Achievements in Electricity Industry Restructuring in Connecticut Prepared for:, Inc. By: ESAI Power LLC April 2010
Table of Contents I. Introduction & Summary 1 II. Generation Investment 11 III. Demand Response & Energy Efficiency 20 IV. Renewable Energy Resources 27 V. Customer Choice and Retail Competition 35 The paper was sponsored by: Constellation Energy, Dominion Resources Exelon Corporation, GDF SUEZ Energy North America Hess Corporation, NRG Energy TransCanada Corporation
April 2010 New England was one of the first regions to restructure the industry that generates, transmits and delivers electricity. By the late 1990s, all of the New England states, except Vermont, passed legislation to move toward competitive retail markets. Likewise, in 1999, a regional competitive wholesale electricity market was launched. A 2006 report, A Review of Electricity Industry Restructuring in New England found the region s consumers and the environment were better off in comparison to what the prevailing trends prior to restructuring would have yielded had they continued. Since then, several state legislative initiatives have been enacted to refine industry restructuring efforts at the retail level particularly in Connecticut where electricity prices have been the highest in the nation due to heavy reliance on fossil fuels for electricity generation, insufficient infrastructure development in the past that -- up until recently -- resulted in high transmission congestion costs and reliance on uneconomic generating facilities in order to maintain reliability, among other challenging factors.
To address these concerns, Connecticut s restructuring efforts were amended through An Act Concerning Energy Independence in 2005 and An Act Concerning Electricity and Energy Efficiency in 2007. These statutes were enacted, in part, to reduce electricity prices by: decreasing demand and increasing supply; reducing transmission congestion costs; increasing renewable energy resources to diversify the electricity generation fuel mix; and increasing competition through consumer choice. The (NEEA) retained ESAI Power LLC to assess the effect of these statues on Connecticut s electricity industry. Progress was measured in four broad areas including: generation investment; demand response and energy efficiency; renewable energy resource development; and consumer choice and retail competition. This paper contains the facts and figures that show progress in those areas to be substantial. This information is aimed to help guide the legislative policy debate in Connecticut towards staying the course towards more reliable and affordable electricity supplies through competition. For more information about NEEA, please visit www.newenglandenergyalliance.org. Paul G. Afonso Executive Director
I. Introduction & Summary 1
Background and Approach In 1998, Connecticut enacted legislation to restructure its electric utility industry. Since then, several legislative initiatives have been enacted to amend restructuring, with more under consideration. The aim of this report is to review recent performance of industry restructuring to assess progress and help guide current policymaking. The (NEEA) retained consulting firm ESAI Power LLC to compile and present data to assess the impact of two more recent restructuring statutes: Public Acts 05-01 and 07-242. (Other statutes have had an additive impact, particularly on renewable energy and energy efficiency initiatives). NEEA advocates for policies to ensure the availability, reliability and affordability of energy supplies which are vital to the region s economic growth and prosperity. 2
2005 Restructuring Statute Public Act 05-01 An Act Concerning Energy Independence The policy objectives of this Act were to: Reduce congestion costs Requests for Proposals (RFPs) process for new resources (generation and demand) Increase incentives for customer-side distributed generation Class III renewable portfolio standard Capital and operating cost subsidies, long-term financing Increase incentives for energy efficiency Class III renewable portfolio standard Same cost subsidies and long-term financing as above Implementation of time-of-use and seasonal rates 3
2007 Restructuring Statute Public Act 07-242 An Act Concerning Electricity and Energy Efficiency The policy objectives of this Act were to: Encourage energy efficiency and conservation Sales tax exemptions, energy efficiency standards for many commercial products, green building code requirements, grants for municipal buildings Increase incentives for renewable energy Increased Class I renewable portfolio standard requirements Net metering Project 150 RFP process to procure 150 MW from CT renewable generators Increase incentives for other generating resources RFP process for peaking generation plants New incentives and extension of existing incentives for distributed generation 4
The Combined Policy Objectives of Both Restructuring Statutes Reduce rates by decreasing demand and increasing supply Reduce congestion costs Increase reliance on renewable energy resources Promote customer choice 5
Policies Aimed to Address Connecticut s Electricity Rates Currently Highest in New England Source: EEI Typical Bills and Average Rates Report; Summer 2009 6
