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September 2, 2024

Businesses join outcry over spike in CT electric rates; here’s how they are responding

HBJ PHOTO | DAVID KRECHEVSKY George LaCapra Jr., president of UniMetal Surface Finishing, said his company will eliminate two positions due to a recent spike in electricity costs.
By David Krechevsky

CKS Packaging Inc. is a national plastic container manufacturer with a production facility in Naugatuck. It has 27 plants nationwide that, combined, use more than 300 million kilowatts of electricity per year.

According to Mike Bonsignore, chief sustainability officer and vice president of strategic initiatives for CKS, that means a single plant like the one at 10 Great Hill Road in Naugatuck uses, on average, about 11.1 million kilowatts annually — enough to power more than 11,100 homes.

That explains why July’s sudden spike in the plant’s electric bill was so devastating.

“If you take the difference between what we were paying and what we’re paying on that now, … it has an impact of about $350,000 a year,” Bonsignore said.

He added that, through the first seven months of 2024, the total cost per kilowatt-hour at the Naugatuck facility is up 59% when compared to the same period last year.

Bonsignore and CKS Packaging aren’t the only ones howling about the cost of electricity in Connecticut.

Residential customers of both Eversource Energy and The United Illuminating Co. (UI) were also shocked in July when their electric bills ballooned — an average of 30% for Eversource customers and 35% for UI customers.

Their furor was equalled by the aggravation of executives from other commercial and industrial companies, and especially manufacturers, who say state officials need to address a variety of issues related to energy in the next legislative session to make the cost of power more stable and predictable.

Connecticut has the fourth-most expensive electricity in the nation, behind only Hawaii, Maine and Florida, according to a study released in February by Texas Electricity Ratings.

Public benefits charge

The electric utilities cited a couple of reasons for the dramatic increases, but primarily point to the public benefits charge collected on the delivery side of the bill.

The public benefits charge collects money to support renewable energy sources and energy efficiency programs, but now also recoups $160 million in revenue the utilities could not collect during a four-year moratorium on power shutoffs for nonpayment during the COVID-19 pandemic.

However, the largest portion of the charge’s increase, roughly 77% or $605 million, is related to an agreement approved by the state legislature to continue buying power from the Millstone nuclear power plant in Waterford.

The increases took effect July 1, and will be collected for 10 months.

“All customers saw an increase in the public benefits portion of the bill,” said Jamie Ratliff, a spokesperson for Eversource. “So, starting in July, large commercial-industrial customers saw an increase of approximately 57% to the delivery portion of the bill.”

Small and medium businesses saw a 42% increase to that portion of their bills, she said.

The impact of the increase was heightened, Ratliff added, because of the timing, since electricity usage generally rises during the heat of summer.

“Usage plays a significant role in this as well,” she said. “This past July was the hottest on record for the Central Connecticut region. So, that plays a huge factor in the bill total too.”

State policymakers were considering a special session to address the spike in electric rates, but nothing was planned as of press time on Aug. 28.

‘It really, really hurts’

Like CKS Packaging, many manufacturers are feeling the pain.

On its website, the Connecticut Business & Industry Association (CBIA) said some businesses saw electricity delivery charges “soar as much as 60%” in July from a month earlier, “despite — in most cases — little change in usage.”

The web post provided some examples, including a Hartford County nonprofit that “was hit with a $13,666 bill for partial July use, a 58% jump over June” despite similar usage; a Watertown manufacturer whose delivery charge jumped 44% to $18,632 in July; and a Windham County manufacturer that saw a 23% increase over its June bill — for just nine days of power use — with similar usage.

George LaCapra Jr., president of UniMetal Surface Finishing, which has facilities in Thomaston and Naugatuck, said his company’s electric bill will cost $136,000 more over the next year.

“That’s a significant impact to a business,” LeCapra said. “I mean, it’s a high-volume, low-margin business.”

HBJ PHOTO | DAVID KRECHEVSKY
Newly metal-plated screws fall off a conveyor belt at UniMetal Surface Finishing in Thomaston.

To absorb the increase, UniMetal will eliminate two positions, he said.

“We adapt,” he said. “This is a constantly evolving business. We’re constantly trying to be more efficient and more productive than we’ve ever been, but when you get unexpected stuff like this, it really, really hurts.”

Howard Goldfarb, president of architectural aluminum products manufacturer Leed Himmel Industries in Hamden, said his company, a UI customer, also has sought to adapt by being more energy efficient.

“We make architectural aluminum. We paint it, we anodize it,” he said, adding that the anodizing process, which coats metal with an oxide layer, uses a lot of electricity.

“We changed our processes, built some new equipment, and used variable frequency drives, which use a lot less power,” Goldfarb said. “It uses about a third less power than the standard motor drive on a piece of equipment.”

Leed Himmel also swapped out 600 or 700 lightbulbs in its facility for LEDs to reduce energy consumption.

Even with all of that, his company faces a monthly electric bill “that could be close to $40,000,” he said. “There’s no way we can afford to do this.”

To try to alleviate the impact, Goldfarb said, Leed Himmel is imposing an energy surcharge for its customers of six-tenths of 1%, or $6 for every $1,000 billed.

“Do I want to do that? No, I don’t,” he said.

Doug Johnson

Doug Johnson, owner and president of Marion Manufacturing Co. in Cheshire, said he is “a little perplexed on my next move” to offset the increase in his metal-stamping company’s electric bill.

According to Johnson, Marion’s bill jumped $2,600 in July. “It’s going to be a big expense for us for the next 10 months,” he said.

What makes it especially painful, he added, is that Marion, which employs about two dozen people, is growing and trying to add workers while also preparing to make a $250,000 investment in a robotic inspection and packaging system. Marion also installed variable frequency drives to reduce its power usage.

“In a small manufacturing company, cash is key,” Johnson said. “But we just got hit with this huge electrical increase, so it’s a daily struggle.”

The bottom line

Chris DiPentima

CBIA President and CEO Chris DiPentima said the spike in electric delivery costs is especially painful for manufacturers because they generally don’t have high profit margins.

“Let’s say you’re making a 10% margin,” he said. “Most manufacturers are reinvesting 3% to 5% of their profits — half of your 10% — back into capital equipment and facilities to stay innovative, to stay automated, to stay cost-competitive compared to the rest of the country. So, there goes half your margin right there.”

In addition, he said, Connecticut has the fifth-highest wages in the nation, which further reduces the margin.

“You get a spike like this, that eats your entire bottom line,” he said.

Unfortunately, DiPentima said, there is likely little the state can do in the short-term to address the delivery charge spike.

However, down the road, including during next year’s legislative session, policymakers must address the state’s high electric costs, he said.

While the state is slowly moving toward solar and wind power, generating electricity here remains a challenge. At the same time, “we know energy demand is going to double over the next 20 to 30 years,” DiPentima said.

“ISO New England (the region’s electric grid operator) has said there are going to be cost increases because we’re moving towards green energy,” he said. “That’s the choice we’ve made in Connecticut. … We know green energy is going to be more expensive than more traditional energy, so how are we going to pay for that increase in energy demand? You’ve got to put that plan in place now.”

Senate Republican Leader Stephen Harding, of Brookfield, said the GOP next session will re-propose several reforms that aim to better control electric prices, including limiting all future power purchase agreements to rates that are no more than 150% over the wholesale electric market price.

That would ensure Connecticut doesn’t pay exorbitant prices for clean energy, including wind power, Harding said.

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