVID-era shutoff moratorium that, while understandable when people were forced out of their jobs by the government during the pandemic, had been extended until May 2024 by PURA, well beyond when everyone went back to work and school. Eversource saddled much of the blame on PURA for putting off last year’s request; Republicans held press conferences calling for a special session to use American Rescue Plan dollars to pay off the bill and blaming Democrats for not taking action, while Democrats, in turn, blamed Republicans for the Millstone agreement.
But the public anger generated over Connecticut’s electricity costs may have reached a tipping point in which lawmakers will have to more carefully consider future policies if it means passing on more costs to consumers; they’d largely had free reign for decades as the public benefits charge was wrapped into the delivery charge, hidden from the public, making the utility company part tax collector, part punching bag.
If people didn’t understand it before, they’re certainly starting to, and that involves understanding that the public benefits charge is nothing new; Connecticut ratepayers have contributed more than $7 billion toward these government programs, policies, and mandates over the last twenty years through a hidden tax that is not-so-hidden anymore. To add a bit of insult to injury, just two months after increasing the public benefits portion of the bill to make up for the Millstone contract and the COVID shut-off moratorium, PURA approved another increase to the public benefits charge – subsidies for both private and public installation of electric vehicle chargers under a program that PURA itself had established.
In late August, Connecticut Republicans held a press conference, announcing a petition for a special session to potentially alleviate some of the public benefits pain by using remaining American Rescue Plan dollars to pay off a portion of the cost, but they also had a few other ideas – namely paying for the public benefits out of the General Fund like most other state programs and policies, rather than having it come out of ratepayers pockets with their electricity bills. You’d still be paying, just in a different way.
Gov. Lamont finally responded to Republicans’ requests for a meeting on electric rates, writing in a letter that Connecticut’s spiking public benefits costs are due to decades’ worth of public policies and a lack of supply. “We are at the end of the pipeline, leading to higher supply costs,” Lamont wrote. “This makes even valuable legislatively authorized programs that increase supply and improve grid reliability, like the Millstone contract and electric vehicle charging incentives, more difficult for ratepayers to afford.”
Connecticut is at the end of the pipeline and has thus far rejected any expansions to that pipeline to bring in more natural gas; has been stymied on bringing in hydro power from Canada; is operating under 10-year contract with Millstone and is facing potentially very high contracts for wind power. The Lamont administration wants Connecticut to be more reliant on electricity, whether through heat pumps or electric vehicles, and they want that electricity to be clean and renewable. But if Connecticut has a long-term plan for generating more supply to create that electricity at a lower cost, it has yet to materialize.
This isn’t to let the utility companies off the hook. That same twenty-year lookback from Eversource shows that the delivery charges – Eversource’s bread and butter – are often just as high as supply costs; you can certainly be mad at them for that. But two portions of your bill are dictated by decisions made in Connecticut’s capitol by elected leaders and bureaucrats. Now that the public has a better understanding of this fact following the July rate increase, lawmakers may be feeling a bit more pressure. They can’t hide behind the utilities anymore.
