The sweeping new electricity-restructuring plan unveiled by state lawmakers last week could plant the seeds for increased competition. But average customers won’t reap the benefits until at least 2005, legislators concede.
A few elements of the proposal, however, could spark competition for large commercial and industrial customers much sooner, potentially enticing some businesses to switch electricity companies and save on their bills.
One important provision would require Narragansett Electric to “unbundle” —separate—the rates charged for transmission and distribution of power from its rates that pay for services, such as procuring supply contracts and processing utility bills.
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While that distinction may appear benign to customers, the bill’s authors say it would result in an added savings, or a “shopping credit,” that would encourage larger customers to leave Narragansett for outside retailers.
The move, in turn, would create “a level playing field for energy providers who wish to enter the Rhode Island electricity market,” said Rep. Brian P. Kennedy, chairman of the House Corporations Committee, which conducted several hearings on deregulation issues last year.
The legislation would require the unbundling of rates by July 2003.
“We think that change will open up an important extra gap that larger commercial and industrial customers will use to save real money on their bills,” said Robert B. Stoddard, a principal at Charles River Associates in Boston who has served as the committee’s energy consultant.
Stoddard said the proposed creation of a shopping credit already has grabbed the attention of electricity retailers, who might be interested in supplying power to large customers in Rhode Island.
Small-business and residential customers, however, shouldn’t expect to have electricity retailers beating down their doors anytime soon. That’s because the standard offer rate charged by Narragansett Electric will remain fixed at 4.7 cents a kilowatt-hour through 2004, based on a ruling by the Public Utilities Commission earlier this year.
That rate is considered too low for retailers to compete at the residential level.
“We’re not going to see that competitive environment until at least 2005,” Kennedy said.
Another key provision for many large energy users is a requirement for Narragansett Electric to reduce its “backup rates,” which are charged to customers who “co-generate” their own electricity on site.
Those users are charged a tariff to stay connected to the grid, in case their own supply shuts down unexpectedly. Narragansett has said that those fees are necessary to cover the cost of being able to instantly supply backup power.
A number of manufacturers, hospitals and other large users who generate their own electricity have complained that those backup rates are far higher than in other states. And some industrial customers, including Polytop Corp. in Slatersville, have said the backup rates preclude them from installing their own generation plants.
The bill requires the utility to bring its backup rates more in line with utilities in other states, such as Massachusetts. That could mean a drop of as much as 50 percent, although that wouldn’t happen until 2005 under the legislation.
Other elements of the plan, set for House consideration this month, include:
Allowing cities and towns – either on their own or by joining together – to act as power brokers for residents, aggregating the electric load in order to secure better deals from suppliers. Individual customers would be able to opt out. Kennedy said businesses could join together in similar aggregation arrangements.
Creation of a new Office of Ratepayer Advocacy under the Attorney General’s office, which would assume responsibility for representing ratepayers before the PUC (instead of the Division of Public Utilities and Carriers, which fills that role now).
Increasing the size of the PUC from three to five members to “bring greater breadth of experience to the commission,” according to a summary of the legislation.
The legislation leans on testimony from the public hearings before the House Corporations Committee. House Speaker John B. Harwood last spring ordered a review of the state’s 1996 Utilities Restructuring Act amid sky-high electricity prices.
Although rates have fallen about 20 percent since then, they remain among the nation’s highest, Harwood said. “We certainly haven’t seen competition driving down the price of electricity,” he said.
