Why is Electricity so expensive in Connecticut?

(How Solar Protects Your Home from Electricity Inflation)

You may have noticed that Electricity rates in Connecticut and, indeed, especially in New England, have been rapidly trending upwards in the last four years. This means that your electricity bills have likely seen a significant increase. Eversource and United Illuminating, the two regulated Connecticut electricity utilities, have filed for another increase, which will be reviewed on May 1st, 2024, potentially leading to even higher bills.

Eversource requested a 19% increase, and UI asked for a little less at a 12.3% increase. UI remains the more expensive provider, but the gap is closing between the two. In Quarter 1, 2020, the average residential electricity cost in Connecticut was 21c/kWh. The average price will be circa 34c/kWh come June 1st, 2024, should PURA approve the proposed costs.

Historical Sustained rate of electricity price inflation of 7.4% per annum

Worryingly, this is despite current historically low Natural Gas prices. What do natural gas prices have to do with electricity costs? In Connecticut, utility-scale electricity generation is created by using fuels. 61% of this electricity supply comes from Natural Gas (Dec 23 Source EIA). The Millstone Nuclear plant accounts for 31%, with the balance coming from Renewables and other resources like Petroleum.

In January 2023, the electricity supply cost for Eversource went up from circa 12c/kWh to 24c/kWh. The reason for this temporary 6-month hike, was because the price of Natural gas traded between circa $2/MMBTU to $9/MMBTU in 2022. The War in Ukraine indirectly caused the spike in costs. Russia accounts for more than 50% of Global Gas supplies. Germany and other Euro markets had to find alternative supplies of natural gas. This pushes the prices of natural gas higher, and it significantly impacts the price of electricity because 60% of the supply costs on your bill relate to natural gas. We saw a 100% increase in Supply costs from January 2023 to June 2023. The costs were recovered, and the price went back down in June, but other costs were added. It was a little maneuver that mostly went unnoticed, as many just saw a price drop from the temporary spike and didn't notice the smaller baseline cost versus 6 months prior.

60.5% of all electricity generated in Connecticut is fueled by Natural Gas. Ct is very exposed to global Nat Gas price fluctuations as demonstrated by 2023 100% increase in basic generation cost.

Homeowners' electricity bills are variable each month anyway based on seasonal use, and noticing smaller price per kWh changes is difficult.

We are now seeing commodity prices rise globally. At the time of writing, cocoa prices are up 200% over the last year. Coffee is up 20% in the last month. Copper is up 16% over the last four weeks. My point is that commodity prices are rising. Connecticut utilities are sensitive to commodity costs, especially Copper and Natural Gas. 

The cost for Eversource will be 34c/kWh in June (Supply and Delivery), with historically low Nat Gas prices. Even without political risks, like an escalation of global war, we can expect to see the cost of commodities rise in dollars. Russia accounts for 45% of natural gas supplies to Europe. If this supply is affected for whatever reason, demand and costs will, therefore, rise from alternative sources to supply the deficit into Europe. I can’t predict the future, and I don’t know where the price will be, but we can see very clearly that ratepayers in Connecticut are exposed to more upside price movements than downside. 

How Solar is a perfect Hedge to protect against energy cost inflation

I have Solar Customers who went solar in 2019 when electricity prices were circa 19.5c/kWh in Eversource territory. Let’s take the example of a customer who bought the system. The cost of the solar system would have had an estimated 7-8-year simple payback at the time. They bought the solar systems to own their electricity and no longer have to rent it from the utility company. 

That customer has avoided the 2020, 2021, 2022, and 2023 price changes. If they had not gone solar, they would have paid Eversource $12,000 in electricity expenses. This is money spent. With Solar, you spend the money upfront and recover the costs by avoiding future electricity costs forever. 

The avoided cost, or offset value, has risen much faster than the average rate of electricity inflation from 2002 to 2019 (7.8%). Now, the solar energy asset on their roof is avoiding electricity costs that will be 15c/kWh higher come June 2024 (19c/kWh in 2019 versus 34c/kWh in 2024). The offset value will be 78% higher on June 1st;  in just four years. In year 1, they were saving approximately $2,280 per year, and this year, they will save approximately $4,080 (12 months at 34c/kWh).

The actual payback will no longer be 7-8 years but it will be 5-6 years. These 2019 clients will have the system costs recovered in the next 12-18 months. 

In Connecticut, rate changes are implemented semi-annually. Approved changes in May, for example, will hit the electric consumer bills in June and stay in place until December. Any changes to the costs of utilities will be adjusted in November based on costs incurred from the prior six months on a rolling basis. The Public Utility Regulatory Authority (PURA) must review and approve the costs before adding them to the electricity tariffs. PURA is statutorily charged with ensuring that Connecticuts investor-owned utilities provide safe, clean, reliable, affordable utility service and infrastructure. 

Unfortunately, the cost of running the utility will always be passed down to the ratepayer (electricity customer). You may be surprised to hear that Eversource doesn’t profit from the sale of electricity, which is listed as the supply charge on your electricity bill. The utilities profit from the delivery and transmission of electricity to your home. The electricity passes through their network or Grid infrastructure, and they are tasked with ensuring it gets there reliably and that there is enough electricity to meet the grid demand. Connecticut currently has the 4th most expensive residential electricity rate in the nation.

Come June 1st, it will likely become the 2nd most expensive item in the US. In fact, in the first half of 2023, it was the 2nd most expensive in the US, just behind Hawaii, which is just over 42 cents per kWh.