Competitive Electricity Market
Competitive Electricity Market
Changes in the Electric Utility Industry
You’ve probably heard about competition in the electric industry. Simply put, competition offers you the opportunity to choose which company supplies your electricity.
In the spring of 1998, Governor John Rowland signed into law one of the most comprehensive pieces of legislation in Connecticut’s history, making Connecticut the 18th state to restructure its electric utility industry. Electric restructuring, or deregulation as it’s also called, will begin on January 1, 2000.
Until now, your electricity was produced and delivered by UI at prices regulated by the Connecticut Department of Public Utility Control (DPUC). With restructuring, this will change. Many energy services companies will be able to supply your electricity and you’ll be able to choose your supplier from among them.
One thing won’t change, though. Regardless of which supplier your choose, UI will continue to deliver your electricity over its transmission and distribution system. We’ll also continue to service emergencies, read your meter and offer billing services.
To help you better understand what electric restructuring is all about, here are some frequently asked questions about this issue and the new law that fundamentally changes the way electricity is sold in this state.
Frequently Asked Questions About Restructuring
How does the state’s new electric restructuring law affect electric customers? The law fundamentally changes the way the electric power is sold in Connecticut. It allows customers to choose their power supplier beginning in the year 2000. It reduces prices by 10% and freezes rates through the year 2004. After that, the free market sets rates.
In Connecticut, when utility officials, lawmakers and regulators talk about restructuring, they’re referring to the generation side of the business -- the power plants --, which would be open to competition. The "wires" or transmission/distribution portion of the electric utility industry would remain regulated.
Why is Connecticut’s electric utility industry being restructured?
Primarily to reduce customer costs in a state where electric rates are among the highest in the nation. Proponents, who don’t want Connecticut to fall behind other New England States in opening the industry to competition, say consumer savings and efficiencies will enhance the state’s economic climate.
How does the electric restructuring bill affect Connecticut’s electric utilities?
For nearly a century, utilities such as UI, have controlled the production, manufacture, transport and sale of electricity within its service territory. A hundred years ago, this made sense because it allowed one company to capture the economies of scale. But now that structure is being replaced with one that separates the generation function from the transmission and distribution functions.
Does this mean customers can’t buy their power from UI?
Once UI sells its power plants in mid-spring, UI will no longer be a power generator. Instead, it will be a deliverer of electricity, a company that maintains and operates the overhead wires for other power suppliers, vying for your business. Over the next four years, the law requires UI to provide a "standard offer" to customers, who don’t choose a power supplier. That "standard offer" requires UI to provide power from a purchased source for those customers.
Who are these new suppliers?
They could be power marketers, who sell power they generate on their own; power brokers, who arrange energy sales between parties; a utility that delivers electricity through its own distribution system; or independent power producers, that sell electricity to utilities at wholesale prices; which in turn, resells the power to its own customers.
To whom do I pay my electric bill?
You’ll continue to pay your electric bill to UI, which is responsible for metering and billing, including the energy charges from your selected power supplier.
How different will electric bills look once restructuring takes effect?
Today, the costs in your electric bill are bundled together. They include the price of electricity used, fuel, operating expenses, taxes, nuclear decommissioning fees, and other state-required social and conservation programs. The electric bill of tomorrow will feature "unbundled" or separate charges for Power Supply, Transmission and Distribution; Systems Benefits to pay for programs in consumer education, worker protection, hardship cases, and nuclear decommissioning; and a Competitive Transition Charge that includes reasonable costs, previously incurred, to provide electric service. There will be additional charges for conservation programs and renewable resources to generate electricity.
What is the environmental impact of the new restructuring law?
All energy suppliers’ fuel sources must adhere to certain air emission standards established by The State Department of Environmental Protection in order to compete in Connecticut.
What will happen to programs that protect low-income customers?
Low-income programs, such as the winter protection program, will be maintained. All suppliers will be required to offer these programs and the costs will continue to be funded by customers in the Systems Benefits Charge on their electric bills.
Will customers be allowed to switch energy suppliers throughout the year?
