What Can Be Done About UI’s 38% Hike?

by Paul Bass | November 28, 2006 11:40 AM | | Comments (9)

State Sen. Martin Looney originally tried to stop state deregulation of electric utilities. In the wake of UI’s Thanksgiving surprise — a 38 percent rate hike — he and other leaders promise to press for answers about how to fix the disaster.

In the short term, maybe not much. In the long term, ideas abound.

While most people headed home for the holidays on Thanksgiving Eve last Wednesday, United Illuminating — at the end of the work day — released the details of the rate increases it’s seeking from state regulators as of Jan. 1. The utility, which sends electricity to 300,000 customers in Greater New Haven and Bridgeport, wants to raise rates for residential customers an average of 38 percent, for businesses, an average of 50 percent.

Connecticut Attorney General Richard Blumenthal called the proposed hike a “tsunami.”

But it seems likely that state regulators, at the Department of Public Utility Control, will approve the request when they meet on Dec. 8.

The DPUC did turn down a previous version of the proposed hike, according to UI spokeswoman Anita Steeves. (She said she can’t divulge the details of that proposal.) But comments coming from DPUC, and even critics of the hike, suggest that people believe that nothing short of a dramatic fix of the state’s larger energy policy can stem the devastating climb in the cost of electrifying our homes and businesses.

“UI doesn’t get to keep this money,” emphasized DPUC spokeswoman Beryl Lyons. “This is a pass through.”

“I don’t know if there’s an identifiable villain,” said New Haven State Sen. Martin Looney (pictured at the top of the story). “We will learn more as we grapple with the problems.” Looney, who’s the Senate majority leader, said the legislature will indeed grapple with the issue in hearings this coming session. In the meantime, he urged the DPUC to make UI “justify every single element and component piece of the rate increase that they’re asking for.”

Rates were supposed to go down, not up, when Connecticut deregulated the industry in the 1990s. The opposite happened; click here for an article from last Sunday’s Times that describes the outcome.

By opening up the market to competitors, the theory went, the state would receive bids for lower rates. UI had to decide whether to stay in the generation business or serve as middleman between customers and generators; it chose the latter. And the bids it received kept climbing.

UI’s Steeves suggested that the state would do better by allowing the company to return to serving as both middleman and generator; or by allowing it to enter into another three-year contract with suppliers, rather than the six-month contract it was required to strike starting in January.

“I think we should consider that, but not necessarily give them any special protections … not do it in a way that would make this a windfall for them,” said Sen. Looney, who tried to kill deregulation when the legislature originally passed it.

New Haven Mayor John DeStefano argued that broader change is needed. “Look,” he said. “Deregulation did not work in this state. We have to change the insane way that we price energy. The whole system begs an overhaul.”

As a gubernatorial candidate this fall, DeStefano warned during debates that this kind of hike was coming — and that drastic changes were needed. Now that it’s here, and now that he’s not going to become governor, he said the legislature and the governor need to make those changes. On its own, the city can build schools with solar panels and push conservation measures, both of which the DeStefano administration has done. But it can’t change the way the utilities and the regulators set prices.

When regulated utilities bid for prices from energy providers, “the seller is allowed to price it at what it would have cost to generate to use the most expensive fuel,” DeStefano noted. In other words, whether the generator ends up using nuclear-generated electricity (which is cheaper) or oil (which costs more), it charges the higher rate.

Gov. Rell has called for a special legislative session to push alternative energy measures and “eliminate the commercial utility tax on Connecticut businesses of all sizes.”

Attorney General Blumenthal proposed the creation of a Connecticut Electricity Authority that would push conservation and alternative energy; get new power plants built; and conduct the auctions for power purchases. Right now, in auctions like the one UI held for this bid, the public doesn’t get to find out who bid what; it’s a secret process.

In addition, Blumenthal proposed a windfall profits tax on energy suppliers of half of all profits above 20 percent. Actually, Blumenthal doesn’t call it a “tax.” He calls it a “refund”; it would go straight to ratepayers.

To read details of UI’s submission to the DPUC, click here, here, here, and here.

To offer your own thoughts on the best response to the soaring cost of electricity, post a comment a below.

Comments

Posted by: robn | November 28, 2006 1:16 PM

Can you say...Enron?

Posted by: THREEFIFTHS | November 28, 2006 1:31 PM

Find Out Which State Requlator Got There Pockets
Line!!!

Posted by: Cedar Hill Resident | November 28, 2006 4:16 PM

Question in the past 2 years how much did CL&P raise there rates?? Anyone know?? was it 50%?? I hate that this has happened and quess what we will be in the same shape as Calf is because they did this Deregulation thing. If we think that this is going to work we better think again!!

