Malloy’s Controversial Energy Auction Proposal To Fully Deregulate Connecticut’s Electric Market To Be Retooled

March 22, 2013
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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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10 Responses to Malloy’s Controversial Energy Auction Proposal To Fully Deregulate Connecticut’s Electric Market To Be Retooled

  1. Glenn on March 23, 2013 at 12:04 pm

    I haven’t seen anything that Malloy proposed, that was good for the tax payers. He has his eye on one thing, the 80 million the state will get from this scam, to fuel his addition to spend more money!

    When it all goes bad, like it has in other states, he will have a well prepared double talking speech, to woo us with.

  2. Kevin on March 24, 2013 at 8:14 am

    The one person who is in a position to be bought out by the electric companies he regulates is proposing a bail out for his new buddies because everyone is pulling out of their overcharging companies. This is so obvious it’s criminal.

  3. RBM on March 24, 2013 at 5:23 pm

    I’ve rented a one-bedroom apartment for years, and average about $15 of electricity per month. But to get that electricity from an alternate supplier to my residence, I have to pay another $30 in delivery charges to CL&P to use their transmission infrastucture. A large portion of CL&P’s delivery charge is a customer service charge that is currently $16, an amount that has been rising steadily over the years. (Some years ago it was $9.00 or $9.50.) Put another way, each CL&P account-holder owes CL&P $16 a month even before they use one iota of electricity. It is a mandatory fee if you have an account with them. Although I use about the same electricity now that I did ten or fifteen years ago, the main reason for my electric bill increase is this customer service charge. The governor and his administration can monkey around all they want with forcing people to use alternate suppliers, but electric costs will never go down if the deliverer of the electricity – CL&P – can increase its customer service charge or any of the other myriad itemized charges that they bill each account for delivery.

  4. Jim in Mfg on March 25, 2013 at 10:51 am

    Any savings from an auction should accrue to the RATEPAYERS.
    Currently CL&P and UI provide standard offers and presumably get competitative bids from Energy producers. Why don’t we just force them to pass those savings through to the ratepayers, overseen by our that wonderful taxpayer funded agency, PURA.

  5. Deb on March 25, 2013 at 6:12 pm

    I noticed when CL&P’s Std rate went down at the beginning of the year, my supplier’s rate changed to be just pennies lower, when prior to this their rate had been noticeably lower, i.e., supplier raised their rate. For some time now, I have had higher distribution & transmission cost from CL&P, then the cost of 400-500 kwh/month from the supplier.

    If this new plan goes into effect, we will be shopping every month for a new supplier – this is NOT a PUBLIC utility!

  6. Ed P on March 25, 2013 at 7:35 pm

    Thid deal smells bsd. I doubt the customer will save a penny. Whose pocket will be lined with gold?

  7. Shirley Bergert on March 26, 2013 at 10:32 am

    I cannot conceptualize how this proposal can be fixed. I have been involved in energy work since 1976, watching developments and lobbying for consumer interests. This proposal will involve a short-term gain for the state with one time revenues, in exchange for a long-term loss to electric consumers with increasing electric rates. The suppliers who bid for blocks of customers have had 13 years to become competitive, but have not done so. As the article notes, some have engaged in dubious marketing practices. The bid process would eliminate any need for them to be competitive — they currently tie their rates to UI and CL&P’s competitively bid “standard offer”, usually beating it initially, but then quietly often charging more for electricity. Without this “standard offer” there will be no benchmark against which to measure the reasonableness of what suppliers charge as they treat their costs as proprietary information. Low income and working poor households will particularly be at risk, with limited time and ability to navigate the so-called “market”. With the exception of dedicated funds for development of efficiency (CT has award winning cost-effective programs — go to energizect.com to identify programs to help you) and funds to develop creative renewable energy programs, deregulation has been a bust for residential consumers and this will only make it worse. Our only rate protection is a viable standard offer, which this proposal will functionally destroy.

  8. Ken on March 26, 2013 at 2:05 pm

    The entire idea is ridiculous and insulting whether it would save ratepayers money or not. I’m an adult and I’ll manage my affairs as I see fit! Personally I’ve been with alternate suppliers since the option was available and I’ve always saved quite a bit over the standard offer. But just like Bloomberg being a nanny-tyrant over soft drinks we don’t need DEEP or Danny-boy Malloy treating us like children and telling us who we can and cannot buy electricity from.

    Hey Nanny Malloy, why not auction off all of the bank accounts of people who pay high fees to banks like BofA, Wells Fargo, etc. There are lots of credit unions and regional banks that are much better deals for we ign’ant hicks!

  9. Don Reder on March 26, 2013 at 2:27 pm

    I remember thinking when deregualtion came to Connecticut that they were fixing a problem that didn’t exist. And when I read that the state was preparing to auction my electricity account without my permission to one of the companies that I already decided I didn’t want to use, I was amazed that I was being disenfranchised in this way.
    Haven’t we already seen that the “more competition would mean lower prices” statement of the DEEP has proven false? And how does one achieve the “proper oversight” that the DEEP’s Mr. Schain speaks of in the context of total deregulation? Isn’t that oxymoronic? Please, State of Connecticut, don’t do me any more favors and leave my utility choice up to me.

  10. Dennis Rau on May 29, 2013 at 11:59 am

    Deregulate electricity? Why not deregulate cable tv?
    DEEP should look after their business better, including vendor selection,
    then talk about oversight. One should do their best today to build a platform for tomorrow. Taking away the public’s choices is never a good thing.

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