Yes. Customers may change suppliers several times throughout the year for a fee. All customers may change their supplier once a year at no cost, provided the change occurs at the end of a customer’s normal billing cycle.
What happens if there’s a power outage after restructuring takes place?
UI is the company that owns the distribution lines and continues to be responsible for restoring power, just as it does now. However, if there is a power shortage due to a lack of generating capacity, your power supplier is responsible.
How can I find out more about electric restructuring?
We hope this information has helped you understand this issue so you can take full advantage of your options. If you want more information, visit the DPUC Web Site at ct.gov/pura.
A Short History on Restructuring Connecticut’s Electric Utility Industry 1994
The Connecticut Department of Public Utility Control (DPUC) issues what UI feels is a "well-reasoned decision," stating retail wheeling "is not in the best interests of the stakeholders, State Energy Policy, and the economy of the State of Connecticut." At the same time, the decision emphasizes Connecticut utilities should prepare for the eventuality of retail wheeling or some other form of competition.
July, 1995 - the DPUC again investigates restructuring and reinforces its earlier decision.
September, 1995 - a State Legislative Task Force is formed to study the issue. UI representatives, as well as lawmakers, state electricity producers and consumers, begin studying the industry.
March, 1996 - UI proposes freezing base rates for the next five years to prepare for competition. The company also asks for accelerated amortization of its Seabrook investment to reduce future stranded costs.
December, 1996 - The DPUC approves a five-year rate freeze for UI, but turns down the request for accelerated recovery for Seabrook. Customers saw immediate bill reductions of three % in 1997.
1997 - The Connecticut General Assembly takes up a restructuring bill, but fails to pass it. Legislators, however, continue to look at measures passed in other states as a foundation for Connecticut’s law.
1998 - The Connecticut General Assembly again acts on restructuring and this time passes "An Act Concerning Electric Restructuring."
Highlights of Connecticut’s New Restructuring Law
On April 27, 1998, Connecticut became the 18th state to restructure its electric utility industry. Parts of the new law went into effect upon passage, with various other sections going into effect over the next few years. The state’s new law:
- Gives 35% of electric consumers in the state’s largest cities the opportunity to choose their electric suppliers on January 1, 2000; all consumers will have the same choice on July 1, 2000.
- Breaks up regulated utilities into regulated transmission and distribution companies and separate power production companies.
- Provides utility customers with a 10% bill reduction from 1996 levels, including any reductions made since 1996.
- Keeps the 10% reduction, referred to as the standard offer, in effect from January 1, 2000 through January 1, 2004, a time when the market would determine the cost of power.
- Requires utilities to provide back-up service to customers, who do not or cannot obtain competitive service.
- Requires utilities to separate charges on bills for producing and delivering electricity.
- Eliminates the gross receipts tax on power production on January 1, 2000, but increases the tax on all other components of the electric bill to 6.8% for residential customers and 8.5% for nonresidential customers, except for manufacturers exempt from the tax.
- Creates a new competitive transition charge that would be paid by electric customers to cover the utility’s prudent costs, previously incurred, to meet the utility’s public service obligations.
- Creates a systems benefit charge, effective January 1, 2000, to pay for public policy costs such as consumer education, low-income energy conservation, dislocated worker programs and nuclear plant decommissioning and retirement.
- Makes state regulators responsible for handling customer complaints about power suppliers and for monitoring the market to prevent anti-competitive and unfair practices.
- Extends consumer protection measures, that now apply to utilities, to suppliers.
Terms To Know
Electric Supplier: The company that will generate or provide electricity. Also referred to as a power generator, power marketer, or broker.
Transmission: The process of delivering electricity from a power plant over high-voltage power lines to local distribution lines within communities.
Distribution: The process of delivering electricity through local lines to your home and business.
Generation Charge: Eventually appearing on electric bills, this charge reflects the competitive rate of the power supplier selected by the customer. It covers the cost of generating electricity, including the cost of fuel.
Systems Benefits Charge: The price for the recovery of mandated public policy costs.
Competitive Transition Charge: A charge for the recovery of UI’s costs, previously incurred, to provide electric service.