Rate Shock Protection—

Town

Locks In Electric Rate

By John Voket

While homeowners and businesses may be left a bit more in the dark when it comes to negotiating lower rates for electricity in the coming years, all of Newtown’s electricity purchased after next January 1 will be delivered at a fixed and economical rate through December 31, 2009.

Responding to questions about how well the town was going to cope financially as electrical rates increased this week, First Selectman Herb Rosenthal expressed concern for the short term. But in the long run, he was pleased to report that Newtown is positioned to lock in an attractive rate of slightly less than 9.7 cents per kilowatt hour from a company called Constellation New Energy.

According to the first selectman, the deregulation of power generation, which originally took effect in 1998, recently provided an opportunity for Newtown to buy into a statewide consortium of municipalities and school districts that will begin paying a number of new market vendors for power generation.

“Transmission and distribution is still exclusive to Connecticut Light and Power (CL&P) because they still own all the poles and power lines,” Mr Rosenthal explained. “But generation is the piece that was broken off as a result of deregulation.”

He said if a consumer examines their electric bill, they will see charges for transmission, distribution and generation. Until December 31, 2005, a significant number of residential, commercial and municipal electricity consumers in Connecticut were paying CL&P or United Illuminating (UI) for everything.

But as the deregulation process continued to shake out, a group called the Connecticut Consortium for Quality Purchasing began looking into ways it could parlay its experience in bulk buying of everything from copy paper to copiers and hundreds of other commodities into accessing more affordable rates for electrical power.

Never Pay Retail

The former assistant superintendent for Region 15 serving Southbury and Middlebury, Edward Arum, was one of the principle representatives for this consortium. Mr Arum told The Bee Wednesday that for the remainder of 2006, CL&P customers who locked in an annual rate with the company will pay a “blended rate” of about 9.3 cents per kilowatt hour.

But once CL&P’s fixed costs to acquire generated electricity from new deregulated suppliers lapses on December 31, 2006, Mr Arum expects the company’s rates to jump up to 12 cents or more. This is where the consortium’s bulk buying power kicks in to provide municipalities like Newtown some significant savings.

“From July 1 to December 31, 2006, CL&P will be paying close to 12 cents per kilowatt hour to buy generation from other companies,” Mr Arum said. “I would assume CL&P will not be able to get that after December 31, 2006. The general retail market rate for generation is already set at or above 12 cents for 2007, and there will still be other costs for transmission to factor in.”

The consortium of 67 towns and boards of education that will be able to access generation rates from among a four or five providers operating in the state have quite a bit of negotiating power, he said.

“This year our total market was over three million kilowatt hours,” Mr Arum said.

Mr Rosenthal said for this year, Newtown would be positioned to minimize the financial shock of phased-in electric rate hikes that were approved by the Connecticut Department of Utility Control December 28, 2005. He said Newtown had budgeted a 20 percent increase for electricity in the 2005-2006 budget.

“The municipal side of this year’s budget reflects an increase from $50,000 to $60,000 for electric power,” Mr Rosenthal said. The Board of Education’s budget reflects an overall 16 percent increase for fuel and utilities, but a preliminary review of the figures revealed that the breakout increase for electricity was only calculated at five percent.

The first selectman said the school district budgets most of its utilities and fuel under a single expenditure that includes diesel fuel, natural gas, heating oil, propane, gasoline, and electricity.

DPUC Action

In late December, a DPUC approval cleared the way for CL&P to initiate an initial average rate increase of approximately 17.5 percent beginning on January 1, 2006. Then, on April 1, rates will increase again by an additional 4.9 percent to a total of 22.4 percent. 

As a result of this phased-in increase, the average residential customer using 700 kilowatt hours (kWh) per month will experience an increase of approximately $18.25 in his/her monthly electric bill on January 1, 2006, and an additional increase of $5.11 in the bill, for a total of $23.36, beginning April 1, 2006, the release stated.

UI, which serves about 350,000 customers in the New Haven and Bridgeport areas, is seeking an 8.5 percent increase over four years. DPUC could issue a draft decision on that rate hike this month.

The recent CL&P rate hike confirmation was followed by an announcement last Tuesday that Norwalk-based Levco Tech Inc, which was already supplying somewhat less expensive generation to about 34,000 homes, had discontinued its service to about 19,000 residential customers on December 31. The action, by CL&P’s only residential generation competitor, forced more than half of Levco’s clients to switch back to CL&P for electric service, The Hartford Courant reported Wednesday.

The company has temporarily stopped signing on new customers as well. During 2005, Levco provided about 34,000 households with slightly cheaper electricity rates, but said it was unable to continue serving that many power users.

The Courant reported that company co-owners Edward and Philip Levene said as power costs rose along with oil and natural gas prices, the company began losing money by trying to serve all its customers. Levco’s co-owners said losing 19,000 customers was a painful setback for a company whose goal has been to sign up 100,000 customers. 

While this news currently leaves a significant majority of Connecticut residential customers with one less electrical supply alternative, the consortium’s bulk buy-in will provide some minor relief to participating municipalities and school districts. A website, www.wattsnewct.com, lists one additional direct residential supplier and one aggregator currently approved by the DPUC to operate in the state.

Jennifer Janelle, an attorney with Shipman and Goodman, the law firm negotiating generation purchasing for the consortium, said the decision for Newtown to participate was sound. “I believe that joining the pool is in the best interest of [Newtown],” Ms Janelle wrote in a memo to Mr Rosenthal. “Additionally, the more towns and boards that join in the pool, the better the savings are likely to be.”

Future Shock

Connecticut Light & Power’s 22.4 percent increase comes about seven years after the legislature passed a far-reaching law that deregulated the state’s electric utility industry in hopes of lowering rates for residents and businesses, ending electric monopolies and bringing more power plants into the state.

While no one is predicting the legislature will roll back deregulation, lawmakers know they will be asked to find ways to address the price spikes and figure out what happens at the end of 2006 when a standard rate for customers who get their power from CL&P or United Illuminating Co. expires.

“The problem is, there isn’t retail competition right now,” said Rep Kevin DelGobbo, R-Naugatuck, ranking Republican on the legislature’s Energy and Technology Committee. “There’s no silver bullet answer to any of this. You can’t put the genie back in the bottle and go back to the way it was. The costs would be prohibitive and I don’t think the system works.”

Mr Rosenthal, who also serves as the president of the Connecticut Conference of Municipalities said there has also been a lot of concern about the state being divided up into two different rate areas with higher rate allowances for Fairfield County.

“I’m not calling it that, but it’s almost like a punishment because Fairfield County communities don’t want generator [plants], new utility lines and infrastructure improvements,” he said. “I think the problem has grown beyond even the state’s ability to handle it. It may end up falling on the federal government to figure out how to keep the energy supply flowing, at rates and in capacities that don’t continue to make us less competitive in attracting and keeping industry.”

Mr Rosenthal said the situation involving high energy costs has already taken a legitimate toll on the state’s economic health.