Page 1

Docket No. 05-11-05

/ STATE OF CONNECTICUT

DEPARTMENT OF PUBLIC UTILITY CONTROL

TEN FRANKLIN SQUARE

NEW BRITAIN, CT 06051

Docket No. 05-11-05
05-11-05
/ DPUC MONITORING THE STATE OF COMPETITION IN THE ELECTRIC INDUSTRYDPUC MONITORING THE STATE OF COMPETITION IN THE ELECTRIC INDUSTRY

February 22, 2006

By the following Commissioners:

Donald W. Downes
John W. Betkoski, III
Anne C. George

DECISION

I.Introduction

A.Summary

The Department of Public Utility Control (Department or DPUC) provides its annual report to the Legislature on the status of competition in the electric industry in Connecticut. Included in this report are a variety of tables utilizing diverse indicators, as required by statute, to demonstrate the level of activity or participation in the state’s competitive retail market and the associated customer rates per class per year since competition’s inception in 2000. In this docket proceeding, the Department solicited comments related to issues associated with the development of the electric marketplace and the impact on electric rates for Connecticut consumers. Comments were provided by participants on both the wholesale and the retail markets, which as emphasized by participants, are mutually dependent and interactive.

B.Background of the Proceeding

Section 20 of Public Act 03-135, “An Act Concerning Revisions to the Electric Restructuring Legislation,” requires the Department to conduct a proceeding to examine factors associated with a competitive market place, including, but not limited to: (1) the number of electric suppliers providing electric generation services to end-use customers in this state; (2) the number of electric suppliers actively marketing to new end-use customers; (3) for each electric distribution company, the number of end-use customers receiving electric generation services as part of the transitional standard offer established pursuant to section 16-244c of the general statutes, as amended by this act, as a percentage of the number of customers of each electric distribution company; (4) for each electric distribution company, the number of end-use customers receiving electric generation services from an electric supplier, as a percentage of the number of customers of each electric distribution company; (5) the number of end-use customers who have executed a contract with an electric supplier and who have returned to the standard offer or to the transitional standard offer established pursuant to section 16-244c, as amended by this act; and (6) any other factors the department may deem relevant. In its final decision in this proceeding, the Department is also required to make recommendations regarding the protection of ratepayers from excessive rate fluctuations and the development of the market place for the competitive provision of retail electric generation services.

In addition, Conn. Gen. Stat. Section 16-245x requires the Department of Public Utility Control (Department), in consultation with The Office of Counsel (OCC), to monitor the state of competition and the average total rates of each customer class in the electric industry in Connecticut, and to report its findings to the Legislature beginning January 1, 2002, and annually thereafter. The statute also requires the Department to monitor the price differential between residential and industrial customers. The Department is required to calculate the difference between the “total average residential rate” and “total average industrial rate” for electric service. The “total average residential rate” is defined as the total residential revenues divided by total residential kilowatt hour sales, and “total average industrial rate” is defined as the total industrial revenues divided by total industrial kilowatt hour sales. Conn. Gen. Stat. §16-245x(b). Accordingly, no later than January 1, 2002, and annually thereafter, the Department must report the calculated proportions and differences. If that price differential increases by more than 3%, from the differential that existed on January 1, 1998, the Department must institute an investigatory proceeding to determine why the differential has changed.

In this proceeding, the DPUC seeks to meet both of these statutory obligations. The Department submits the following report in compliance with the aforementioned directives.

C.Conduct of the Proceeding

By its own motion, the Department initiated this proceeding, pursuant to Section 20 of Public Act 03-135: An Act Concerning Revisions to the Electric Restructuring Legislation. Section 20 requires the DPUC to initiate a contested case proceeding to examine the state of competition in the retail provision of electric generation services. The Department is required to examine factors associated with a competitive market place, including, but not limited to those itemized in the Public Act 03-135.

By Notice of Technical Meeting, dated December 12, 2005, the Department held a meeting at its offices, Ten Franklin Square, New Britain, Connecticut, on Wednesday, December 14, 2005, at 10:00 a.m. for the purpose of discussing electric restructuring.

