Deregulation Sputters in Connecticut

Jan. 16, 2002
Bottom Line Energy Issues - January 2002 - Part 5 of 6
When it was launched two years ago in CT, retail competition was expected to unleash a rash of marketers mailing and calling users to persuade them to buy electricity like long range telephone service or low-interest credit cards. It did not happen. Prices have remained stable and buyers get their power like they always did. The lack of competition created by the good intentions of the CT legislature was assured when the default standard offer rate was set by the PUC at 10 percent below the authorized regulated rate, e.g. 5.5 cents per kilowatt-hour. At that rate no supplier has figured out how to make enough money to pay for the necessary marketing and book a reasonable profit, and customers have no reason to shop. Competition was stifled because the legislature tried to guarantee savings to consumers and protect them from politically incorrect price spikes simultaneously. Not much different from the California Plan that resulted in blackouts and utility bankruptcies. The only major differences are that New England has sufficient generating capacity to prevent wholesale price spikes and a functional transmission grid exists to serve the region. However, Select Energy, unregulated arm of Northeast Utilities that provides most of the standard rate supplies, has experienced declining profits as wholesale prices have risen.  Roughly half of a CT monthly electric bill is subject to competition for generating supplies. The rest is composed of fixed rates for transmission, administrative costs, and amounts set aside for conservation and developing alternative resources. In the old days, Northeast Utilities and United Illuminating served the state as controlled monopolies. Rates, including profits, were set by the PUC. Under deregulation, both companies were forced to sell their generation plants and buy power at wholesale while providing local distribution under state control. Municipal utilities serving Groton, Norwich, and Jewett City were exempted. Both NU and UI have called for increasing the standard offer rate. They argue persuasively that it is set too low to invite any real competition from additional suppliers. Attorney General Richard Blumenthal disagrees. He said the idea that a rate hike is necessary to foster competition, “should be laughed out of the PUC.” He added, “The intention of the law was not to promote switching companies for its own sake.” Eugene Koss, attorney for the state Office of Consumer Counsel said that NU’s demand for a higher standard offer rate defies logic. Koss said, “What they are saying is: we are going to help customers by charging them more.” The PUC has announced it will open proceedings in 2002 to examine the restructuring rules and explore ways of improving them. The state legislature seems to be headed in that direction also.Continue Article >> Commentary

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