Deregulation Of Electricity Generation Has Sparked Little Consumer Interest

By Nancy K. Crevier

Nearly a decade after Connecticut Legislation required deregulation of the generation of electricity in Connecticut, paving the way for consumers to select suppliers other than Connecticut Light & Power (CL&P) or United Illuminating (UI), less than three percent of the approximately 1.5 million residential electric users have opted for a new supplier. Misunderstanding and fears that unknown suppliers will prove unreliable have kept electric consumers in the dark.

Deregulation opened the market for companies other than CL&P and UI to produce and sell electricity in the state. It was hoped that through deregulation, competition would increase and rates to customers in the northeast would decrease. Under the Standard Offer built in by the legislature at the time of deregulation, CL&P and UI were forced to provide a cap on prices ten percent below the rates of the late 90s. But resistance to change and pricing constricted by the Standard Offer rate created a poor environment for market competition. In 2004, a Transitional Standard Offer Period replaced the Standard Offer and removed the rate reduction in an effort to increase competition and choices to consumers by the year 2007.

Now, in mid-2006, alternative supplier options available to Connecticut consumers are slim and rates have leaped nearly 23 percent this year.

According to a report released in January of this year by the Connecticut Department of Public Utility Control (DPUC), only three competitive suppliers currently provide service to Connecticut residential customers. LEVCO Energy, an agent for Dominion Retail, offers generation services to customers in CL&P’s territory. The other two suppliers, Sterling Select and Community Energy, only offer Connecticut Clean Energy Options as add-ons to CL&P’s and UI’s service.

What consumers need to understand, aside from who the alternative suppliers are, is that while CL&P or UI no longer produce electricity at their own power plants, they continue to deliver power through towers, lines, and poles owned by the two companies. Emergencies and repairs are also provided through CL&P and UI as is customer billing.

Literature from LEVCO states that its savings plan provides generation of electricity at a lower rate than the 10.108 cents per kilowatt hour charged by CL&P. This rate applies only to residential customers who do not heat with electricity. As of February 2006, said DPUC spokesperson Ginger Teubner, 32,226 residential customers had switched to LEVCO. CL&P customers who believe they qualify may find it worthwhile to contact LEVCO at www.levcoenergy.com.

By purchasing renewable energy through Sterling or Community Energy or through LEVCO’s renewable program, consumers are making more of a social contribution than realizing an economic savings. By opting for renewable energy, electric customers will see an increase in their bill. A renewable energy premium that varies according to electricity usage is added to the CL&P or UI bill.

Nor does purchasing clean power mean that the “green” energy goes directly to the consumer. Rather, the purchased renewable energy goes to a regional grid. The benefit is seen down the line with the creation of cleaner energy for the future, less dependence upon foreign fuel markets and energy diversity (clean energy options include energy produced through wind, hydro and methane), as well as supporting renewable energy facilities.

Renewable energies reduce air pollution and slow global warming. As an investment in the future, consumers able to see past the dollar signs on their present electric bill may consider the monthly renewable energy premium of a few additional dollars a worthy outlay.

Connecticut residents, though, continue to wonder if and when any savings will come their way. There are a number of reasons why electric bills in Connecticut have soared this past year, but Raymond P. Necci, president and chief operating officer of CL&P in the spring 2006 New England Developments newsletter cited a lack of fuel diversity as a major cost factor.

“Connecticut used to have good fuel diversity, spread among nuclear, natural gas, coal and hydro,” Mr Necci said. “Now we’re very dependent on natural gas-fired generation.” The passage of the Clean Air Act shifted production of electricity to gas-fired power plants, adding to costly natural gas prices, he went on to say. Infrastructure problems in the region also add to the cost of electric supply as does overconsumption of electricity in the northeast. Until transmission problems are addressed and consumers take on the responsibility of conserving energy, Connecticut customers in the southwestern part of the state will continue to pay a federal congestion charge that adds to each month’s bill, as well, according to CL&P.

Reducing the cost of electricity was one of the main goals for restructuring, but that hinged upon inexpensive natural gas prices. Instead, today’s natural gas prices are at the mercy of supply and demand and of regional, national, and international events.

CL&P’s website explains that, “Prior to deregulation, utilities produced electricity and set their price based on various fuel sources that came from both old and new generating plants. But since the late 1990s, most utilities were forced to sell their generating plants due to deregulation. The price they pay now for electricity is set at the highest price necessary to serve the total demand for energy.” Because that cost has tripled since the late 1990s, the price customers pay for electric generation is directly connected to the price increase of natural gas.

The current Connecticut General Statute requires the DPUC to set a price for standard service by October 1, and thereafter, no more than four times a year. By January of 2007, CL&P and UI are required to supply electric service to any customers who have not arranged to receive service from a competitive supplier. With just three options currently available, only one of which professes to save the consumer money, the likelihood is that many Connecticut electricity consumers will remain with their current supplier.

Deregulation did not meet its goal of reducing rates for Connecticut consumers, nor should electric customers look for lower bills in the near future. Until transmission infrastructure is improved and the wholesale electricity market develops sufficiently to allow competition, and as long as Connecticut is dependent upon natural gas to fuel power plants, savings will not be realized through the generation of electricity.

“The biggest savings won’t be through supply contractors,” predicts DPUC’s Ms Teubner. “People need to think to conserve.”

CL&P and the DPUC both recommend simple steps to help alleviate the high usage rates in the region, such as replacing incandescent light bulbs with compact fluorescents. Lowering the thermostat to 68 degrees in winter and raising it to78 degrees in the warmer months is a more conservative approach to energy use. A programmable thermostat saves energy and money for most consumers. Other suggestions include running only full loads of laundry and using the air dry setting to dry dishes in the dishwasher. The efforts seem small, but can add up to big savings individually, according to the utility companies.

“Customers have to be proactive,” Ms Teubner said.