Electricity use in the U.S. has been on a steady rise for decades. According to the U.S. Energy Information Administration, U.S. residents used about 3.9 trillion kilowatt hours (kWh) of electricity in 2021, a 13-fold increase since 1950. The majority of that electricity is being used in homes to run lights, air conditioners, heating systems, appliances, and, of course, the ever-increasing number of electronic devices we use every day.
The amount of electricity we use is only expected to increase in the coming decades as well, rising to about 5.1 trillion kWh by 2050. A steadily increasing demand for power will mean greater strain on aging energy systems, and big questions for consumers worried about rising costs.
If you’re paying attention to your electric bill every month, you know that the final number you owe the utility is made up of two charges: the supply and delivery rates. Simply put, you are paying Eversource, United Illuminating (UI) or your municipal utility to generate power and then paying an additional fee to get that power to your home.
Each of these rates is determined by several different factors, some of which are difficult to quantify for consumers. The supply rate depends on how your region, in this case, New England, generates power. Different regions will have different supply rates depending on the power-generating infrastructure in that region: natural gas, nuclear, coal, hydropower, solar, wind farms, etc.
The supply rate tends to remain steady throughout a region, with slight variations across states and depending on the specific utility. As it becomes more difficult or more expensive to generate electricity, utilities will pass those price increases on to customers. The most recent price increases from Eversource and UI were a result of these supply increases. More on that later.
Delivery rates, however, can be much less clear, even to experts from the Public Utilities Regulatory Authority (PURA).
“One of the first things I noticed was, we have the overwhelming portion of your delivery side of your bill are reconciling components,” explained PURA Chairman Marissa Gillett during an interview with CII. “So these are things that collect your public policy cost primarily.”
That means utility companies can use the delivery rate to recoup costs for infrastructure updates, taxes, charitable contributions, and other expenditures.
All of this adds up to a complicated web of charges over which consumers – and even regulators – have little to no control. And while solutions do exist, even the best ones mean gritting ones teeth through difficult and costly transitions.
When it comes to supply rates, Connecticut is trapped between a rock and a hard place, or to be more specific, between a tightening reliance on limited fossil fuels and the challenges of preparing for the future.
During the PURA technical meeting earlier this month, representatives from Eversource laid the blame for the most recent 40% supply rate increases squarely on the region’s reliance on natural gas. While this might seem like a company deflecting blame for higher prices, experts, like Dr. Ken Gillingham, a professor of economics at Yale’s School of the Environment, agree it really is a huge problem.
New England doesn’t just use natural gas to generate electricity. Most homes in the region also use natural gas for home heating during the winter and it all comes from the exact same pipeline.
“That uses electricity and uses natural gas for the home heating, and so the pipelines become deeply constrained in a way that leads prices of electricity, on the wholesale market at least, just to skyrocket,” explains Dr. Gillingham. “And then at the end of the day, what happens is that the electricity generating plants don’t have enough natural gas to run, and they shut down or run at a much lower level.”
During cold winter days, as households draw from the gas lines in larger quantities, electricity suppliers are forced to switch to more expensive options like liquified natural gas (LNG).
ISO-New England — a private non-profit company that operates the New England grid, maintains the wholesale electricity market, and keeps the system running – levied $39 million in penalties against power plants it says didn’t provide enough energy supply during the coldest days so far this season.
While ISO-New England has stressed that the grid is prepared and able to meet energy needs throughout this winter, at least as long as the weather is mild to moderate, it’s not a guarantee. Extreme weather, like the cold snap experienced in Connecticut at the end of December, would mean increasing capacity, lowering demand, and, in the most extreme circumstances, rolling blackouts to keep the system from failing entirely.
Complicating the matter is the fact that, in terms of generating electricity through fossil fuels, natural gas is far and away the best option. It is comparatively inexpensive and is much cleaner than other sources like coal. New England gets about 45% of its power from Natural Gas, according to both ISO-New England and Eversource. About a quarter of the remaining power comes from nuclear energy. Renewable sources account for 15%, with hydroelectric power making up 9%.
So, what is the solution? One option would be to increase the supply of natural gas flowing into the region. To Gillingham, that’s certainly a road we could take, but it comes with its own hurdles, like getting the necessary approvals to run a pipeline across New York from Pennsylvania.
