When he unveiled his budget in February, Gov. Dannel P. Malloy offered a few new ideas to generate revenue, and at least one of those has been called “radical” by the senior citizen lobby.
In order to collect $80 million in new revenue, Malloy wants to auction off the power supplied by Connecticut Light & Power or United Illuminating to one of the state’s 40 or so “competitive” electricity suppliers that were allowed into the market after deregulation 13 years ago.
Deregulaton was supposed to create more competition among suppliers and drive down prices for customers. But so far the results have been mixed.
Even though CL&P and UI no longer generate power, they continue offering customers a regulated rate that is used by more than half of the state’s residents. The other half have switched to competitive suppliers.
Under Malloy’s proposal, blocks of 100,000 customers would be auctioned off to the competitive supplier willing to pay the most. Competitive suppliers would pay the state for the block of customers because it would allow them to save money on marketing to try and get consumers to switch from CL&P and UI.
“I like the stability of the standard plan and knowing that the state regulates its costs,” Nora Duncan, AARP’s Connecticut director, said last week during a conference call. “Other individuals like to be in the market for electric supply to see if they can get an offer that does beat the standard plan. The good thing is today we have that choice.”
Duncan argues that Malloy’s proposal eliminates the standard plan and forces those currently in that plan to another competitive supplier. That supplier will have to keep their rates low in the first year of the contract, but could increase their prices in the second and third year. As the bill is written, suppliers may also impose penalties if the customer wants to switch from its assigned supplier to another, according to Consumer Counsel Elin Katz and Attorney General George Jepsen.
“A customer today may rationally desire to stay with standard service to avoid the risks and hassles of closely monitoring their electric bill and analyzing dueling sales pitches in order to achieve at best small savings in the short run,” Katz and Jepsen said in their written testimony to the Finance Committee last month. “The state should not be forcing customers to contract for electric generation service with any particular entity.”
Competitive suppliers argue that the market isn’t working properly because CL&P and UI are still allowed to offer a standard plan. Chris Kallaher, senior director of government and regulatory affairs for Direct Energy, said last month that other markets don’t operate this way. For example, there is no “standard” offer or regulated price for food. The market operates without state regulation of price, he said.
The standard offer is the “last regulatory tool the state has to keep electric rates affordable,” Duncan said.
But proponents of the proposal say that’s just a “fear” tactic the organization is using to mobilize its membership.
Dennis Schain, a spokesman with the Department of Energy and Environmental Protection, said the administration is working with the legislature on the proposal. He said nothing in the bill has changed since the public hearing, but the idea is to give the consumer the “maximum amount of choice and flexibility.”
He said the proposal will benefit consumers by lowering electricity rates and increasing competition in the marketplace. He said the administration is continuing to work with lawmakers on “ways to set a meaningful benchmark.”
“Let’s not forget that for many years it was a substandard offer,” Schain said of the rate offered by the legacy utility companies.
One of the more than 9,000 AARP members on a conference called last week described the auction as a “hidden tax.” The description was apt, Janee Breismeister of AARP’s national office, said.
“We’re very, very concerned that the governor’s plan to auction off those consumers and change the standard plan service will result in higher and more volatile rates down the line,” Breismeister said.
But not everyone on the call was concerned about standard offer. At least one woman said she used a competitive supplier because she was able to choose renewable, green energy. She wondered if she would be able to keep them as her supplier.
Breismeister said she would. She just wouldn’t have the standard rate to compare it with, so she may never know for certain she’s getting a lower rate.
The Finance Committee has until April 24 to vote of the measure.