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Following energy issues in the state of Connecticut and beyond.

Wednesday, April 29, 2009

Cents and (A Lack of) Sensibility

You can’t fault State House Speaker Chris Donavan and State Rep. Vickie Nardello for trying.

The legislation the two Democrats are proposing in an effort to reduce consumers’ electric bills has its heart in the right place. Everybody wants to pay less for their power, particularly with the state mired in the depths of a recession.

And according to Donovan and Nardello, their plan would lower electric bills by at least 5 percent or perhaps more, starting sometime next year.

The problem with their proposal is that it is counterintuitive and complex, something that doesn’t make sense even to someone like me, who has spent years covering the state’s utilities. And if some of the logic in this bill leaves me dumbfounded, imagine how its going to play to the average consumer.

The highlights of the legislation are as follows:

- United Illuminating Co. and Connecticut Light & Power customers who get their electricity through those utilities’ standard service offers would no longer be able to move to another power provider - as they can now - if this proposal were to become law.

- People who have already switched to another company to provide their electricity would not have to switch back.

- Large commercial and industrial customers would realize savings through a provision that would allow UI and CL&P to bypass so-called “middlemen” - like power brokers - and buy their electricity directly from generating companies.

But the more questions you start asking about this proposal, the more confounding it gets.

Nardello says the savings for residential and small business customers would be achieved by stabilizing the customer base. She says power generating companies build a risk premium into what they charge because they’re not certain that the customers that they have at the beginning of the contract won’t switch to another provider later on.

Try as I might, I’m hard-pressed to think of the state’s residential and small business customers as a dramatically fluctuating group.

Here’s why: Electric deregulation came into play July 1, 2000. It’s almost nine years later, and only 8 percent of the state’s customers have switched from the UI and CL&P standard offers.

That may be change, but to portray it as any kind of volatile movement is laughable.

Deregulation was foisted on Connecticut based upon the premise that competition drives down prices. But as Connecticut Attorney General Richard Blumenthal noted at the press conference announcing the Donovan-Nardello plan, the price of electricity in Connecticut has more than doubled in recent years, giving the state the dubious distinction of having the nation’s highest rates or close to it, depending upon what data you look at.

“There has to be a fundamental complete overhaul of the system,” Blumenthal said, speaking in support of the legislation. “The present system is a bust.”

The Donovan-Nardello plan simply doesn’t go far enough in fixing the problem. It doesn’t address the primary driver of high electric prices in the marketplace: the cost of the fuel used to produce the power.

The cost of fuel largely determines the price at which companies that produce electricity offer their power into the wholesale market place. Nardello acknowledged that during her press conference, but argued that the changes she and Donovan are proposing would offer some relief and that some cost reductions are better than none.

The press conference at which this legislation was unveiled drew representatives of trade groups that made up a who’s-who of competitive power providers in the state, companies like Direct Energy and ConEdison Solutions. They even trotted out Chris DePino, former state Republican chairman and a former lawmaker himself. All that was missing was from DePino was the former lawmaker doing a solo on his harmonica, a talent for which he earned some notoriety back when he was leading the state GOP.

These folks sounded like a chorus in a greek tragedy as they expounded upon how any variation from a totally deregulated marketplace would be bad public policy and anti-consumer.

My radar as a reporter always tells me that when someone screams that long and that loud against public policy, there has to be some value in said policy. In the 1998 legislative session in which Connecticut’s electric de-regulation was passed, similar forces were equally vociferous that ruination would be in store for the state if free market forces weren’t allowed to take hold.

Now, the state is in the midst of a recession and I don’t see businesses rushing to relocate here because of cheap electricity.

The Donovan-Nardello legislation passed the state House on a 103-39 vote later on Wednesday. Now it moves on to the Senate and while I think the average Connecticut resident would like to see some rate relief, I’m just not convinced this legislation is going to do it.

Even Al Carbone, a UI spokesman, said he wasn’t sure what level of savings could be achieved by elimination the risk premium that’s currently in place for service to residential and small business customers.

“We don’t know how much risk is going to be averted as a result of the legislation,” Carbone said. “There are other risk premiums built in when someone bids on a power contract.”

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