“That’s a short-run solution that may not solve the long-run problem,” he explains, arguing that the future of electricity is in renewable sources and a hard shift away from natural gas. “If we’re gonna shift away from natural gas, there is a very real question that comes up about how sensible it is to invest heavily in natural gas infrastructure. When you have to shift away anyway – and these pipelines last for 30 years or more – once they’re in, they’re in.”
Another option could be to increase New England’s ability to produce Liquified Natural Gas, but that is even less likely since it is a much more expensive product.
So, what’s the solution? Unfortunately, there isn’t fast and simple relief in the short term, even with legislators looking to provide some regulatory solutions this year. Ultimately, Gillingham says, we’re probably looking at a slow and steady transition on two fronts: electrification and renewable energy sources.
Electrification, switching the heating, cooling, and cooking systems in your home away from natural gas, is the way of the future, according to experts like Gillingham. For one, electrical options like air-source heat pumps tend to be much more energy efficient than fossil fuels, especially home heating oil. Induction ranges are also fast and efficient replacements for traditional gas stoves.
The problems, though, are twofold:
First, the up-front costs to consumers. An air-source heat pump costs anywhere from $1,000 to $8,000 to install, depending on the type of system you use. The good news, however, is that if you’re switching from home heating oil, the savings add up quickly. According to Carbon Switch, a heat pump will save about $950 a year compared to home heating oil — paying for itself in an average of five years — with an average savings of around $1,000 per year after that. Actual savings, of course, depend on the price of oil and electricity at any given time.
Additionally, according to Forbes, if you’re using the heat pump to replace a furnace or baseboard electrical system, you could cut your electric bill by as much as half, though the average is closer to 30%.
Induction ranges, meanwhile, can cost thousands to both buy the stove and switch your system from gas to electric. Those costs depend, of course, on the electrical system of your home and the type of stove you purchase. The benefits, meanwhile, are mostly on the health side. A recent headline-grabbing study claimed that fumes from gas stoves contribute to 15% of cases of childhood asthma.
With costs being such a concern, Gillingham advises that you wait to make any major upgrades to your home until you’re looking at expensive repairs or are in need of a new system already.
“It’s gonna be a very long time until everyone’s out of heating oil and everyone’s switched out of gas,” says Gillingham.
There are also brand-new federal programs that can help defray costs. Under the Inflation Reduction Act, efficiency upgrades like solar panels, heat pumps, appliances, and even electric vehicles are eligible for rebates and tax credits. Heat pumps are covered entirely for low-income households, and up to 50% of the costs are covered for moderate-income homeowners. Rewiring America has a calculator that can help you determine how much money you are able to claim under these federal programs.
The other problem with these upgrades is a further drain on the already taxed electrical system. While energy-efficient options would use only a small amount of power, replacing something like heating oil with an electric heat pump would mean shifting that consumption to natural gas which, as we have already established, is a major part of our energy problem.
If it’s going to make the problem worse, even nominally, then why focus on electrification? For many, it’s about the long game.
“The power of electrification is it gives you a distributed mechanism to power it,” explains Al Subbloie, CEO of Budderfly, a company specializing in commercial energy solutions based in Shelton, Connecticut. “You think of a car, it’s burning the fuel right under the hood, an EV car is getting the recharge from somewhere that could literally be in Texas, that enables you to go to a renewable footprint.”
For both Subbloie and Gillingham, moving away from gas and oil and toward electrical options for heating, cooling, and other energy needs means versatility in a rapidly changing energy future. As governments, both at the federal and local levels, incentivize a push to renewable sources, homes already on the electrical grid will be able to transition entirely to those renewables right away without having to make a larger transition in the future.
“It gives you the power to change the source now, whether the source is hydrogen, nuclear, renewables, we’ll figure that out,” says Subbloie. “Probably be a balance of all the above.”
For Subbloie and Budderfly, efficiency is the watchword. It is the solution to our woes and the real heart of our energy problems, not power generation. After all, if you use less energy in your home or business, then you’re putting a smaller drain on the supply of natural gas and helping to offset that problem altogether.
“Nobody measures anything in the right place,” he says. “So what happens, these electrons come into the building, they go past the meter, so [the utility] could send you a bill. They spread out like a tributary in the building to be lost forever.”
