A bill making its way through the legislature could launch the most significant change in the electricity marketplace in Connecticut since deregulation took effect more than a decade ago.
CL&P and United Illuminating will continue to deliver the power, but hundreds of thousands of customers could be forced into other companies for their electric generation.
There are currently two groups of residential electricity consumers in Connecticut. 52 percent of customers use what’s called the standard offer. It’s a not for profit rate that’s provided through CL&P and UI, and negotiated by the two companies and state regulators. This accounts for nearly 880,000 customers. Everyone else is using competitive suppliers. There are dozens of companies operating in the state offering programs that vary from renewable energy to what’s marketed as low cost energy.
Under this proposal, the 880,000 customers that utilize the standard offer would be auctioned off in blocks of 100,000 to competitive suppliers. Any company bidding would have to provide a rate at least five percent lower than the standard offer for one year.
What concerns some consumer advocates is that this forces a choice on consumers who perhaps don’t want to leave the standard offer.
“50% of consumers in Connecticut have made a choice to stay on the standard offer,” said Elin Katz with the Connecticut Consumer Counsel. “And I think we should respect that choice.”
Katz says the standard offer as it exists is competitive, works well for many consumers, and she doesn’t like the idea of pushing 880,000 customers off of it. Katz says there are good competitive suppliers and savvy consumers can find some savings. But she points out the competitive market is also full of pitfalls.
“We see instances of short term teaser rates, and then people getting onto a variable rate that escalate much higher than they are even aware until they are three, four, five months into a billing cycle,” said Katz.
The architect of the plan is Daniel Esty, Commissioner of the Department of Energy and Environmental Protection. He argues that consumers will save immediately with the five percent discount below the standard offer in the first year, and he believes adding competition to the marketplace will drive prices down long term. Customers can also opt out of their assigned provider.
Esty compares a future competition driven electricity marketplace to how people consume cell phone service now.
“We think just as the public has learned to buy cell phone coverage in a very sophisticated way, there is also the opportunity that people know how to buy electricity and get the best possible price, and that the state gets the benefit of a robust electricity market,” said Esty.
Esty says the bill will provide education tools and new protections to safeguard consumers from shady business practices such as bait-and-switch teaser rates and a tactic known as slamming. That’s when customers are switched to another power supplier without their consent.
John Erlingheuser with AARP calls this proposal slamming on a large scale.
“If a private supplier did that, they would be fined very heavily and sanctioned by the state because it’s illegal,” said Erlingheuser. “Now the state is going to do the same exact thing.”
Both sides dispute the intent of the 52 percent of customers who remain on the standard offer.
“We think there are many rate payers who are, in effect, stuck there, who aren’t sure how to get out of the standard rate, who aren’t sure how to operate in the competitive marketplace,” said Esty. “So we want to pair this movement of people into the competitive market with more education about what it means to be an educated consumer of electricity services. ”
Katz believes that because of aggressive marketing, most consumers are well aware of the competitive marketplace, and those remaining on the standard offer have made the choice not to enter it.
“If you are satisfied and comfortable and you know that there’s a good reasonable price that you’re paying, and you’re getting it from your utility who you have a degree of trust in, then I think that’s a choice we should respect,” said Katz
We looked at ctenergyinfo.com, a website that’s operated by the Public Utilities Regulatory Authority which is under DEEP. It lists all electricity providers in the state. Consumers are actively told by DEEP and PURA that this is where you can find the best information on competitive rates. We compared the averages of different kinds of rates, such as fixed, variable, and promotional offers. There are several offers where consumers will find savings, but on average, the numbers on this aggregate website show that consumers pay more with competitive rates versus the standard option.
Commissioner Esty strongly disagreed with our findings, and insisted that according to his numbers consumers save. Through a DEEP spokesperson we requested that information. We have not seen their analysis.
Following our interview, DEEP spokesman Dennis Schain told NBC Connecticut that Commissioner Esty has ordered that the website energizect.com be fully updated. We followed up and checked the websites of the five largest competitive suppliers in the state. The published rates on their website matched the rates that we used in our original analysis.
While the consumer impact is up for debate, the financial impact is without question. When the state auctions off the 880,000 standard offer customers, Governor Malloy and Senate Democrats expect to take in $80-$100 million to be applied to the budget.
“His bill is simply a money grab for the state of Connecticut,” said Sen. John McKinney, R) Senate Minority Leader. “It would bring in $80 million that he would use to offset his big budget deficit.”
AARP’s John Erlingheuser is concerned about what happens to prices after the 5 percent guarantee below the standard offer expires. He also questions the intentions of some private suppliers.
“If you think that a private supplier is going to pay on average $100 and $150 for you as a customer, plus give you a 5 percent rate reduction which is only guaranteed for one year, and not make that money up in future years, then I have a bridge to sell you,” said Erlinghauser.
Democrats backing the bill are adamant that customers will be protected and that this is the future of energy.
“It’s going to mean good things for consumers, good for the state, bringing competition to Connecticut in electricity to further lower electric rates for Connecticut consumers throughout the state,” said Sen. John Fonfara, (D) Deputy Majority Leader.
Opponents are worried that this bill could be passed with a lot of loose ends, such as specific consumer protections and regulations, not spelled out.
“They’re going to sell you off, without your permission, and we’re going to lose control of the market for all of the future,” said Erlingheuser.