One of the largest alternative suppliers of electricity in Connecticut says it is confident that Gov. Malloy’s proposal to auction off more than 800,000 electric customers would raise at least $80 million for the cash strapped state budget.
Direct Energy spokesman Chris Kallaher said in a telephone interview with CtWatchdog that the $80 million was “a conservative figure” based on what acquiring companies have paid when purchasing other suppliers.
He said each customer is worth at least $100 to a supplier, but declined to say how much more.
Kallaher was responding to claims by AARP and other critics, who doubted that suppliers would pay as much money as the Malloy administration claimed in its controversial proposal.
Direct Energy, which sells electricity in 17 states and in Canada, has between 80,000 and 90,000 customers in Connecticut.
As part of his budget proposal, the governor is asking the General Assembly to fully deregulate Connecticut’s electric market and at the same time help raise revenue.
Now customers have a choice between purchasing their electricity from the two major utility companies – CL&P and UI – or from more than a dozen alternative suppliers like Direct Energy.
Slightly more than half of Connecticut electric consumers receive what is known as the Standard Offer from CL&P or UI. That rate is set by the state and the utilities are not permitted to make a profit. The remaining customers purchase their electricity from the alternative suppliers, whose rates for the most part are more volatile than the Standard Offer.
The governor’s proposal would auction off – in groups of 100,000 – those who now receive the Standard Offer without asking for their permission.
Kallaher disagreed with statistics provided by AARP which showed that in Texas – which is largely deregulated – the electric rate is higher than the national average while prior to deregulation it was lower.
Data provided by Kallaher shows that in deregulated areas of Texas the price of electricity dropped significantly since deregulation 10 years ago.
Kallaher said the Connecticut proposal needs to have consumer protections in place for it to be viable.
For instance, he said Direct Energy is in favor of keeping a Standard Offer and permitting any of the 800,000 to “opt out” from the auction and remain with the utilities.
However, if the pool of customers who don’t want alternative suppliers is small, the Standard Offer would become more volatile and rates could change monthly as opposed to yearly.
“We don’t see volatility as a particular bad thing,” Kallaher said because it would pressure consumers to be more careful with the use of their electricity.
“A certain amount of volatility” is needed, Kallaher said. “People should know that if you run your air conditioner in August it is more expensive than” in the cooler months.
AARP sees volatility as something that will hurt the elderly and low income who would have trouble budgeting for rate spikes.
Kallaher says that a fully deregulated market, combined with smart meters that measure when electricity is used, would usher in a new era of innovation and conservation.
These measures could mean that consumers could be guided to use electricity more on days or at times when demand is lower. That could be accomplished by charging less for electricity when demand is low and charging higher prices when demand is high.
He said the purpose is to prevent the need to build additional power plants which would only be needed and used at peak demand times.
The governor’s proposal also calls for setting maximum rates for the first year at 5 percent lower than the Standard Offer.
To further protect consumers, Kallaher said his company is in favor of setting a ceiling on how much rates could increase in the second and third year of deregulation.
Kallaher said “there is a lot of concern about after the 12 months…the suppliers jacking the prices up.”
He said it is not enough to tell customers that competition will prevent rate spikes.
And he said it would be important to permit customers to switch from one provider to another without having to pay a termination or exit fee.
“The last thing we would want is to go forward and have people think that it (deregulation) was a bad thing,” Kallaher said. “We want to see this as a success so we can replicate in other states.”
Kallaher said he is “cautiously optimistic” that the proposal “will survive in some form” and Connecticut will become a fully deregulated state.
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