R.I. electricity market hasn’t seen competition
State Sen. John Tassoni Jr. watches the rate increases requested by National Grid with disdain.
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First came an October increase that tacked a 12.4-percent increase on customers’ electricity rates. Now the Public Utilities Commission will consider a 13.3-percent rate increase request, which the electricity company wants to put in effect Jan. 1.
These increases have come in the wake of energy deregulation, something Tassoni thought was going to keep the average customer’s bill down.
The Smithfield Democrat, attacking what he sees as the root of the problem, is calling for the assembly to drastically alter the laws that made Rhode Island the first deregulated state in the country.
It’s an issue that must be dealt with, he said, because the spike in energy costs is not like rising costs of movies and sneakers.
“These are [items] of choice,” Tassoni said. “We don’t have that choice with oil, gas and electricity.”
Choice – and lower prices – is what energy deregulation was designed to produce for consumers.
Created by the Utility Restructuring Act of 1996, the deregulated environment was supposed to encourage competition and offer customers a plethora of options, said Rep. Brian Patrick Kennedy, D-Hopkinton, chairman of the House Committee on Corporations.
But unlike the open telecommunications market created by the 1984 breakup of AT&T, the competition never materialized in Rhode Island’s electricity market.
There were three power suppliers in the state when deregulation took effect, but National Grid purchased Narragansett Electric in March 2000, then less than a month later bought out its two neighbors – Blackstone Valley Electric and Newport Electric.
The new companies that were supposed to enter the residential market and drive the price down never came.
Currently, National Grid serves 465,000 customers in Rhode Island. It supplies power to 38 of the state’s 39 municipalities, absent only on Block Island and a part of Burrillville, said David Graves, a spokesman for the company.
A majority of National Grid’s customers pay what is referred to as the “Standard Offer,” a gradually increasing price structure intended to ease consumers into the open market, Graves said. Customers can remain on the Standard Offer until they decide to seek their own electricity sources.
If they decide to return to National Grid, they go on a payment scale called “Last Resort,” a rate higher than the Standard Offer.
“The presumption was the market would produce such competition that the [price] would drop and consumers would strike deals better than the Standard Offer,” said Thomas Kogut, a spokesman for the Division of Public Utilities.
Where Standard Offer was supposed to be the highest price customers would pay in the deregulated world, it’s now become the lowest.
The results of deregulation nationwide have been mixed. While California has floundered in the deregulated market, other states, such as Pennsylvania, have produced active markets generating billions of dollars of savings for consumers.
Cambridge Energy Research Associates released a report this year stating that consumers nationwide have realized savings of $34 billion since the overhaul of the market began.
The real challenge for Rhode Island’s competitive market may come in four years, when the legislatively created Standard Offer expires. Unless lawmakers amend current rules, the rate is set to expire Jan. 1, 2010, thrusting consumers into the open market.
National Grid’s Graves said the company is watching how Massachusetts has come off the offer, which ended there last February. The results are not comforting to consumer advocates in Rhode Island.
Because National Grid does not generate any of its own energy, the company must go out to bid every six months for electricity.
The rising cost of fossil fuels, which are used to generate a large portion of the electricity National Grid transmits, has raised the cost to the utility vastly, Graves said. He points to places like Cape Cod, whose light provider, Cape Light Compact, announced earlier this month that its rates could jump 80 percent.
Kennedy said the assembly needs to look at extending the Standard Offer beyond its planned expiration.
He said Rhode Island residents in an open market would experience “sticker shock.” As a result, if given the opportunity to choose, most customers would stay with National Grid’s Standard Offer.
“People are afraid to leave what they know is out there already,” Kennedy said. “And that is one of the things about [Standard Offer]. There is some predictability.”
But John Farley, executive director of The Energy Council of Rhode Island, said in the event the Standard Offer expires, consumers need to look for advocates and form collectives to purchase their electricity.
The Rhode Island League of Cities and Towns runs the Rhode Island Energy Aggregation Program, a collective of 36 municipalities that purchases bulk amounts of electricity for streetlights and other government services.
A large group of people looking to purchase energy could be effective in getting companies to supply power to Rhode Island, Farley said.
“We should be working now to empower the customers to be able to handle the environment they are going into,” Farley said.
Legislatively, Kennedy anticipates the issue of deregulation will be looked at closely in the years leading up to 2010. He said the state may end up in a “hybrid-type” energy market, where consumers stay on National Grid’s Standard Offer despite having the opportunity to leave.
However, he said fully repealing the Utility Restructuring Act is unlikely.
“The genie is out the bottle,” Kennedy said. “We can’t put the genie back in.”