Posted by: Daniel Sumrall | November 28, 2006 6:18 PM

Democrats have a sickening majority going into 2007, but they had control before then. I doubt they'll do anything about it except introduce (maybe pass) a few weak willed whiny proposals. Simple fact is deregulation doesn't work because markets can't be trusted. The pass the buck Democrats are responsible, they will do nothing to prevent it, you all voted them in--you deserve what you get.

Posted by: Josh Erlanger | November 28, 2006 11:51 PM

Daniel are you kidding this is standard republican economics, give big business as many tax breaks and incentives as they can and leave the middle class to suffer. That’s all republicans do. This problem has been a long time coming I think they announced it over a year ago and Jody did nothing. DeStefano has been talking about it forever and I’m sure would have done much more to fix it then the steal from the poor to give to the rich republican administration.

Posted by: anon | November 29, 2006 12:07 AM

The rate increase is nothing, given the rising cost of energy worldwide. Rates would be even higher if you tried to regulate the market. The solution involves either allowing more nuclear power plants (not a great option) or cutting back on other areas. Driving less, for example, or just living in smaller urban apartments rather than lavish suburban homes. Get the government to invest more in central cities rather than continuing to subsidize wasteful suburbs. And in order to save jobs, the electricity increase should be passed off on consumers, not manufacturers, who have to compete against areas with lower energy costs (places like Alabama which have lower energy costs because they are horrible places to live).

Posted by: edward ericson | November 30, 2006 2:31 PM

The way forward is to go back--reregulate. I explained all this almost five years ago in a piece in the Hartford Advocate
http://old.hartfordadvocate.com/articles/powermad.html

But did anybody listen to me? Noooo!

Down here in Baltimore it's the same thing--only our increase was 72 percent. Everywhere the deregulated market was set up, it has led to a layering of related companies that extract profits from electricity. That's your "pass through." But the generation companies can, and do, collude to increase prices. And even when they don't collude, the upside-down auction system guarantees every player a better profit than they had under the old system. Add to that esoteric kickers like "congestion pricing" (necessary because the Enron economists who set up this system pretended not to understand Ohms Law) and you get the current gouge fest.

Posted by: Robert Frank | December 18, 2006 5:46 PM

The most important thing we can do right now is educate ourselves on the UI disasterous rate hike. In reading the above comments there appears to be a lot of dissappointment with the way us common persons are treated these days. Lets face it, you, me, and everyone alike, is merely an opportunity for big business to procure revenue on behalf of themselves and investors. In some cases we are the investors reaping the rewards of the misery big business pushes on others. A case in point is the staggering profits of Exxon Mobil and I assure you as I was cursing the Gas pump there were countless others who invested in Exxon that got their Gas money back in spades.

Unfortunately I do not believe UIL stock is going to show the same level of gratitude I would suggest that anybody and everybody who own UIL stock sell every penny of it and inform their friends and relatives to do the same. This is the best message we can send.

I believe that this rate increase is not because of anything, other than, recouping lost profit from an 18 Million dollar loss on UI's Xelcom nightmare, and pressure to get the "Filthy Five" back in business burning Gas. Gas delivered from a horrific LNG nightmare off the coast of West Haven.

Every one knows that gas burns cleaner hence resolving the coal burning problems of UI's "Filthy Five" problem. The massive rate hikes quite coincidentally erase their irresponsible losses on the Xelcom fiasco too perfectly.

The old CEO left pretty much in a hurry and the new guy Mr. Torgensen does not give a hoot about us the consumers. His entire day is consumed battling politicians, cheating UI's employees, and counting wall street money. The only time we are ever thought of is when we fail to afford our electric and the power is shut off.

As a small business owner I just opened a little company called the ComputerFox right here in Milford Ct on New Haven ave. and I cannot tell you how every penny counts in starting a business. Up front losses are expected but thanks to UI's 50% rate hike for commercial locations I am quite certain that that my growth plans are being impacted.

The consensus of many of my collegues at the chamber of commerce is that business is becomming more and more challenging in CT. I can only hope that some one sees that the aggregate carelessness of utilities, taxation, insurance, and services directly impact the already micro-wage economy that we have built.

The problem goes full circle in that the same underpaid people just return to your business and force small business to either collect less or nothing. Blumenthal is correct in calling UI'S rate hike a "Tsunami" I see it more as the "final nail in the coffin" of New Haven as well as the modern harbinger in the spread of poverty. It would appear that the BIC corporation closed its plant just in time. I fear Sikorski will move out of state next taking dictaphone with it.

Posted by: Milford Man | December 18, 2006 9:00 PM

IMPEACH JIM AMANN. He is the State Speaker yet he insists that the legislature do nothing. He is no solely repsonsible for this mess but he is putting a roadblock in the way of solving it. Throw this corporate stooge out of office

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