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Will Your Electricity Be Sold To The Highest Bidder?

by | Mar 5, 2013 7:00am () Comments | Commenting has expired | Share
Posted to: Energy, State Budget

If you’re one of the 55 percent of Connecticut residents who still buy their power from one of the legacy electricity companies, then Gov. Dannel P. Malloy wants to sell your power to the highest bidder to help fill the state’s coffers.

In order to collect $80 million in new revenue as part of his budget proposal, 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.

The idea has some consumers concerned.

Bryon Peterson, an AARP volunteer from Shelton, said he decided to buy his electricity from a competitive supplier and seven months later was asking to switch back to his legacy electricity company. He said he was getting charged 35 percent more than what his utility company, United Illuminating, was charging and his usage had not changed.

He said he later learned he was offered a teaser rate to get him signed up, but that rate expired a few months after he agreed to the switch. He said of the 40 suppliers available, about three or four have fixed rates and the rest offer variable rates.

“It was 35 percent higher than the standard offer so I switched back to the utility I used for 30 years,” Peterson said. “I’m not dumb because I suddenly became a senior.”

He said he just didn’t want to have to spend that much time analyzing his electric bill each month.

These retail or “competitive” suppliers of electricity have been around for 13 years now, but about only 45 percent of Connecticut’s residential customer base has made the switch.

Chris Kallaher, senior director of government and regulatory affairs for Direct Energy,  said his company — which is one of the state’s competitive suppliers — would gladly bid on the 800,000 customers still using legacy electricity companies. It would save his company money on marketing to customers to try and get them to switch from the two utilities.

Sen. Kevin Witkos, R-Canton, said he was a skeptic himself, but he recently switched over and is satisfied with the savings. But he pointed out that Attorney General George Jepsen and Consumer Counsel Elin Katz have expressed concerned about the amount of consumer protections in the bill.

Kallaher said he’s in favor of transparency and would gladly add more.

“For example, when you get past the initial guaranteed price savings period, we think it would be absolutely appropriate to make sure it’s very prominent on the bill — not just what the price is you are now paying, but what the price was last month,” Kallaher told the Finance, Revenue, and Bonding Committee Monday. “You occasionally worry about the unscrupulous marketer.”

He said there should also be an educational effort to let consumers know this is something to which they have to pay attention. He said the 55 percent of consumers not using a competitive suppliers need to be thinking about their energy consumption.

But Rep. Jonathan Steinberg, D-Westport, said the proposal makes him nervous because few details have been fleshed out and Connecticut would be “pioneering here without a lot of experience.”

It’s unclear if the legislation would default the 800,000 customers into a competitive supplier and leaves questions about how many would remain on standard service. The present proposal does force suppliers to stay 5 percent below the standard offer for at least a year, but according to Katz it does not dictate what would happen with rates in the second and third year of the proposal.

“Coupled with the possibility of a penalty provision to leave the contract, as just discussed, this proposal may force customers into a Hobson’s Choice of either accepting the risk of a high electric price for the second and third years or paying a large one-time penalty,” Katz said. “Obviously, the fact that this proposal would allow this presumably unintended result warrants some adjustment to the language.”

Barbara Alexander, a consumer affairs consultant for AARP, told the Finance, Revenue, and Bonding Committee on Monday that the budget language is silent on whether customers would be charged a fee for leaving a competitive supplier who won their business at auction.

“While supporters claim that a customer can choose to return to the standard plan or another service after the switch, there is no assurance that this so-called right won’t come at a high cost,” Alexander said. Like Katz and Jepsen, Alexander worries that suppliers will have complete discretion to change prices, establish monthly variable prices, and change other contract terms without the customer’s affirmative consent.

Kallaher said the consumer protections are already in the market and he’s happy to talk about adding more, but he doesn’t think it should move the state away from being fully competitive.

He said every day people buy things like gasoline, which is essentially purchased on the spot market.

“If their car runs out of gas there is not a state regulated gasoline utility that comes to their house and fills their car up,” Kallaher said. “They make decisions every day about how to spend their gasoline dollars and who they want to buy it from.”

Jepsen and Katz believe customer choice requires that customers must be allowed to choose a competitive supplier other than the winning auction bidder. They also believe like AARP that the standard offer needs to remain to act as a sort of benchmark.

Kallaher doesn’t believe the utility needs to be in the business in order to protect customers. He believes the market will work itself out even if there is no standard offer. He said there is no “standard” offer for the price of food. The market operates without those types of regulations. 

He said the 45 percent of customers who have made the switch are largely happy with the competitiveness of the market. He said 95 percent of the customers his company deals with don’t return to the public utilities when they drop his company — they go to other competitive suppliers.

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Comments

(3) Archived Comments

posted by: Noteworthy | March 5, 2013  12:32pm

What gives the state the right to sell a consumer’s account to anybody? The state doesn’t own it.

posted by: Chris Kallaher | March 6, 2013  9:27am

Standard service exists only because the state created it.  The legislature has the right to change it if those changes are in the best interests of the state, which these are.  Plus, the utilities didn’t pay to have these customers but others will, for everyone’s benefit.

posted by: Noteworthy | March 7, 2013  8:14am

lol. That’s rich. The state didn’t spend a dime to create anything. It’s a regulator and the shareholders of the utilities are the ones who paid, along with a utility’s customers via their bills that provided the funding for the infrastruture and accounts. But that’s an interesting take…literally. And of course, what the state takes, will show up in our utility bills so that not only do we pay the highest bills in the state, under this half-ass scheme, we’ll end up paying really, really untouchable rates. That’s the kind of comfort Malloy enjoys. He is trying to lower our booze bills which I guess is the consolation prize.

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