Regardless of whether state lawmakers decide to auction Connecticut Light & Power and United Illuminating retail electricity accounts to private marketing companies as a way of raising cash for the state, the issue will cost money for 665,000 customers.
On July 1, electric customers who buy generation through the “standard service” plan at CL&P — 665,000 households and small businesses, upwards of half the total in Connecticut — were likely to receive a reduction in their generation rates of 5 percent to 8 percent. That would mean about $2.80 a month for the average customer, or $35 for the next 12 months.
Now that price cut isn’t going to happen. The power companies, which buy electricity under state supervision, were unable to lock in lower rates because they were unable to guarantee energy traders that they would still have all those customers in the second half of this year.
The result: Generation rates will remain where they are come July 1, rather than taking advantage of lower market prices. Ironically, it’s all because of the threat of an auction that would, its supporters say, bring the benefits of free-market competition to customers.
“Even with just the specter of this auction being there, we lost all of our buying power for 2013 and into 2014,” said Jeff Gaudiosi, the state’s power procurement manager, an employee of the Public Utilities Regulatory Authority who oversees CL&P and UI power purchases.
The auction itself might or might not be a good idea, but Gov. Dannel P. Malloy is pushing hard for it to happen because it would raise an estimated $80 million to $100 million, a one-shot boost for the state budget.
That’s not a good enough reason to do it. If the auction would bring lower rates to customers, let’s do it. If not — and there are strong arguments on both sides — then it would be a potential disaster.
In fact, the state taking the proceeds of the auction is a cash grab, in effect a tax. That asset — the value of your retail business — rightly belongs to you as an electric ratepayer. Since the private marketing firms are willing to pay $100 or more per account, it makes sense that the ratepayers should see some of that money.
Put another way: If I get, say, $50 or $75 for allowing the state to auction my CL&P account to some company I never heard of, I might be a lot more willing to play ball. Then if Malloy and lawmakers must raise taxes or cut services somewhere else to make up for it, we’ll have an honest debate.
Here’s how the auction issue shapes up: In 2000, the retail market for electricity was moved from the power companies, under state price regulation, to private marketing firms. Dozens of those marketers are trying to sell power to customers at rates they say are better than the standard offer, and so far 47 percent of customers have gone that route.
Anyone who doesn’t switch remains with CL&P or UI, and pays a rate that’s overseen by the state based on a state-approved buying strategy. That’s what the standard offer is, and it now totals 7.615 cents per kilowatt hour at CL&P, down sharply in recent years.
Either way, you pay one monthly bill to CL&P and UI, and all customers pay the same distribution rate, which is also regulated, and is about twice as large as the generation rate.
The auction, part of Malloy’s proposed budget, would take segments of 100,000 customers and hand them to the highest bidders. There are 800,000 customers under the standard offer, including the 665,000 at CL&P and the rest at UI.
Under the proposal, modified in a new agreement to satisfy skeptical lawmakers, anyone who wanted could opt out of the auction and remain with the standard offer. Malloy had originally wanted all customer accounts sold.
Those marketers would not be allowed to charge a fee for customers switching, and they would have to offer a 5 percent reduction below the standard offer for the first 12 months.
But guess what — that 5 percent reduction was based on the present price of generation, and according to Gaudiosi, the state’s procurement manager, standard service customers were going to see at least that much anyway because of market conditions — and because of a new buying strategy that the state was going to put into effect this year.
Worse, the window for lower prices might be closing, Gaudiosi said.
“Right now they’re at a holding pattern,” he said. “That big drop that we saw over the last couple of years is kind of ending.”
We don’t know for sure what the actual savings would have been. It could have been less than 5 percent in the end. And of course, it’s not unheard of for proposed legislation to affect markets; think military-style rifles. But if the lost savings were, say, 8 percent, we’d be looking at $4.25 a month for the average customer, not $2.80.
Gaudiosi was hired under a restructuring law adopted by the General Assembly in 2011, which put oversight of electricity procurement for CL&P and UI under PURA, the regulatory agency. For years, the power companies bought most of their electricity in three-year contracts, by law, and the new rules changed that — allowing Gaudiosi and the power companies to go out for 12-month contracts, saving money as cheap natural gas from shale brought prices down.
That new buying strategy was supposed to start in 2013. UI enacted some of the strategy at the start of this year, and will see some savings. But CL&P did not, because of the looming auction issue and the timing of its contracts.
The loss of savings for customers will anger opponents of the auction. Their argument about the auction itself is that a smaller standard offer pool, with less buying power, will mean higher prices and will not set a low enough bar for the private marketers to meet — as the standard offer does now. They also say the auction would let some companies take unfair advantage of people who are not equipped or inclined to follow developments and change their service.
Supporters say there are enough private marketers to compete fiercely. The entry of hundreds of thousands more customers into a system with strong consumer protections would make the market all the more robust and would drive down prices further, they say.
It’s hard to say who’s right on that issue. We’ve seen deregulated markets work well for customers (airline prices) and poorly (telecom and cable rates). But already, electric customers are in the hole.
John Erlingheuser, the chief lobbyist for AARP, is among the staunchest opponents. He heard about the lost savings earlier this month, and recalled the early days after Connecticut’s retail generation market was deregulated and rates shot up.
“I thought, here we go again, crazy energy policy is affecting rates.”