According to Subbloie, 30% of energy waste is generated due to inefficiencies at the consumer end. Fixing those inefficiencies can be difficult. Since there are dozens of possible updates you can make it is hard to understand exactly which updates will get you the most bang for your buck. That’s where, at least at a commercial level, his company comes in.
“We built a really fancy software product in between utility and customer, and in that bill, we manage all the economics in a simple way,” he explains. “We hand the customer what I call a net discount, so they get lower cost energy, cause we can control that. And then we spend all of our money to upgrade the heck out of that facility. We get brand-new HVAC units, bracketing branded refrigeration controls, and we lower that consumption further than the discount we’re giving up, and in that difference, we pay for everything, and hopefully, we make some money.”
Subbloie’s vision is, in many ways, that businesses take time to plan on a large scale. Efficiency upgrades will lower how much energy we need from the grid, lowering the drain on the natural gas supply and, hopefully lowering prices and alleviating concerns about the reliability of that supply. Then, in the transition to more renewable sources, already installed efficient products will lower energy needs and make those renewable sources go further than they would if we switched now.
“We’re wasting a third of it. So, we knock out a third, we probably make room to do all the things we’re gonna do,” says Subbloie. “We only have to then implement a third less of renewables to solve the problem, so you sort of meet the problem both ways.”
To incentivize businesses and regular consumers to make these upgrades, Subbloie says state lawmakers should consider fewer product-based incentives and more outcome-oriented ones where the government sets an efficiency goal rather than a specific list of improvements.
“Making it so that you just have to get to a certain point and then you can figure out how to get there,” he explains.
Home energy solutions can also help ease the drain on the regional grid twice over, lowering the need for energy supply and providing additional energy back to the system when necessary. Selling energy back to the grid has long been an incentive for rooftop solar – so long as you have enough battery capacity – but Gillingham says new advancements in electric vehicle technology mean they can also provide energy to the grid during days when the need is greatest.
“Say you have a Chevy Volt and you have 259 miles range. You offer up 10 miles of range to the utility just during that peak time when they most need it. That’s a small issue to me,” explains Gillingham. “If you have a Tesla with a 300-mile range or more. 10 miles? Big deal. It’s not going to make a difference, but that electricity during those few times can be concretely valuable to our systems. So, I see some real hope in those opportunities.”
All of these solutions, though, are long-term visions for our future. They are blue-sky projections of a greener, more efficient, more reliable grid that isn’t dependent on foreign gas and oil. But they will not lower your electric bill this month or this year or maybe even this decade.
Electrical affordability, as outlined way back at the beginning of this piece, is a complicated web of charges and it might surprise you to learn that very few of those charges fall under regulatory authority.
Here in Connecticut, utilities are regulated by the Public Utility Regulatory Authority (PURA), but they only have so much control over what your electric company can charge. Supply rates, for one, depend on your region. Regulators have very little control over how much it costs to generate that electricity.
“It’s perhaps infeasible to suggest that we’re going to re-regulate supply, but I do get frustrated when there is so much of a customer’s bill that is outside of my scope,” says Marissa Gillett. “It’s difficult to have complete conversations about energy policy in the state when the reality is there are large portions of our customers’ bill that are outside of our direct restriction.”
Delivery rates, though, which are made up of several different charges, fall much more under PURA’s purview. Even so, PURA isn’t in a strong position when up against the likes of Eversource and United Illuminating (UI).
“I think one of the most misunderstood things about PURA is the assumption that were the consumer advocate,” explains Gillett. “’We’re more like judges, where you’re putting stuff in front of us and you’re advocating. The utility is there, you’ve got the consumer advocate, you’ve got any other parties intervening, and they’re all trying to convince us that they have the evidence that a cost should be passed on or it shouldn’t.”
According to Gillett, despite PURA ostensibly being the ones with regulatory power, because of their massive resources “the utility is holding all the cards.”
“I’ve really been kind of laser-focused over the past couple of years on getting folks to understand how important it is that you appropriately empower your regulator,” says Gillett. “Because I still don’t think I am today. There’s been progress, but there’s a lot more that needs to move forward.”
In the last two years, the state has increased the amount of time PURA has to conduct rate cases, the process by which they review rate increases and can approve or deny some portions of the delivery rate. When Gillett started at the agency, they had just 180 days to complete these reviews, which put Connecticut in the bottom 9% of states. Since then, that period has increased to 350 days for electric and gas cases.