By Notice of Request for Written Comments, dated December 15, 2005, the Department requested comments, pursuant to Section 20 of Public Act 03-135, that are relevant to issues associated with the competitive electric market place and the state of competition in the provision of retail electric generation services. Written comments were due by December 30, 2005. Comments, Briefs, and/or Written Exceptions to the Draft Decision were received from the following:

  • AARP of Connecticut (AARP);
  • The Attorney General (AG)
  • Connecticut Business & Industry Association (CBIA);
  • Connecticut Industrial Energy Consumers (CIEC);
  • The Connecticut Light and Power Company (CL&P);
  • Constellation NewEnergy, Inc. (Constellation);
  • Dominion Retail, Inc. (Dominion);
  • The Independent System Operator of New England, Inc. (ISO-NE);
  • NRG Enrgy, Inc. (NRG);
  • The Office of Consumer Counsel (OCC);
  • Retail Energy Suppliers Association (RESA);
  • The United Illuminating Company (UI).

By Notice of Hearing, dated December 19, 2005, pursuant to § 16-11 of Conn. Gen. Stat., and in accordance with Section 20 of Public Act 03-135, the Department held a public hearing in this matter on January 9, 2006, at 9:30 a.m. at its offices, Ten Franklin Square, New Britain, Connecticut.

All participants were provided an opportunity to submit Briefs as well as Written Exceptions to the Draft Decision.

D.Participants

The Department granted, in response to motions submitted, Participant Status to Connecticut Industrial Energy Consumers (CIEC), Couch White LLP, 540 Broadway, P. O. Box 22222, Albany, NY 12201, and the Independent System Operator of New England Inc. (ISO-NE), One Sullivan Road, Holyoke, MA 01040-2841.

A list of all Participants in the instant docket, which includes all entities providing comments, the OCC, the AG, the distribution companies, and all Connecticut licensed suppliers and registered aggregators, is attached.

E.Public Comment

Mr. Ronald Klattenberg, a member of the City Council of the City of Middletown, CT, and chairman of both the Finance Government Operations Commission and the Clean Energy Task Force, appeared at the hearing to comment on the necessity of continuing Connecticut’s commitment to supporting clean energy sources. Mr. Klattenberg believes that clean energy provides vital contributions to a clean environment, stabilization of electric rates, diversity of our region’s fuel mix, and supports our nation’s energy independence. The City of Middletown has made aggressive commitments to promote clean energy. It was the eleventh community to become involved in the clean communities program, making a pledge to achieve 20 percent renewable energy by the year 2020.

Mr. John C. Hall, President of the Jonah Center for Earth and Art in Middletown, CT,provided written comments supporting clean energy and distributed generation initiatives in our state and discouraging future development of large, centralized fossil fuel pants as they require huge infrastructure. Mr. Hall believes that electricity rates should be structured to tax fossil fuel at a greater level in order to provide more subsidies for the production of clean renewable power. He also maintains that those CL&P customers who pay the premium for the CT Clean Energy Options should not incur the current CL&P Transitional standard Offer (TSO) rate increase related to fossil fuels.

Ms. Katharine T.S. Coley, a member of the City of Middletown’s Conservation Commission and of the Garden Club of America’s conservation committee, provided written comments also stating that those CL&P customers on the CT Clean Energy Options should be exempted from the CL&P rate increase for fossil fuels.

II.Department Analysis – part 1: Indicators of Retail Competition

A.Average Generation Services Charge Rates

Public Act 98-28, An Act Concerning Electric Restructuring, created a competitive generation segment of the electric industry, effective January 1, 2000. On that date, customers of The United Illuminating Company (UI) and The Connecticut Light and Power Company (CL&P, together Companies) were able to choose an alternate supplier for their electric generation service.[1] At that time, the Department established Generation Service Charge (GSC) rates for UI and CL&P based on each company’s cost to acquire standard offer generation, plus a “retail adder,” an estimate of the cost that retail suppliers would incur to provide electric service to each class of customers. The GSC rates, which represent the energy component of each customers’ unbundled electric service, were set at a level to attract competitive suppliers to the Connecticut market.

