Connecticut’s retail electricity suppliers are spreading their wings.
Thirteen years after deregulation of the state’s power industry, electricity suppliers and aggregators are signing up Connecticut businesses and ratepayers in record numbers — providing 62 percent of the state’s electricity — and expanding into new states.
But as the General Assembly weighs the sweeping energy policy reforms proposed in Senate Bill 1, the electric supplier industry must consider what will be left of the competitive energy market in Connecticut and how proposed consumer protections will impact their ability to do business.
Issues within the industry where long-time customers of electric utilities are asked to switch to upstart suppliers have compounded as state officials have cracked down on problem suppliers. The Department of Public Utility Control has revoked the licenses of 11 suppliers and aggregators. Another 12 have withdrawn their licenses.
That still leaves 31 suppliers and 46 aggregators actively marketing to Connecticut business ratepayers. By the start of this year, 586,083 customers had made the switch to a retail supplier, representing 38 percent of all customers.
The number rises to 55 percent for business customers, who use far more energy than residential customers.
“It is a very exciting time to come on board a very exciting business,” said Taff Tschamler, vice president of business development and regulatory affairs for North American Power, a Norwalk electricity supplier that was formed in 2009.
When Connecticut deregulated in 1998, electric utilities such as Connecticut Light & Power and United Illuminating were barred from generating their own electricity. As a result, in 2000, electricity ratepayers had the option to either stay with the standard utility rates or switch to an electric supplier. That also led to the formation of electric aggregators, who sign up multiple customers to use their collective buying power to bargain for the best rates.
Customers’ electric bills still comes from CL&P and UI, but the generation charge on their bills comes from their chosen electric supplier.
The vast majority of customers stayed with the standard utility rates until 2007, when plummeting natural gas prices gave suppliers can edge in offering cheaper rates. The utilities are locked into longer term deals with their suppliers, so the independent suppliers are more nimble in responding to commodity prices.
“It allowed us to capitalize on the market,” said Joseph Ventura, president of Positive Energy in Middlebury.
Founded in February 2009, Positive Energy has 75,000 customers in Connecticut. On March 25, the company launched operations in another deregulated state, Maryland, and expects to move into Pennsylvania and New Jersey by the end of the year.
The expansion means work for a 130-employee customer service center in Middlebury. Positive Energy has another 350 independent sales representatives in Maryland and New Jersey.
North American Power in Norwalk already launched in Pennsylvania and Maryland, signing up 55,000 customers. Thatcomes in addition to 50,000 Connecticut customers signed up in 18 months of operation.
Most customers switch from the standard utility rate because of the cost savings, Tschamler said. A few end up paying a higher rate than the standard because they choose to have 100 percent of their electricity come from renewable sources of generation.
With 18 deregulated states throughout the nation — including New York, Massachusetts, Rhode Island, Maine and New Hampshire — young companies such as North American Power and Positive Energy see room for market growth.
But here in Connecticut, the Retail Energy Supply Association — which represents companies such as Positive Energy and North American Power — is worried how legislation will affect the competitive energy market.
Senate Bill 1, which passed out of committee and awaits action by the General Assembly, creates a procurement position in a newly created Department of Energy and Environmental Protection. The idea is to help utilities lower their standard rates. The legislation also decreases the length of utilities’ long-term contracts with suppliers, enabling them to better respond to fluctuations in the energy market.
These two provisions take away retail suppliers’ advantage in the market: the ability to offer a significantly lower price, and the ability to better respond to changing prices.
Many provisions of Senate Bill 1 further limit customers’ choice of their own electric supply, which damages the retail supply market, said Dan Allegretti, regional spokesman for the Retail Energy Supply Association.
“It is a difficult situation,” Allegretti said.
For their part, Positive Energy and North American Power aren’t concerned about Senate Bill 1 undercutting market competitiveness. They still plan on offering customers better rates.
“However the utility purchases its power for those customers, we will compete against that,” Tschamler said.
The sweeping energy policy reform legislation also creates a number of protections for consumers dealing with electric suppliers, specifically when suppliers can contact potential customers and how they can pitch their rates.
Allegretti said while the consumer protections have good intentions, they create several unintended consequences. Customers won’t be able to contact their suppliers except for the hours between 10 a.m. and 6 p.m. The protection also calls on suppliers to use comparison information they shouldn’t have access to, such as a customer’s current rate and power usage.
But consumer protections are necessary to the industry, Tschamler said. They protect the industry by ensuring customers keep feeling positive about dealing with suppliers.
“We want deregulation competition and choice to be a great decision for Connecticut,” Tschamler said. “The protections mitigate the risk that a customer will have a bad experience with a supplier.”
In March, state officials cracked down on the industry. On March 14, Attorney General George Jepson filed a civil lawsuit against Redding aggregator Turris Associates LLC, trying to collect a $360,000 fine imposed by DPUC. The agency says Turris’ owner defrauded a school association and an electric supplier out of $180,000 by falsely doubling the commission on electricity sales. Turris’ aggregator license has been revoked.
Positive Energy also felt the sting of the state in March. DPUC ordered the company to create a $20,000 fund to reimburse 3,200 customers for lost savings when Positive Energy didn’t deliver on cheaper rates in a timely manner. Ventura said the problem was caused when its contract with an energy supplier took too long to finalize, and Positive Energy was reimbursing customers voluntarily before the DPUC ruling.
As a result of the case, Positive Energy had to withdraw its aggregator license; but the company can still operate in Connecticut as a marketer for its energy supplier, ResCom Energy LLC.
Ventura said increasing consumer protections in the retail electricity industry is the strongest part of Senate Bill 1. People need their rights protected, and good consumer protection bode well for the long-term sustainability of the industry.
The bigger issue effecting suppliers is utilities are starting to get the upper hand, Ventura said. CL&P and UI lowered their rates in January, making it harder for independent suppliers to offer significant savings.
This increased competition is why Positive Energy is expanding geographically, trying to take advantage of the competition that exists in other markets such as Maryland, Pennsylvania and New Jersey.
But keeping the market competitive in Connecticut remains important, Tschamler said. Deregulation gives customers a chance to make electricity savings on their own, shopping for the best price. This has created new companies and jobs.
“Finally, Connecticut has arrived, and it has done some great things for the economy,” Tschamler said.
