How to raise electricity rates while pretending to protect consumers
by Ken Mosher
I just received an email from my state representative, Gayle Mulligan, detailing several new laws that took effect on October 1st. The email highlighted just seven of the new laws, likely out of dozens or hundreds, so one can assume that these are the ones she approves of most. Some of the seven were fine, either promoting freedom or being neutral, but a few were nothing more than intrusions into our lives via burdensome or nanny-like regulations.
The most shocking (pun intended) of them regarded the available choices for electricity generation rates, by removing choice, of course. Connecticut has had some of the most expensive electricity in the country for many years. We currently rank #3; only Hawaii and Alaska have higher rates (http://www.neo.ne.gov/statshtml/204.htm) and we pay 62% more than the national average. The next higher, Alaska, pays only a tiny bit more than we do.
An article in Forbes magazine claims that since deregulation “wholesale power prices have fallen dramatically…” lowering electricity generation prices over the last ten years (http://www.forbes.com/sites/williampentland/2013/10/13/after-decades-of-doubt-deregulation-delivers-lower-electricity-prices/). The overall cost of electricity has fallen by a smaller amount because the cost of transmission has skyrocketed.
One sentence in that article stuck out, “To the extent it [the cost of power declining] hasn’t, regulation (not deregulation) is to blame.” [Ed: even though I quoted that sentence I actually corrected two typos. Inserting [sic] multiple times seemed rude.]
That is, deregulation successfully lowered prices during the last 10 years, but in cases where the price was not lowered as much as the others, regulation was the cause. The article’s author did not offer any data to back up his statement.
Then along cometh the gift from our state legislatures, a new round of regulation to “protect” us from the evil power companies and the ravages of capitalism. The problem is that you can’t change economics or human behavior by passing laws any more than you can affect gravity by the same means.
VARIABLE RATE BAN
“After receiving thousands of complaints by electric customers who saw their bill skyrocket through variable rates, Connecticut is now the first in the nation to ban variable rate electric contracts.”
There’s been a tremendous amount of agita among the buyers of electricity since Connecticut deregulated it in 1998, with consumers first able to choose an electricity generation supplier starting in 2000. CL&P and UI retained ownership of the lines and became known as your delivery supplier.
Note that people are: forgetful, lazy, and stupid, pretty much in that order. Even though choosing a new generation supplier was incredibly easy, the masses were confused. It took a very long time for people to switch away from CL&P or UI even though their regulated price was much higher, but eventually the public accepted it. [Ed: A search for the percentage of customers who have selected an alternate generation supplier turned up only one reference, from 2010, “More than half a million families have switched“.] But choosing an alternate supplier usually involves a rate that’s valid for a specific period of time; you have to keep track because when the rate period expires your rate might increase.
Now back to the email from my state rep, “After receiving thousands of complaints by electric customers who saw their bill skyrocket through variable rates…”
In theory those thousands of customers made an informed decision to sign up for the variable rate, which was cheaper than the fixed rate, knowing full well that it could be adjusted monthly. They traded the safety of a higher fixed rate for the uncertainty of a cheaper variable rate. Then they cried and screamed when their variable rate lived up to its name, it varied! They were caught by surprise, having been used to paying a low variable rate that had rarely varied. They went from feeling superior for getting the better rate to feeling like they were being cheated when their gamble went against them. That is not the behavior of a well-adjusted adult who is used to both the benefits and repercussions of his actions. That is the behavior of a spoiled, entitled brat who suddenly isn’t getting his way!
For the vast majority of the time the variable rate customers got the best deal, but then a period of extreme price increases in the cost of wholesale power caused rates to explode higher. Fixed rate customers were protected somewhat, until their agreements expired and they found themselves paying 50% more for power. The variable rate customers, however, saw a huge price increase immediately, with a doubling of their cost not uncommon.
The result was predictable, they screamed bloody murder because the evil electricity providers were gouging them. It never occurred to them that the supplier was also paying double the rate from the wholesalers. Every politician immediately rushed to the nearest microphone to make one of the standard, uninformed comments. Power company CEOs were hauled before committees where legislators lectured them on electricity rates. Can you, cherished reader, imagine being lectured at by Senator Edith Prague, a woman of dubious intelligence who never had an original thought or spoke a sentence with meaning in her entire career as an elected official?
The spike in prices was short lived. Lucky fixed rate customers were spared a few months at the beginning but then had to choose between new fixed rates between $0.12 and $0.15 per kilowatthour. Then, after a few months, prices began to fall rapidly, to the point where I’m now paying barely over $0.06 on my fixed rate plan.
In response to the outrage of high electricity prices, an outrage that lasted only a few months and that was entirely beyond the control of any of the generation suppliers. Our Connecticut legislators have cooked up a new regulation that will increase the cost of power in our state. Maybe we can even surpass Alaska to retake the number two spot! (Wait, that would be a bad thing.) The Hartford Courant even agreed with my assessment in an article on October 5.
For the vast majority of the time, choosing a variable rate resulted in lower prices. Unfortunately the whining of a small but vocal crowd can catch the attention of our nanny-state legislators, and just like nannies they want the whining to stop. So now they have protected the hardworking citizens of Connecticut from selecting the lowest electricity generation rate possible, the variable rate.
The electricity suppliers are not going to suffer. They will protect their bottom line by offering shorter fixed rate terms to guard against sudden price spikes, or their longer terms will be significantly more expensive. Look forward to it because soon you’ll have to remember to choose a new supplier every 3 or 4 months. It already happened to me; i was unable to get a fixed rate term longer than 4 months.
The next time you hear someone complaining about government gridlock and a do-nothing congress, gently remind them how lucky they are to have it. The converse is a well-oiled machine that turns out thousands and thousands of pages of new laws like the USA PATRIOT act and the TSA.
Ken Mosher, former board of education member from Andover, CT