Table 1 shows the current and historical average GSC rate by customer class.[2] The increase in CL&P’s GSC rate from 2003 to 2004 is due to the inclusion of Standard Market Design charges in its 2004 GSC rates. In December 2003, the Standard Offer period ended and CL&P and UI rebid their supply contracts. Therefore, the 2004 GSC rates also reflected the new contract prices for the Transitional Standard Offer (TSO). The 2004 GSC rates do not include a “retail adder.” However, these prices include bypassable Federally Mandated Congestion Costs because these costs are generation related and may be avoided through procurement of energy from a competitive supplier.

CL&P did not purchase all of its 2004-2006 TSO energy requirements for all three years at the same time. CL&P’s 2005 GSC rates increased as a result of the bids it received in 2004. UI’s 2005 GSC rates remained about the same based on its existing TSO energy contracts. Given the bids it received in the fall of 2003, UI entered into contracts for all three years of its 2004-2006 TSO energy requirements.

The average GSC rate for all customer classes for CL&P in 2005 was 7.19 cents/per kWh. CL&P’s average GSC increased to 10.13 cents/per kWh in 2006. This represents an increase of 41 percent. Whereas UI’s average GSC rate for all customer classes increased only 1.4 percent, from 5.87 cents/per kWh in 2005 to 5.95 cents/per kWh in 2006.

Table 1

Source of 2005 Data: CL&P and UI Compliance Filings dated 1/23/06 and 1/24/06, respectively.

UI Filing, Docket 05-06-04, Table of Avg. cents per kWh from 2000-2005.

CL&P Filing, Dockets 03-07-01RE01 & 03-07-02RE08, Table of Avg. Rates from 2000-2006.

To set the groundwork for establishing the GSC for year 2007, the Department has initiated Docket No. 06-01-08, DPUC Development and Review of Standard Service and Supplier of Last Resort Service pursuant to Section 20 of Public Act 03-135, An Act Concerning Revisions to the Electric Restructuring Legislation. In this docket, the DPUC will implement the provisions of Conn. Gen. Stat. §16-244c which require the Department to perform various regulatory reviews and approvals relating to the implementation of standard service and supplier of last service which are set to commence on January 1, 2007. Starting January 1, 2007, the state’s electric distribution companies are required to provide service to electric customers: 1) whose maximum electric demand is less than 500 kilowatts or who do not use a demand meter, and 2) who do not arrange for, or are not receiving service from, a competitive electric supplier. This category of electric customers includes all residential customers and small and medium-sized business customers in the state.

Specifically, the current statute requires the DPUC to set the price for standard service by October 1, 2006 and periodically thereafter, but not more than once per calendar quarter. The electric distribution companies must procure power for this service under a DPUC-approved plan designed to reduce price volatility. The portfolio of contracts must be assembled in a manner which meets various criteria that are outlined in the statute. In addition, the DPUC, in consultation with the Office of Consumer Counsel, must retain a third party with expertise in energy procurement to oversee the initial development of the request for proposals and the electric distribution company’s bidding process.

Starting January 1, 2007, the state’s electric distribution companies must also provide supplier of last resort service to large customers (those with peak demand of 500 kilowatts or more), other than those on special contracts or flexible tariffs. Pursuant to statute, an electric distribution company utility mustprocure power for this service,and DPUC must set its price to reflect the full cost of providing power on a monthly basis.

B. Suppliers and Aggregators

Section 16-245 of the Conn. Gen. Stat., as amended by Public Act 03-135, An Act Concerning Revisions to the Electric Restructuring Legislation, authorizes the Department to license electric suppliers and register electric aggregators in Connecticut. At the present time, there are 14 licensed suppliers and 14 registered aggregators in Connecticut. The following is a listing of those entities, and indicates whether or not they are actively marketing to or providing generation services to the state’s consumers.

Table 2

Licensed Suppliers and Registered Aggregators as of December 2005

Source: DPUC Website WattsNewCT.com

Additionally, Constellation NewEnergy has two multi-year aggregation contracts to supply a total of 86 megawatts (MW) to 98 commercial and industrial customers in Connecticut, one starting in April 2006 and the other starting in January 2007. Constellation NewEnergy, Exceptions to Draft, p. 1.

