Governor Dannel P. Malloy’s controversial proposal to raise $80 million for the state budget by an energy auction involving more than 800,000 Connecticut electric customers is being retooled after strenuous opposition from the AARP and other critics.
There is little question in my mind that the original proposal would be terrible for Connecticut consumers.
The question of whether the revised plan will be end up saving electric customers money will depend on the changes to the proposal.
Basically the plan that was hatched at the state’s Department of Energy and Environmental Protection would end CL&P and UI involvement in selling electricity to their customers and Connecticut would become fully deregulated.
As it stands now electric customers have a choice between purchasing their electricity from more than a dozen suppliers or get the Standard Offer from their utility, which is not allowed to make a profit off that sale.
Slightly more than half of all Connecticut consumers have chosen the standard offer. Thousands switched back to the standard offer after discovering that some suppliers’ initial rates were lower than the standard offer but after a few months their rates increased and they ended up paying more than what the utilities were charging.
The biggest issue was that consumers were unaware that most of the alternative suppliers’ plans had fixed prices for only a short time. After the initial period, normally one to three months, prices became variable with the consumer having to check monthly on the going rate.
Scores of others complained of deceptive marketing with false promises of things like free airline points and free restaurant certificates.
The governor’s plan would involve auctioning off the 800,000 or so residential and small business customers to electric suppliers who the governor believes will pay an estimated $80 million to the state.
Customers would be auctioned off in blocks of 100,000 without asking for their permission.
DEEP Spokesman Dennis Schain said the unique proposal is intended to create real competition and thereby force prices lower.
“This is an opportunity to raise money and save money,” Schain said in a telephone interview. “The more competition would mean lower prices.”
“Electric rates in CT are down more than 12 percent in past two years – and the energy agenda being driven by Governor Malloy will drive them down even further. Lowering electric rates is critical to protecting the pocketbooks of CT’s families and make our state’s businesses more competitive so we can create more good jobs.”
But the AARP and other opponents say the proposal is not only radical, it doesn’t make sense.
In testimony earlier this month before a General Assembly committee, Barbara R. Alexander, an AARP consultant, questioned whether the proposal would generate the $80 million and said that prices would rise and be unpredictable.
Such a plan would especially hurt both low income families and the elderly, she said.
John Erlingheuser, AARP’s state advocacy director, says the present system provides protection for Connecticut consumers by having a set rate – the standard offer.
Now, he said, consumers can compare suppliers’ rates with the standard offer and make an educated decision on which rates are fair and where they would be better off in the long-run.
With the elimination of the standard offer there would be no benchmark for comparison, he said.
“They all have a vested interest in higher rates,” Erlingheuser said of the alternate suppliers. “This is a crazy, crazy thing.”
He used Texas as an example of what could happen in Connecticut.
A portion of Texas was deregulated in 2002. Prior to deregulation the price of electricity was 6.4 percent lower than the national average. Since deregulation the rates have been 8.5 percent higher than the national average.
And average residential rates in deregulated Texas are anywhere from 9 to 46 percent higher than in the regulated area, according to the AARP.
Schain said he was unable to address the Texas data, “but we feel that with proper oversight and protections a competitive marketplace is best for consumers. Isn’t that what the success of our nation is built on?”
Erlingheuser also questioned the proposal’s requirement that alternative suppliers would have to initially offer rates 5 percent lower than what CL&P and UI now charge.
CL&P is scheduled to revise its rates this summer and Erlingheuser said expectations are for a price reduction of 5 percent.
If that is the case, he said, consumers wouldn’t even see an initial savings.
But what worries Erlingheuser more is what happens after first year when under the proposal suppliers could charge whatever they wanted and could require a fee to transfer to another supplier.
“I have yet to find anyone who thinks this is a good idea other than the (DEEP) commissioner,” he said.
Schain said his department has listened to the critics and is convinced that the proposal can be changed to meet their concerns.
The plan that was submitted was only a draft, he said.
“We have to flesh out the details. We are looking for an approach that protects consumers and provides flexibility” for consumers to switch suppliers without penalty, Schain said.
He said the administration is also considering having some kind of a benchmark to help customers evaluate suppliers’ rates.
“We don’t want something that costs more money and makes it more difficult for people,” he said.
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