Halloran Sage

With a historic piece of legislation, the Connecticut legislature in 1998 ended the electric utilities’ monopoly over both the generation and distribution of electricity. Public Act 98-28 effectively required Connecticut Light & Power (CL&P) and United Illuminating (UI) to divest their generating facilities and to set up rules to permit the new owners of those facilities to access the utilities’ retained transmission and distribution networks. The premise of that legislation was that the new owners of the generating facilities would operate in this newly competitive electricity market in a more efficient manner, and that consumers would benefit from the expected lower prices for electricity.
In order to permit a smooth transition of the generation sector from a regulated monopoly to a competitive market, P.A. 98-28 established four-year "Standard Offers" for CL&P and UI customers. The Standard Offers were the "default" arrangement that consumers were placed in if they did not select a "competitive supplier". Under the Standard Offers, retail electric rates were capped at 10 percent below the retail rates in effect on Dec. 31, 1996. The Standard Offers would expire on Jan. 1, 2004.  The intent was that during the period from the passage of P.A. 98-28 to that date, retail electric competition would develop, thus eliminating the need for the Standard Offers’ rate cap after 2003.  Another key provision of P.A. 98-28 was the requirement that competitive suppliers include certain renewable energy sources in their supply portfolios.  These "Portfolio Standards" were first imposed on July 1, 2001 and escalated annually after that date.  These provisions were intended to create demand for electricity generated by renewable resources, thereby encouraging further development and construction of facilities utilizing renewable resources as fuel.
However, the cost of producing electricity in the newly competitive electricity market was often higher than the electricity cost built into the Standard Offers over the past four years, primarily because of the 10 percent rate cut. For that reason, very few consumers signed up with competitive suppliers, and few competitive suppliers entered Connecticut’s competitive retail electricity market. The expiration of the Standard Offers on Jan. 1, 2004 loomed as a potentially damaging "rate shock" event in that marketplace.  In order to address this potential crisis before it unfolded, the legislature acted in 2003 to amend the 1998 legislation in several important regards. The impetus for this measure – P.A. 03-135 – was the recognition by the legislature that retail electric competition had not developed to the extent envisioned at the time of the passage of P.A. 98-28, and that adjustments to the electric restructuring law were therefore needed.
Because the overwhelming majority of Connecticut’s retail electric customers continued to purchase electricity under the Standard Offers (and because the Standard Offers were exempt from the Portfolio Standards), there has been little demand in Connecticut for electricity provided by competitive suppliers, and thus little demand for renewable energy.
P.A. 03-135 instituted a three-year Transitional Standard Offers (TSO) for CL&P and UI customers beginning Jan. 1, 2004 and ending on Dec. 31, 2006.  Under the Transitional Standard Offers, retail electric rates would be permitted to rise to the level in effect on Dec. 31, 1996, in effect allowing an approximate 10 percent rise in those rates.  Also, P.A. 03-135 made significant adjustments to the Portfolio Standards, most importantly, by requiring that CL&P’s and UI’s TSO service to comply with the Portfolio Standards.  The combined effect of these significant changes will hopefully be: (1) an increased ability of competitive suppliers to profitably supply the Connecticut retail electric market at prices that beat the TSO pricing; and (2) a significant increase in the demand for electricity derived from renewable energy sources, leading to increased development of energy facilities utilizing such sources as fuel.
Stay tuned.  It remains to be seen whether this second effort by the legislature will produce the desired consumer savings.
Gary A. Hale is a senior lobbyists with Halloran & Sage Government Affairs, with offices in Hartford, Middletown, and Westport and Washington, D.C.  Mr. Hale can be reached at (860) 297-4690 or hale@halloran-sage.com.