C.Customer Switching

CL&P provided electric service to 1,195,927 customers in Connecticut while UI served approximately 321,445. Combined, these Companies serve about 93% of the state’s electric consumers, with the remainder served by municipal electric systems. As of December 2005, a total of 31,840 Connecticut consumers had switched to competitive suppliers, all of whom are customers of CL&P. Table 3 provides the number of customers for each utility by class, and the number and percent per class that are on the utilities’ TSO rates or that have switched to competitive suppliers.

Table 3

Summary of Provision of Generation Services and Switches – As of December 2005

Source of 2005 Data: Docket No. 05-11-05, CL&P and UI Compliance Filings dated 1/23/06 and

1/24/06, respectively.

As illustrated in the Table 3 above, 31,840 or 2.1% of all customers, all of whom are in CL&P’s territory, have switched to competitive suppliers. The percentage of CL&P commercial and industrial customers that have switched is .15% and .20%, respectively. In UI’s territory, there have been no customer switches.

Table 4 below lists the retail suppliers that are currently providing service to Connecticut customers. Currently, only three competitive suppliers (Dominion Retail, Select Energy, and Transcanada Power Marketing) are currently providing generation services to customers in Connecticut, all of whom are within CL&P’s service territory. The two suppliers who offer the CT Clean Energy Options do so as an add-on to CL&P’s and UI’s TSO service. CL&P and UI customers who choose to participate in the CT Clean Energy Options program pay an extra premium or charge per kWh, in addition to the utility generation services charge, to support renewable energy at either the 100% option price or the 50% option price. Currently, there are 5,727 or .4% of the utilities’ customers participating in the program.

Table 4

Customer Switches to Competitive Suppliers – As of December 2005

Source of 2005 Data: Docket No. 05-11-05, CL&P and UI Compliance Filings dated 1/23/06 and 1/24/06, respectively.

*CT Clean Energy Options Suppliers are not competitive with but adjunct to the utilities' TSO.

D.Price Differential

As required by Conn. Gen. Stat. 16-245x, the department must determine annually whether the rate differential for electric service between residential and industrial customers has increased by three percentage points or more from the rate differential that existed on January 1, 1998. If the department determines that the rate differential for electric service between residential and industrial customers has increased by three percentage points or more, it must initiate an investigatory proceeding.

Table 5 below indicates the price differential that existed between residential and industrial customers on January 1, 1998 and the annual average price differential between these customer classes as of January 1, 2005. As required by the statute, the total average residential and industrial rates are calculated by dividing the total class revenue by the total class kilowatthour (per kWh) sales, while the percentage differential is calculated as the difference in the rates divided by the average residential rate.

Table 5

Source of Data:

January 1, 1998 - CL&P and UI 1997 FERC Form 1, p. 304.

December 31, 2005: Docket No. 05-11-05, CL&P and UI Compliance filings dated 1/23/06 and 1/24/06, respectively

As Table 5 illustrates, the price differential in 1998 between residential and industrial customers was 34.3% and 35.6% for CL&P and UI, respectively, and has declined to approximately 30% for CL&P and to 31.7% for UI as of December 31, 2005. Since there has been no increase in the price differential between residential and industrial customers, the Department need not institute a proceeding at this time.

E.Average Utility and Competitive Generation Rates and Proportional Generation Sales

Tables 6 and 7 for CL&P and UI respectively, attached at the end of the report, provide additional information required per Section 16245x of the Conn. Gen. Stat. These tables indicate the proportions of total generation sales provided by the utility and by competitive suppliers, as well as a comparison of the average utilitysponsored (i.e., Standard Offer or Transitional Standard Offer) generation service rates and the average competitive supplier generation service rates per customer class and in total.

In 2004 and 2005 during the TSO period, competitive supply was offered only to customers in CL&P’s service territory. The price differences for 2005, between CL&P’s TSO GSC and supplierprovided GSC (i.e., the average rate per kWh), as shown in Table 6 at the end of this report, indicates that the price of competitive GSC provided to residential customers is relatively the same as CL&P’s GSC price. However, competitive GSC rates for commercial and industrial customers were lower than CL&P’s rates for these two customer classes.