Last week the Connecticut House of Representatives passed SB 1138, which will add large-scale hydro to the state’s Renewable Portfolio Standard — replacing more expensive wind, solar and biomass. If incorporated, it is expected that customer costs will be reduced by millions of dollars annually, compared to the current system. Despite that, many are up in arms over the bill’s passage.
Why all the commotion over this provision? Unfortunately, it is simply a matter of protecting market share and profits by those benefiting from the status quo. In a recent press release by New England Power Generators Association President Dan Dolan proclaimed that large-scale hydro is expensive and that the ratepayers of Connecticut would be subsidizing “uneconomic energy.” In an effort to protect the interests of the large national and multi-national energy firms that make up his organization membership, Dolan’s comments ran the gamut of downright false to just plain ridiculous.
Claims that SB 1138 “subsidizes” large scale hydro are pure fiction as any electricity produced from large-scale hydro will be exempt from receiving Renewable Energy Credits (RECs), which are used to subsidize all other renewable energy producers under the RPS. SB 1138 calls for a competitive bidding process for up to 5 percent of the state’s renewable energy goals only if the state cannot find those resources within its borders. Essentially, it’s an insurance policy to protect consumers from having to pay “compliance payments” in the event renewable energy goals cannot be met. There is no subsidy in that.
NEPGA does have many natural gas producers that profit from RPS mandates on the backs of ratepayers. Natural gas generators benefit from higher marginal electricity rates by receiving the difference between their bids and the marginal rates. For example, if they bid $30/MW for electricity and the marginal rate is $50/MW, they receive the extra $20/MW. It doesn’t benefit them financially to have competition entering the market that will lower marginal rates and shrink their profits.
Most NEPGA members sell their power on the wholesale market and with low natural gas prices have been able to make a lot of money over the past few years. We support the fact that the changing market enables generators to bring inexpensive and reliable power to the region, lessening the burden on businesses and families. What is unfortunate is that this industry group, like so many industry groups, is fighting to keep other safe, reliable and inexpensive power out of the region in order to limit competition. Adding large-scale hydro to our energy mix would provide a hedge against rising natural gas prices and further diversify our energy generation, which according to ISO-NE has become too reliant on natural gas.
What will be the impact of this legislation? As a guide we can look to Vermont, a state that allows large-scale hydro to be a part of its renewable goals. They still have a broad portfolio of electricity choices — from nuclear to wind, natural gas and solar. The electricity market in Vermont is no less dysfunctional than any of the other states in the region that have the government interfere with market pricing. However, Vermonters enjoy a large-scale hydro PPA for electricity at 6 cents per kilowatt-hour. Connecticut, with the highest electricity rates in the lower 48 could use some of that. Not surprisingly, Vermonters pay roughly two-and-a-half cents less per kilowatt-hour for their electricity than the residents of Connecticut.
Renewable power standards were designed to encourage the use of renewable resources over traditional forms of energy generation regardless of the impact on ratepayers. Elected officials and bureaucrats preferred to pick winners and losers based on their preferences and not the preferences of the consumers or the electricity market as a whole. If Connecticut is going to continue to impose renewable energy standards and artificially raise the cost of electricity, then they should at the very least mitigate the costs borne by ratepayers and including large-scale hydro does just that.
Ratepayers deserve to have their elected officials enact policies that will lessen the impact of myopic regulations that pick winners and losers in the electricity market — and continually push electricity rates higher. Short of eliminating RPS, which should be our goal, this is the next best alternative. SB1138 will reduce electricity costs to ratepayers — and for that reason we should applaud the Connecticut legislature for passing the bill.
Marc Brown is the executive director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers in New England
