Blumenthal Wants Public Power Authority To Address Rising Electricity Rates

Hartford — Attorney General Richard Blumenthal Tuesday unveiled sweeping proposals to lower Connecticut’s skyrocketing electricity costs, including a windfall profits tax on generators and a state authority to purchase power, and finance, build, buy, and operate power plants.

Mr Blumenthal said that the plan will give the state the tools to stop relentless price increases by creating a new public authority to manage power purchases and supply inexpensive power. A windfall profits tax will return excess power plant profits to consumers as well as provide possible seed money for the new agency — the Connecticut Electric Authority (CEA). It would halt profiteering by certain generators who exploit flawed federal and ISO-New England market rules to earn enormous, unjustified profits, he said.

The AG’s proposed public power authority would shield consumers and businesses from billions of dollars in future federally imposed charges by giving Connecticut the means to build or help finance new power plants demanded by federal regulators. His call to action came during a Tuesday press conference at the state capital.

 “This public power authority would put the reins on a runaway market. Our new strategy should help cut and contain out-of-control electricity prices before they cripple Connecticut’s economy,” the attorney general said. “Customers of CL&P — 80 percent of our state’s electric consumers — now pay the second-highest power prices in the nation, enduring a nearly 70 percent increase in three years. Those prices will continue to spiral astronomically through 2010 and beyond if the state fails to act.

“If you think prices are high now, you ain’t seen nothing yet,” Mr Blumenthal said. “The federal government’s attempt to create a free market has cratered, and Connecticut must act swiftly to stop skyrocketing power prices from strangling our economy. Consumers and businesses, already reeling from double-digit price hikes, simply cannot afford to pay more. My proposals will restore stability and sanity to a chaotic, anticompetitive, and out-of-control electricity market. Without these steps, power prices will continue to soar, wrecking Connecticut’s competitiveness and crushing consumers.”

Mr Blumenthal said the Connecticut Electric Authority would be a power company owned by ratepayers. It will be a public agency that builds, buys, finances, and operates power plants. It will also buy power to be distributed by Connecticut Light & Power and United Illuminating. The power authority will be run by an independent board appointed by the governor and the legislature.

“Because the authority will serve ratepayers, not shareholders, it will strive to minimize prices for consumers and businesses instead of maximize profits. In sum, CEA will be a powerful public advocate, assuring the state has enough electricity, enhancing competition by producing cheap power, and holding open and aboveboard power auctions. Accountability and transparency will be its watchwords,” he said.

“The state needs new power plants, but the private sector either will not or cannot build them. CEA would fill a void left by failed markets and fatally flawed federal policies. Using bonds to build, finance, or buy generation, CEA will ignite competition and help restore price stability,” Mr Blumenthal said. “By building its own plants or backing new privately owned ones, the authority will eliminate the rationale for new federally imposed charges that could result in additional double-digit rate increases. We can play FERC’s game, but win for our citizens.

“Power generators who earn unfair and unjustified profits should pay a windfall profits tax. When these generators overcharge consumers, a windfall profits tax will rightly return money to ratepayers’ pockets. These excessive earnings result not from innovation, savvy, or risk taking, but from misguided market rules that federal authorities and ISO-New England refuse to change. Simple common sense says that a nuclear power plant should not be allowed to tie its prices to the cost of oil and natural gas. This expensive and irrational loophole — and others — are sanctioned and supported by FERC and ISO-New England. Connecticut must move against federally approved profiteering,” Mr Blumenthal added.

Mr Blumenthal said certain Connecticut-based generating companies are currently reaping excessive profits. Although regulated utility companies are earning profits of about ten percent, the attorney general said conservative estimates show that the Millstone II nuclear plant has been earning a 44 percent profit, Millstone III a 53 percent profit, and the Bridgeport Harbor coal-fired plant is earning profits over 100 percent.

“These excess profits are the result of failed federal rules that allow low-cost generators — such as nuclear and coal plants — to charge prices as if they burned expensive natural gas or oil,” he said.

A windfall profits tax — set by the legislature on earnings above a certain level — will return some of these excessive revenues to state consumers. A 25 percent tax rate applied to profits above 20 percent (twice the currently allowed profit for utility companies) for Millstone II, Millstone III, and the Bridgeport Harbor coal plant would produce tax revenues of approximately $178 million for 2006 and $208 million for 2007. A 50 percent tax rate applied to profits above 20 percent would produce tax revenues of approximately $355 million for 2006 and $416 million for 2007.

“My proposals offer a clear, workable, and reasonable solution to the electricity mess ensnarling Connecticut’s consumers and businesses. That mess will metastasize into a malignancy that threatens to kill our economy if we fail to act. I urge the General Assembly and the governor to institute these reforms during this session,” Mr Blumenthal concluded.

Mr Blumenthal asked FERC in September 2005 to change market rules that allow the plants to profiteer, but the commission has yet to act on his request. The AG noted that many of the state’s generators receive federal subsidies or profit guarantees.

The FERC typically guarantees generators about a 10 to 11 percent profit, as well as providing subsidies, he said. Blumenthal suggested levying a 25 to 50 percent tax on profits over 20 percent. Mr Blumenthal said tax proceeds would go into a special fund to finance CEA and provide rate relief.

BREAKOUT BOX INFO:

The Connecticut Electric Authority proposed by Blumenthal would:

ŸIssue low-cost bonds for the purchase or construction of new power plants. The authority would use revenue from the power plants to pay off the bonds and to pay operating expenses. The authority will have no profit margin, so it can provide power at lower cost, lowering market prices and creating an incentive for private generators to cut prices. The state could use the authority to build plants in strategic locations to meet demand and eliminate price spikes.

ŸAssist in financing new, privately owned power plants or buy existing private generators. In addition to increasing supply, this step will allow the state to improve air quality, reduce greenhouse gas pollution and increase efficiency by buying or encouraging retirement of older, dirtier plants and replacing them with new, cleaner, more efficient units.

ŸBlock imposition of billions of dollars in federally imposed charges called Locational Installed Capacity (LICAP). The Federal Energy Regulatory Commission (FERC) wants to impose LICAP and give the money to generators to encourage construction of new plants, but Mr Blumenthal says the charges will only enrich current power plant owners. The authority will allow Connecticut to meet FERC’s demands for more plants and should spare ratepayers billions in extra charges.

ŸPurchase all power from generators in open public auctions, a task now performed in secret by Connecticut Light & Power (CL&P) and United Illuminating (UI). After buying power from generators, the authority would provide it — at cost — to CL&P and UI. Both companies distribute electricity to consumers and no longer own power plants.

ŸBuy power in small or midsized increments when the price is low, not just in large blocks at once or twice-yearly auctions. Allowing the authority to take advantage of lower prices will diversify power supply and smooth out price fluctuations.

ŸTake over from CL&P and UI administration of the state’s conservation and load management fund, which encourages conservation and development of alternative energy sources.