As energy prices soar, Avangrid blames companies producing electricity

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High electric bills have become a reality for Connecticut residents, who paid the highest bills in the country outside of Hawaii in 2021, and combined with lingering frustrations about long power outages after recent devastating storms, public anger towards United Illuminating and Eversource.

So it was no surprise that announcements that electric bills would rise 40-50% in January would spark a new wave of outrage from Connecticut electric customers. And explanations from companies and state officials that the hikes merely pass on the high cost of purchasing power have not assuaged customer anger at the companies.

But Avangrid, the parent company of United Illuminating, which serves 17 towns in the Bridgeport and New Haven areas, said the anger was misplaced and should be directed at power generators they say are allowed to run on electricity. too little control.

Avangrid: Generators should open their books

Catherine Stempien, president and CEO of Avangrid Networks, said the increases in supply rates affect everyone in the deregulated New England electricity market, regardless of how their state gets electricity.

In Maine, where customers of the state’s largest utility will see their supply rate jump nearly 50% in January, on top of an 83% increase last January, the state is responsible. In Connecticut, utilities are participating in an auction overseen by PURA and OCC.

The key problem, she said, is that no one has real transparency on generator costs. Companies can say they’re just passing on the cost of fuel or recovering other costs, and no one knows if that’s true, she said.

Our delivery rates are very heavily regulated by PURA. Every line item we have in the books and records is reviewed and challenged by [PURA] staff and stakeholders. It’s a very open and transparent process, Stempien said.

Avangrid highlighted the benefits of the five companies that offered to provide standard service through United Illuminating the provisioning rate customers pay if they don’t sign up with a third-party provider.

NextEra reported more than $4.7 billion in adjusted earnings in the first three quarters of 2022, and more than $2 billion excluding earnings from its utility subsidiary Florida Power and Light. Its chief financial officer, Kirk Crews, told investors that high gas prices have spurred demand for new renewables from the company.

Constellation reported adjusted earnings of more than $2 billion for the same period. DTE grossed $930 million. And Vistra reported adjusted earnings of more than $2.3 billion, telling investors their outlook is improving as rates rise in the Northeast and Midwest and commodity prices like gas rise. natural begin to decline.

The biggest of them all, global oil trader Vitol, earned nearly $4.5 billion in the first half of 2022, after earning $4.2 billion in 2021, according to a Reuters report on the finances of the private company.

When utilities owned their own power plants before deregulation in 1998, regulators had the same level of control over how much they spent on generation, she said.

Now, with the market, no one has any idea what some of these generators and fuel suppliers really cost, Stempien said. They just say it’s the market price and they’re subject to it.

Generators push back

Dan Dolan, president of the New England Power Generators Association, an organization that represents generators in the region and supports competitive markets, said these companies are all very large with varying shareholdings.

Avangrid, part of the huge multinational Iberdrola, is doing the same, he said. The difference for them is that they are effectively assured of a profit on the distribution side, whereas none of the companies competing to supply the production are.

Avangrid, which has expanded into offshore wind development in recent years, reported profit of $749 million for the first three quarters of 2022, compared to $609 million for the same period in 2021, and almost as much as the $780 million profit it reported for all of 2021.

At the highest level of business, all of this may be true, and it may be overall profitable businesses, Dolan said. But that doesn’t mean the divisions providing production supply here in New England see the same thing.

Dolan said that after the Russian invasion of Ukraine in February, increases in the cost of gas and oil as well as materials like lithium for batteries and copper had to be eaten up by suppliers who were still stuck. on prices that had been set in 2021 or earlier when their costs were much lower.

Now that’s starting to be reflected in the higher standard offering fares, Dolan said. But you still see companies providing electricity at a price well below the cost of producing it. It’s a natural tension in the market.

The Avangrid executive Stempien said some generators could play the market, benefiting from high market prices driven by the price of natural gas that powers the majority of New England generation. But Stempien said she couldn’t know for sure without additional transparency.

I think it’s probably a combination of higher commodity prices and taking advantage of the market, she said.

Is there a way forward in a deregulated market?

State Sen. Norm Needleman, D-Essex, chairman of the Energy and Technology Committee, said it has become clear that Connecticut’s turn-of-the-century decision to deregulate and force utilities to selling their power plants had had unintended consequences.

This may have saved customers pennies per kilowatt-hour over the past 25 years, but it has also loaded them with more risk, exposing them to global market forces through the unregulated supply of their bill, he said.

Now it’s kind of a perfect storm, with a 5,000-mile war adding to the winter reliability issues we’ve had for years, Needleman said. What you have is that what was known to be a possibility in an unregulated market has become a reality.

Dolan said how standard offer rates are obtained depends on the states, and now in Connecticut, the system effectively uses in-time snapshots to set rates for six months. There are ways to smooth out this volatility by spreading out over longer time frames.

That means you’re going to limit the price upside in any purchase, Dolan said. But as the prices go down, it also means that the price [for customers] won’t fall so quickly. The balance that only policy makers can truly achieve is the level of risk tolerance that customers must bear.

Stempien said she thinks the way forward is a hybrid between vertically integrated regulated utilities and Connecticut’s deregulated market today. The advantages of a vertically integrated utility, which owns its own generation, are that all fixed costs of power plants are tightly regulated and would act as a hedge against volatile fluctuations in natural gas prices.

Needleman said some of his colleagues have suggested nationalizing utilities, so the state owns them as a public trust. Others have mooted the idea of ​​reversing deregulation, returning to vertically integrated utilities that own both distribution lines and power plants, all regulated by the state. Needleman isn’t convinced it’s doable.

How would you do that? Are we going to buy out Eversources’ interest and UI’s interest in the network? Questioned by Needleman. We are talking about billions and billions of dollars. And, quite frankly, the state doesn’t have a great track record of managing so many things.

Asked about the motivation of Avangrid, a company on track to post record profits for the second consecutive year, to make significant changes to the electricity market, Stempien said it was in his interest as a company based in Connecticut to see party communities succeed. Generators, she said, have been in and out, while United Illuminating has been in Connecticut for over 100 years.

It sounds a bit corny, but that’s really what we believe, said Stempien. We believe that the combination of our interests and community integration helps make this a win-win for everyone.

More concretely, Stempien said it’s in their interest that customers can afford to pay their bills.

If we don’t have customers to pay their bills, we don’t exist as a business, Stempien said. It is in our interest to have a strong community in which our employees and customers can thrive.

Needleman said he understands power companies don’t like to take a rate hike that wasn’t their fault on the chin, but these are two multinational conglomerates that aren’t seeing their profits fall.

Still, he said he also wants to explore how Connecticut can open up more transparency and control over electricity supply costs.

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