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Connecticut Moves Toward State-Wide Electric Aggregation

Connecticut’s Governor Dannel Malloy has proposed a plan that will allow the state’s electricity customers’ electric supply service to be auctioned off in bulks of 100,000 to retail electricity providers. The proposal would raise at least $80 million for the state and would affect roughly 800,000 customers in the United Illuminating (UI) and Connecticut Light & Power (CL&P) service areas.

If the controversial plan is approved, residents and businesses will still be able to shop around for an electricity provider of choice, and those 710,000 customers who have already made the switch will not be affected.

Currently, UI and CL&P purchase electricity from generation companies and then sell the electricity back to their customers for no profit. Since the utilities cannot profit from the sale of electricity (only from the distribution), they have little incentive to purchase the cheapest electricity possible. Retail electricity providers in Connecticut, on the other hand, are incentivized to purchase and resell cheap electricity. Unlike utilities, they are allowed to make a profit from that sale of electric supply. Furthermore, the immense competition among the providers pushes each to offer lower rates in order to scoop up as many customers as profitably possible.

Governor Malloy’s plan is like any other in the nation. Other states, such as New Jersey and Illinois, have similar options for aggregating electric customers’ service. However, electric aggregation in these states is community-based, whereby residents of towns, cities or municipalities vote on electric aggregation. No other state has required entire utilities to participate in aggregation programs.

Criticisms of Connecticut’s Aggregation Plan

The AARP, among other watchdogs, have voiced concerns about the plan. One criticism is the belief that the entire $80 million for the state would not be raised. Other concerns revolve around the lack of transparency in electric supply pricing. UI and CL&P, for instance, are required to publicly publish their Price-to-Compare–the average electric supply rate for its Standard Offer service. Critics claim that customers will have trouble comparing these average rates to those of retail electricity providers if they individually decide to make the switch.

Chris Kallaher of the major retail electricity provider, Direct Energy, has reported that the $80 million that would be raised is actually a conservative figure considering historical prices of what acquiring companies have paid for purchased providers. Kallaher also stated that the Connecticut proposal must have consumer protections in place in order to be viable.

It is not clear if and when the aggregation proposal will move forward.

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