Alternative Supplier Hoping For Electric Auction Of 800,000 Customers In Connecticut

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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3 Comments on "Alternative Supplier Hoping For Electric Auction Of 800,000 Customers In Connecticut"

  1. “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.”

    Sounds like Direct Energy had a hand in crafting the law. Wonder what kind of kickback Malloy and the proponents of the law will get.

    Seems to me that selling the customers of the utilities ought to worth something ……..

    “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.” But that forth year mmmmmmm bet he can’t wait.

    Hope those seniors and customers just happy with sticking with the set rate from the utilities pay attention.

  2. John erlingheuser | March 31, 2013 at 7:04 am |

    I stand by the figures aarp provided in Texas . Just speak to anyone in texas who does not stand to make money from the deregulation in the market. The volatility that Kallaher spoke of was what we experienced before the office of procurement manager was created to successfully bring down rates on a stable standard offer. What good are supplier discounts off of a volatile costly standard offer. I am not surprised by DirectEnergys, based in Texas, support for fully deregulating the electric market in Connecticut, they are in line along with other suppliers to make millions off the proposal. Just imagine the profit to be made if they are willing to pay more than 10 million dollars for the rights to 100000 customers. The 5 percent rate reduction that everyone speaks of is based on standard offer rates on April 1st and is only for 1 year. Cl-p standard offer rates are expected to go down by at least 5 percent in August according to the procurement manager, so ratepayers are not really being promised anything. Finally the smart meter proposal would mean that seniors who are home during the day during peak hours would be paying the highest rates. They need air conditioning during the day during the summer and use expensive medical devices frequently that require a lot of energy. This was cause a shift rates having seniors pay more expensive peak rates, or risk health and safety by conserving during times when they need air conditioning etc. deregulation of things like electricity has proven a failure in all the states that tried. We should not go forward and protect Connecticut’s ratepayers.

    • Shirley Bergert | April 1, 2013 at 3:03 pm |

      Here is the real test: Why is it that every credible consumer interest is opposed to this auction? Why is it that the interests who stand to make a lot of money are the supporters? And you can’t safely experiment with this. As soon as you dismantle the procurement oversight staff at PURA who handle a very complex bidding system in a very complex market (to the benefit of consumers), and the utility staff who deliver electricity from the standard offer, it will take years to rebuild any semblence of a system to protect consumers.

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