“If we had more time and resources, we could probably find more things to disqualify from what the utility they’re asking for,” she says.
Even still, Gillett is proud of the fact that during her tenure the utilities have brought more cases to the state’s Superior Court.
“It means that we’re issuing decisions that the utilities aren’t happy with, and it’s not my goal to make the utilities happy,” she says.
On January 17th, Republican leaders in the state House and Senate introduced their plan to combat energy prices. Among the suggestions were several issues Gillett herself points out, including a simplification of those delivery rates which would increase transparency and lower the number of public policy fees that are passed on to consumers. According to the proposal, this could lower average electric bills by about $210 per household per year.
Additionally, the proposed changes would give PURA greater regulatory authority, particularly as it pertains to those all-important rate cases.
“I find it frustrating that we can’t have more holistic conversations about the rate that customers are dealing with,” says Gillett. “Because the average customer doesn’t care that the increase was on the supply side versus the distribution side. At the end of the day, they’re paying more, and that’s what they care about.”
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This more full discussion of the energy bind government has put us in is welcome. However, there is too much in the article that still is off track, taking certain points as a given, and attributing expert status to some people who have opinions about the issue. First, there is no reason to be eliminating natural gas on a schedule with a “we’ll figure it out” plan to switch over to unreliable energy sources that will claim huge swaths of land, and which likely have more environmental issues with massive mining for rare earth minerals and disposal of hazardous wastes. The study linking gas stoves to asthma is another canard – the solution is proper indoor ventilation, preferably with controlled volume air-to-air heat exchangers. Air-to-air electric heat pumps are arguably not as source efficient as new direct-vent natural gas heating units, especially in colder climates. The heat pumps lose efficiency the colder it gets, so it will add demand (and cost to the consumer) at the coldest time of the year. So much more to say, but these are indeed “blue sky” projections of the future, which put us all at serious risk.
It was politicians and regulators who blocked all the proposed natural gas pipeline projects. The new governor of MA bragged about it in her campaign ads, and she had many comrades in CT. We could have those additions built now, and I believe that time will prove that solar panels and windmills will be rusting away before natural gas is gone, if left to markets and good sense. No problem with solar and wind where they make sense, but they shouldn’t be given the subsidies awarded them as these are costing the ratepayers and taxpayers. The highest price a utility pays for electricity is the reverse movement of meters due to energy being put back into the grid, often when not needed. It is also costly to have duplicate capacity on hand to back-up wind and solar at times when they are not able to generate. Batteries are extremely expensive, and the amount of batteries needed will be difficult if not impossible to develop. More nuclear would be preferable, but those who oppose natural gas oppose nuclear as well.
As for the comments by the PURA chairwoman that her hands are tied on so many things, that might be true at the moment, but the regulators and the politicians they influence are the ones that made the rules. They set the “portfolio standards” and the procurement processes for the utilities. They should be working with the lawmakers to perhaps undo some of the mess they have created. As for these people making grand “blue-sky” plans, it was only about 10 years ago that they had grand plans to massively increase the use of natural gas by expanding local distribution infrastructure and incentivizing customers to switch from electric or oil. They based this plan on the economics of a short term spread between the price of natural gas and oil, and many of us warned that was not a wise thing to do given past fluctuations in fuel prices. There were grand projections of fuel switching made, but according to the state’s consumer advocate office, “the predicted benefits from the ratepayer-subsidized program have simply failed to materialize, and ratepayers are now funding investments that are likely to become stranded assets.” Current government planning is leading in the same direction.
I will agree that efficient energy use is the highest priority. I also agree that state lawmakers should consider fewer product-based incentives and more outcome-oriented ones where the government sets an efficiency goal rather than a specific list of improvements as stated in the article. I would recommend that CII get more opinions from those who have been involved in the industry who have more prudent recommendations and have seen the failures of government planning over a long period of time.
Senior citizens, or anyone living on Social Security alone should be given special consideration, so they do not have to pay these ridiculous prices!! You can’t get blood out of a stone should we all freeze to death or roast in the summer get a grip, utility companies and states you’ve got to help out people who cannot at all afford these ridiculous pathetic increases !!!