The Generation Service Charge currently makes up approximately half of the total customer bill, with the rest coming from transmission and distribution charges, systems benefits charge, and other special charges that the 2014 IRP does not project.
For comparison purposes, Figure 19 shows estimated historical and current Generation Service Charge rates for Standard Service for residential and small commercial and industrial customers in 2007 and 2014.116,117 As the chart shows, rates declined substantially from 2007 through 2014.
The 2014 IRP analysis projects the Generation Service Charge for Connecticut customers to increase over the next ten years.
Based on the capacity, energy,118 and estimated payments for renewables described above, DEEP
projects that the average Generation Service Charge will increase from 9.8¢/kWh in 2014 to 10.9¢/kWh in 2017, 13.4¢/kWh in 2019, and 16.0¢/kWh in 2024 in nominal dollars. This equates to approximately 9.2¢/kWh in 2014, 9.7 ¢/kWh by 2017, 12.2 ¢/kWh in 2019, and 13.1 ¢/kWh in 2024 (in constant 2014 dollars), as shown in Figure 19.119,120 Rates are not expected to regain pre-
recession levels in real terms during the study period, primarily because Henry Hub natural gas commodity prices are expected to remain below $6/MMBtu (in nominal terms) through 2024.
116 Estimated Standard Service rates shown in Figure 19 are based on a weighted average of filed rates for CL&P
(80%) and UI (20%), converted to 2014 dollars. These rates apply only to residential and small commercial and industrial customers that choose to take retail service from the Electric Distribution Companies. Hence, these rates are not strictly comparable to the projected future rates shown in Figure 19, which represent an average across all customers in the state.
117 Average for all customers; does not include costs for special contracts. 118
In Figure 19, “energy” costs include the costs of electrical loss net of loss refunds, congestion costs net of
financial transmission rights (FTR) revenues, costs of generator uplift, operating reserve costs, and an estimated 15 percent adder to account for other ISO-NE charges and a risk premium.
119 DEEP recognizes that the generation service charge will increase in January 2015 to levels above those
forcasted for 2017. There are two reasons for this: One, the average annual basis differentials was assumed to be about $2/MMBtu when the generation rate forecast was developed. Current natural gas basis futures are closer to $3.4/MMBtu, or $1.4/MMBtu higher than what was assumed. This would increase rates about 1.2¢/kWh higher than projected each year. In Figure 19, the projected dark blue bars would all increase by about 1.2¢/kWh. This would yield projected generation rates in 2017 of about 11¢/kWh. The second issue is that comparing the 2017 projections to the first half of 2015 is not quite apples-to-apples. The first half of 2015 likely reflects expectations for very high prices in January and February. This shows up in current natural gas futures for 2015 deliveries. Current natural gas basis futures are $3.4/MMBtu on average for the year, but $5.3/MMBtu for January – June and $1.6/MMBtu for July – December. Only looking at January – June, our updated 2017 projected rates would be about $12.6¢/kWh. This is similar to the standard service rates for first half of 2015.
120 The Generation Service Charge costs shown in Figure 19 do not include other components of customer bills,
such as transmission and distribution (T&D) costs, the net costs of mandated renewable investments (ZREC/LREC or Project 150 programs), or the cost of long-term contracts with the Kleen Generation,
AMERESCO energy efficiency, Waterbury Generation or Waterside Generation, and Devon, Middletown, and New Haven peaking generation facilities. Nominal rate projections must be interpreted in light of inflation, i.e., if inflation is 2%, a 1% increase in nominal rates means rates have decreased by 1% in real terms.
Figure 19
Annual Average Generation Service Charge for Connecticut Customers
Base Case Projection (¢/kWh)
The projected 3.4 ¢/kWh increase121 from 2017 to 2024 in real terms is due to several factors
affecting the New England region:
An increase of 2.2¢/kWh122 is expected due to regional capacity prices rising
to the level needed to attract new generation and maintain resource adequacy as retirements and load growth erode the capacity surplus that kept prices low in the past. Such price increases are to be expected given the fundamentals and a well-functioning market.
An increase of 1.0¢/kWh is expected due to rising energy prices in the region, caused primarily by natural gas commodity prices rising over time.
An increase of 0.2¢/kWh is expected due to rising costs of new renewable generation. This is due to the higher volume of renewable energy that will be purchased as the Class I requirement increases, and to a higher price paid as the scarcity of regional supply causes the Class I REC prices paid outside of the contracted or procured resources to be set by the Connecticut ACP.
Projected rate increases will affect customers, although energy efficiency programs will help keep total consumption approximately flat and consumption per capita slightly negative, thus moderating the effect on customers’ monthly bills. Resource strategies that may further lower
121 Small difference due to rounding.
122 Note that this is the difference from 2017 levels. The difference from current capacity prices would be higher.
Energy Capacity RECs 0¢ 2¢ 4¢ 6¢ 8¢ 10¢ 12¢ 14¢ 2 0 0 7 2 0 1 4 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 Actual Standard Service GSC GSC Forecast
customer costs are discussed in Section VII (Resource Strategies), with special focus on gas pipelines and renewable procurements.