Malloy’s $80 million energy auction imperiled by House Democrats
Critics say they have the votes to block Gov. Dannel P. Malloy’s plan to raise at least $80 million by auctioning the rights to serve certain electric customers, an idea opposed by AARP in a months-long, grass-roots lobbying campaign.
With one week until the end of the 2013 session, the fight exposes strains between the first-term Democratic governor and rank-and-file members of the legislature’s Democratic majority over a difficult budget.
Fifty of the 98 House Democrats have signed up as co-sponsors of an amendment stopping the energy auction, and minority Republicans are prepared to join them, giving the opponents a bipartisan majority, legislators said Wednesday.
“I am listening to my constituents, and they do not want this,” said Rep. Claire Janowski, D-Vernon, a seven-term legislator behind the amendment stopping the auction.
House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Republicans are prepared to vote with Janowski, easily giving opponents the 76 votes necessary to stop the plan in the House.
The administration is not giving up on a plan that raises badly needed revenue by resurrecting a six-year-old, bipartisan idea to force more consumers into the competitive electric market
Malloy is countering by proposing stronger consumer protections to allay concerns over what AARP and other consumer advocates say is a one-shot revenue gimmick that takes away consumer choice.
Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said it is imperative that legislators’ concerns be addressed immediately by incorporating strong consumer protections into the legislation.
“That would go a long way to calm the waters,” Williams said. “But people have to see the changes.”
Both the Office of Consumer Counsel and Attorney General George Jepsen, a Democrat and longtime friend and political ally of Malloy, have raised objections to the energy auction.
The proposed auction is a new wrinkle in Connecticut’s market system of providing electricity.
The two major utilities, Connecticut Light & Power and the smaller United Illuminating, no longer generate electricity –- they deliver it through their transmission systems.
Power is treated as a commodity, bought and sold on the open market. Competitive retailers entered the market years ago, in most cases undercutting CL&P and UI, who were constrained by purchasing rules that valued stability over price.
About half of electric ratepayers in the state have signed up for one of the competitive retailers. By default, the rest stayed with CL&P or UI, taking what is known in the industry as the “standard offer” or “standard service.”
The Malloy administration’s idea was to drive the remaining standard-offer customers to one of the competitive retailers, who now spend about $100 on marketing for every customer they attract.
Jepsen said in a letter to legislators that the standard offer gives consumers an important benchmark for judging the rates promised by competitive retailers.
“Standard servce has provided a safe haven from the many unscrupulous competitive suppliers that have offered electric generation services in Connecticut,” Jepsen wrote.
He declined to comment on his letter.
The 800,000 standard-offer customers would be placed into blocks of 100,000 customers and auctioned to the highest bidder.
The theory was that consumers would get a price break, the retailers would use their marketing budgets to bid for the new customers, and the state would get a one-time infusion of at least $80 million in auction revenue.
No exit fees allowed
In his budget proposal in February, Malloy assumed $80 million in auction revenue, which would be $100 per customer. The legislature’s Finance, Revenue and Bonding Committee later estimated the revenue at $100 million, or $125 per customer.
“You could justify paying that amount or a little more just on the avoided marketing costs,” said Chris Kallaher, the director of government affairs for Direct Energy, one of the major competitive retailers.
Kallaher said bids would be determined by a company’s assumptions on energy costs and the rate at which it could retain the customers purchased at auction.
Direct Energy has 100,000 customers in Connecticut, making it the largest of the competitive retailers. It does business in 14 states and parts of Canada.
Kallaher said his company could live with the consumer protections now being proposed by the Malloy administration.
They include a prohibition on exit or termination fees for customers who wish to return to the standard offer or sign with another competitive supplier.
Standard service rates also would be published alongside the customer’s rate from the competitive supplier on their monthly utility bills. But the proposal has raised a host of questions since it first was unveiled.
The administration also is promising that standard offer will remain available, though Jepsen and others question if the number of customers would be large enough to attract competitive rates.
Several legislators said they may have underestimated the depth of public concern about the energy auction.
Representatives from the state offices of the AARP intensely lobbied majority Democrats in the House and Senate in the Capitol halls as they entered closed-door caucuses on the budget on Tuesday
And the AARP’s state director, Nora Duncan, said the organization believes its concerns were heard.
“The reason legislators hear our members is because our members vote,” she said, adding that the state office represents over 600,000 Connecticut residents age 50 and older.
‘A choice we hold dear’
“We don’t believe that there are any kind of built-in protections that can really make this a good proposal,” she said. “That is what we’ve been telling people all along. For a one-time revenue gimmick, the state of Connecticut is willing to sell a choice that we hold dear.”
Duncan said the AARP also rejects the argument that the consumers who remain with CL&P or UI do so because they haven’t bothered to consider trying the open market.
Duncan said she remains a CL&P customer because “I like the reliability and stability of it. I am well aware that there are other options out there.”
She added that both major utilities have made their respective systems more reliable in recent years and provide a standard energy offer that is “reliable, reasonable, predictable and affordable.”
“It’s not entirely clear to me that consumers are going to be protected,” said Sen. Beth Bye, D-West Hartford. “There are going to have to be a lot of consumer protections built in for me to feel comfortable.”
Bye said she fears some of her constituents, including the elderly, may find the switch to a new electricity provider to be confusing.
She added this might not be the best time for the auction, adding that some of her colleagues have raised concerns that the state’s Public Utility Regulatory Agency is under-staffed, and not prepared to closely monitor the post-auction service affected customers would receive.
“It may be a clever way to raise revenue, but the fact is we have never done something like this before,” said Rep. Steve Mikutel, D-Griswold. “This is unusual.”
Democrats said they fear that if the process is rocky from a consumer relations standpoint, it could turn into a nightmare at the polls in 2014.
“The consumer knows who his electric company is right now,” Mikutel said. “If things don’t go well, and he had no say in changing companies –- I’m very uneasy about that.”
Like Bye, Mikutel said his vote will hinge on whether legislative leaders and the Malloy administration can assure him this is “a consumer-friendly” initiative and subject to PURA review.
Sen. Dante Bartolomeo, D-Meriden, said she has received an outpouring of questions and concerns from her constituents this month.
What happens if customers don’t like the new company that serves them? Is there an easy process to switch to some other company? Is there a penalty for that?
“It is probably one of the hottest issues we have gotten calls about over the last two weeks,” she said.
A budgetary problem
Sen. John Fonfara, D-Hartford, the co-chairman of the Finance, Revenue and Bonding Committee, conceded that if the energy auction has to go, it will not be an easy task to re-balance the tentative budget deal.
“We are struggling to find $800,000 in new revenue options that don’t increase taxes, never mind $80 million,” he said.
Fonfara advocated a similar energy auction in 2007, when he was co-chairman of the Energy and Technology Committee. But the money would have gone for energy-efficiency measures, such as smart meters.
Fonfara said he rejects the argument that seniors might be confused by being reassigned to a new electricity provider.
“I think it’s a paternalistic view that discredits the ability of seniors to make decisions,” he said.
But AARP is telling legislators that their members do not want the hassle of being forced to periodically shop for an electric company, especially now that the standard offer is competitive.
Cafero, the House GOP leader, said it is the premise behind the auction that is paternalistic: “The whole genesis of the idea, it’s almost insulting, that people were so either lazy, ill-informed or dumb that they didn’t take it upon themselves to try to get a better deal.”
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