Greatest difference among New England states is NOT in the competitive (generation) portion, but mostly attributable to distribution and other regulated, non-competitive components Source: EEI Typical Bills and Average Rates Report; Summer 2009 7
Progress of these Restructuring Statutes was Measured in Four Broad Areas With Potential to Lower Rates 1. Generation Investment reduces congestion, replaces expensive generation, increases reliability 2. Demand Response & Energy Efficiency reduces need for infrastructure development and saves consumers money (lowest cost resource available) 3. Renewable Energy Resources decreases reliance on fossil fuels and improves the environment 4. Customer Choice and Retail Competition enables consumers to shop for lower rates as well as for services and technologies offered by alternative suppliers 8
Summary of Connecticut Electricity Industry Restructuring Achievements Significant investment in new generation. After a period of significant capacity growth from 2000 to 2004 (1,600MW), there has been a modest increase of 300MW since 2005. However, there are currently 4,000 MW of new generation currently under development. If all this capacity is eventually built, the state s total electricity generation capacity will increase by 50%. Substantial reductions in emissions. New generation has primarily been fueled by cleaner natural gas. These new facilities combined with existing fossil generation switching to cleaner fuels, and reduced output due to demand decreases, has cut carbon dioxide emissions from electricity generation by about 20%, nitrogen oxide emissions by 35% and sulfur dioxide emissions by 50%. Dramatic increases in energy efficiency and demand resources. Over 400 million kwh of electricity are saved each year from consumer-funded utility efficiency programs. This is enough electricity to power over 47,000 homes. Energy efficiency and demand resources are becoming a large portion of the state s energy resource mix. 9
Summary of Connecticut Electricity Industry Restructuring Achievements (Cont.) Development of renewable energy resources. The state s renewable portfolio standard requires electricity suppliers to purchase increasing amounts of electricity from renewable resources 27% of total electricity load by 2020. To date, there have been moderate increases in renewable resource development, mostly from biomass resources. There are several hundred megawatts of renewable generation being proposed including landfill gas, hydro, biomass and wind. Escalating success in retail competition. Since 2005, there has been triple-digit growth in the number of customers served by competitive suppliers, particularly in the residential sector. Today, alternative suppliers serve almost 20% of all customers and half of all electricity sold in the state. 10
II. Generation Investment 11
A modest increase in generation capacity since 2005 follows a period of significant additions (1,600 MW) from 2000 to 2004 Source: Ventyx Velocity Suite 12
A significant portion of generation capacity is fossil-fueled Source: Ventyx Velocity Suite 13
Switching from oil to cleaner fuels, newer and more efficient generation, and reduced output due to demand decreases has led to fewer emissions Source: Ventyx Velocity Suite 14
Proposals to connect new generation over time show significant activity in Connecticut Source: ISO-NE interconnection queues, 2006-2010 15
4,000+ MW of new generation is currently under development in Connecticut Source: ISO-NE interconnection queue, February 2010 16
Binding capacity commitments from new Connecticut resources to meet New England wholesale market needs Source: ESAI Power analysis of ISO-NE FCA data 17
Robust Response to State Requests for Proposals (RFPs) for New Supply and Demand Resources 2006 Connecticut Department of Public Utilities RFP Over 80 projects submitted, totaling 8,000 MW 33 projects submitted qualification packages, totaling 6,000 MW 22 financial bid submissions analyzed, totaling over 4,000 MW 2007 Connecticut DPUC Peaking RFP: 11 proposals totaling 1,800 MW Strong response to three rounds of Project 150 RFPs (for renewable energy projects) Rounds 1 & 2: 28 project proposals totaling 315 MW Round 3: 9 project proposals totaling 72 MW Large response led to increase program from 100 MW (Project 100) to 150 MW now under contract Sources: CT DPUC RFP results presentation April 23, 2007; CT DPUC Peaking RFP press release March 5, 2008; CCEF press releases December 26, 2006 and June 4, 2008 18
Summary of Generation Investment Achievements Almost 300 MW of new electricity generation capacity added since 2005 (Waterbury, Pierce (CMEEC), UConn, Waterside), on top of 1,600 MW added between 2000-04 (Wallingford, Lake Road, Milford) Most Connecticut generation is fossil-fueled No major generating unit retirements since 2005 Significant prospective additions: over 1,100 MW from state request for proposals processes Active, robust interconnection queue: over 4,000 MW under development in Connecticut Significant reductions in NOx, SOx and CO2 emissions since 2005 from cleaner, more efficient generation, fuel switching from oil to natural gas and reduced plant output due to the demand decrease 19
III. Demand Response & Energy Efficiency 20
Customer participation in ISO-NE programs to reduce electricity consumption during peak periods has increased significantly Source: ISO-NE Load Response Program reports 21
