As the financial benefit of switching to a competitive electricity retail supplier fades away, businesses increasingly must vet power providers to accommodate to their companies’ specific needs and desires.
“Competitive retailers are really able to create products that cater to a customer’s need,” said Dan Allegretti, New England regional chairman for the national Retail Energy Supply Association. “It is important for customers to shop and be aware of what is available to them.”
In 1998, Connecticut revamped its utility structure, taking Berlin-based Connecticut Light & Power and New Haven-based United Illuminating out of the generation business. Instead, the electric utilities get paid strictly on their transmission and distribution systems. The expense of electric generation is a separate third-party line item on electric bills.
At that time, ratepayers gained the option to choose whatever electric supplier they wished. Because the competitive retail supply industry was slow to form and there was little incentive to switch away from the electric companies they’d used for decades, nearly every business and residential customer stayed with the standard service utility rate.
That changed starting in 2005 when the price of natural gas plummeted, and the retail suppliers could offer electricity to ratepayers at a cost significantly below the standard service utility rate. The utilities — which don’t make any profits from supply electricity and actively encourage ratepayers to switch to a competitive retailer — were locked into a long-term purchasing system that delayed the cost savings of natural gas prices.
Today, competitive retailers sell two-thirds of all electricity supplied in Connecticut. More than 80 percent of small businesses have switched away from the standard service rate, and 90 percent of large businesses made the same switch, according to a report prepared for RESA. Bills still come from the electric utilities, but the generation cost is based on the rate the customers negotiated with their suppliers.
Residential customers have been slower to switch, as 59 percent still use the standard service rate.
“It is an evolution, moving away from a single provider — which is the way it was for 100 years — to realizing the benefit of competition,” said State Sen. John Fonfara (D-Harford), co-chair of the General Assembly’s Energy & Technology Committee. “Once people are out in the competitive market for service, they aren’t going back.”
But the obvious benefit of switching — lower costs — is fading away. Earlier this year, state regulators changed the way utilities purchase power for the standard service rate, allowing them to more immediately realize the cost savings of price fluctuations. For the last three years, the Public Utilities Regulatory dropped the standard service rate for residential customers by a double-digit percentage.
Starting in January, the standard service rate for CL&P residential customers will be 8.279 cents per kilowatt hour. That is below all but three current offers from competitive suppliers.
“It becomes a difficult proposition,” said Taff Tschamler, senior vice president of business development for Norwalk electric supplier North American Power. “It makes it more difficult in terms of putting a savings proposition in front of the customer.”
While the dropping standard service rate will force retailers to be more competitive and may weed a few out of the market, Fonfara said, the suppliers in for the long-haul should flourish by providing new types of energy product.
Unlike the standard service rate — designed as a one-size-fits-all — suppliers offer specific products for customers needs, specifically business.
Business ratepayers have options such as variable pricing to take advantage of times when electric rates are lower; electricity from mostly or exclusively renewable sources of power; demand response systems where businesses are paid to use less electricity during times of high demand; or packaged products that include several options.
“You will never see that kind of innovative efforts from the utilities,” Fonfara said.
Norwalk electric supplier Viridian Energy offers a product where 35 percent of the electricity comes from renewable sources of power. This is cheaper than Viridian’s other 100 percent renewable product for customers who want to aid the environment but still have some cost savings. The product funds local renewable projects.
Viridian grew quickly since it launched with these products in 2009, signing on 175,000 customers and employing 52 people.
“It has been a pretty quick growth curve,” said Cami Boehme, Viridian vice president of marketing and brand communications.
Green power is a relatively common product among retail suppliers, but as competition becomes fiercer and the energy industry evolves, suppliers will be forced to offer a better variety of products, Fonfara said.
Much like the telecommunications industry evolved from single providers to a wide variety of product and customer choice, the energy industry will follow suit. Customers will be able to buy power based on how and when they use it.
“We still live in a time where customer decision-making has not caught up with the advances in the energy world,” Fonfara said. “People still say, ‘I just want my lights on,’ and they don’t want to think about what hour it is.”
Because customers are wary of new technology and remain reluctant to leave their utility, the increased competition from the utilities — because of the lowering standard service rate — makes it harder for companies such as North American Power to sign new customers, Tschamler said. North American Power has customers in Connecticut, Pennsylvania, Maryland, New York and New Jersey.
“Generally, we’d like to see the utility out of the business of providing electric supply,” Tschamler said. “In some cases, it might take years — in the customers’ minds — for them to be comfortable with the company.”
Retailers such as Viridian and North American Power make charitable efforts and have beach clean-ups, which increases their credibility with customers.
North American Power also uses a variety of educational tools such as mailers and its Web site to encourage consumers to be more active in the purchase of the electricity.
“It is such a passive product,” Tschamler said. “You don’t go out to the store to purchase it.”