Substantial increase in energy and peak demand savings from utility efficiency programs across all customers (Connecticut Energy Efficiency Fund) Enough savings to meet needs of over 47,000 homes/year Source: CT Energy Conservation Management Board Annual Reports 22
Increased ratepayer-funded budgets for utility efficiency programs has significantly increased customer savings Ratepayer funds now exceed $100 million/yr Source: CT Energy Conservation Management Board Annual Reports 23
Energy efficiency programs have avoided the generation of power plant emissions Source: CT Energy Conservation Management Board Annual Reports 24
Large amount of Connecticut demand resources have been committed to provide capacity Significant existing and new Connecticut demand resources with binding capacity commitments to meet New England wholesale market needs Source: ESAI Power analysis of ISO-NE FCA data 25
Summary of Demand Response & Energy Efficiency Achievements Large increase in installed energy efficiency and demand response resources over 400 million kwh saved per year, almost 500 MW in peak demand reduction Significant avoidance of NOx, SOx, and CO2 emissions from energy efficiency programs - equivalent to taking 32,000 automobiles off the road Prospective increase in demand resources to 800-900 MW of capacity per year Significant ratepayer commitment to energy efficiency: C&LM budget exceeds $100 million per year 26
IV. Renewable Energy Resources 27
CT Renewable Portfolio Standard (RPS) Allows Many Eligible Resources Class I wind; solar (PV and thermal); fuel cells; landfill gas; sustainable biomass; ocean thermal, wave or tidal power; low-impact run-of-river hydro of 5 MW or less (post-july 2003); low emission advanced renewable energy conversion technologies; end-user sited distributed generation from any Class I resource Class II trash-to-energy; pre-july 1998 biomass; pre-july 2003 run-of-river hydro of 5 MW or less Class III Combined heat and power systems with 50% or more operating efficiency developed at commercial and industrial facilities in CT on or after 1/1/06; electric energy efficiency savings created at commercial and industrial facilities in CT from conservation and load management programs begun on or after 1/1/06; waste heat recovery systems installed on or after April 1, 2007 28
Connecticut RPS requirements include Class I mandate of 20% of load by 2020; total of all classes is 27% by 2020 Class II requirement can also be met with additional Class I 29
Successful compliance with RPS through purchase of renewable energy credits or alternative compliance payment Source: CT DPUC Annual RPS Compliance Reports 30
Location of renewable resources for CT RPS compliance varies with most Class I Renewable Energy Credits (RECs) in Maine, and most Class II RECs in Connecticut Source: CT DPUC 2007 RPS Compliance Report Class III REC data not available 31
Amount of renewable electricity procured through the state s RPS means less fossil fuel is consumed and fewer emissions generated Source: ESAI Power market heat rate analysis 32
Proposals to connect new renewable generation over time show significant activity in Connecticut and New England Source: ISO-NE interconnection queues, 2006-2009 33
Summary of Renewable Energy Resource Achievements Connecticut RPS and Project 150 (renewable resource development RFP from the state s Clean Energy Fund) have driven development of renewables in CT and the rest of New England In Connecticut, biomass projects have been the primary beneficiary of the RPS (Plainfield, Watertown) There has been a significant redirection of consumer dollars away from fossil fuels (primarily natural gas) and towards renewable energy A larger issue remains on where New England renewables should be located to reduce transmission costs and increase public support 34
V. Customer Choice and Retail Competition 35
Significant growth in number of customers served by alternate suppliers, with residential customers served topping 210,000 Source: CT DPUC Docket No. 06-10-22 Monthly Reports 36
Alternate suppliers serve almost 20% of all customers and half the total load of Connecticut Utilities Source: CT DPUC Docket No. 06-10-22 Monthly Reports 37
Dramatic growth rates in several measures of competition for retail load Source: CT DPUC Docket No. 06-10-22 Monthly Reports 38
CL&P customer switching to alternate suppliers has increased six-fold since 2006 Source: CT DPUC Docket No. 06-10-22 Monthly Reports 39
Almost half of CL&P customer load is supplied by alternate suppliers Source: CT DPUC Docket No. 06-10-22 Monthly Reports 40
UI customer switching to alternate suppliers has escalated dramatically since 2006 Source: CT DPUC Docket No. 06-10-22 Monthly Reports 41
Almost half of United Illuminating s customer load is supplied by alternate suppliers Source: CT DPUC Docket No. 06-10-22 Monthly Reports 42
Summary of Customer Choice and Retail Competition Achievements Substantial increase in retail access and competition triple-digit growth in customers and load served by alternate suppliers Alternate suppliers serve almost 20% of all customers and half of all electricity sold Growth in customer choice is across all classes of customers strong numbers of residential customers are now switching to other suppliers Significant entry of new suppliers into CT retail marketplace, further increasing competition 43