Rhode Island legislators at a public hearing last week were urged to partner with neighboring states if they are serious about opening the state’s electricity market to retail competition.
“Clearly, we are not large enough to be an attractive market to stand alone, even if (an energy retailer) had every single customer in the state,” said Robert Stoddard, principal of Charles River Associates, a consultant hired by the House Corporations Committee.
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Rhode Island’s legislature passed the Utility Restructuring Act in 1996 with hopes of cost savings and more choices for consumers. But an open electricity market has been slow to materialize as retailers have struggled to offer customers a competitive rate.
“We recognize at this point in time that there’s just no sign of that deregulation in Rhode Island,” said Rep. Brian P. Kennedy, D-Hopkinton, the committee chairman.
Just 160 of Rhode Island’s 460,000 electricity customers are getting their electricity from a non-regulated supplier. Many of those are large users – big commercial or industrial businesses that use a lot of electricity day and night.
About 1,750 customers are on Narragansett Electric’s “last resort” service, which is the rate paid by those users who left the utility after deregulation in search of cheaper rates from non-regulated suppliers and have since returned to Narragansett Electric. Most were forced to return because their marketers could not compete with the utility’s Standard Offer price and pulled out of the market.
That leaves more than 99 percent of the state’s electricity customers on Narragansett Electric’s Standard Offer rate – a clear sign that retail competition in Rhode Island is almost nonexistent.
The House Corporations Committee has had a series of public hearings this year to explore whether the restructuring act is a failure or if it can be saved. The Nov. 5 meeting focused on changes that could be made to lure more energy retailers to the Rhode Island market.
“We really do want to create a competitive retail environment,” Kennedy said. “To the extent that means offering up the Standard Offer to a bid-type process in Rhode Island, then that’s what we’ll need to do.”
Elsewhere in New England, “retail access is uniformly very weak,” Stoddard said. “In some places it’s nonexistent; in other places it’s limping along.”
But Rhode Island is one state that is actively “re-restructuring,” along with Connecticut and Massachusetts. Combining efforts to create uniform regulatory oversight – licensing and reporting requirements, for example – and uniform electronic data interchanges would make it easier for retailers to enter the Rhode Island market, Stoddard said.
“Quite clearly these are three states that ought to become allies in that process,” Stoddard said. “Even though they are small, you can have an integrated approach across the whole southern tier of New England. That seems like a realistic task for getting many active retailers here in Rhode Island.”
Retailers need that critical mass of customers – typically between 1 and 3 million – to reach economies of scale, Stoddard said.
Representatives from two power retailers offered committee members their views of what it will take to truly open the state’s market to retail competition.
Walt Jordan, manager of public policy for TXU, which operates the largest utility in Texas, said a fundamental principle of Texas’s deregulation law is a requirement that the utility only delivers the power. It does not perform other functions, like marketing, power generation, or customer billing.
The Texas legislation, which some industry observers view as a national model, also is packed with protections for residents and small-business customers, Jordan said. One measure requires new market entrants to offer consumers rates that are at least 6 percent lower than the incumbent utility’s rates when deregulation in Texas goes into effect Jan. 1.
Another provision designates a “provider of last resort,” which will temporarily provide services to customers if their supplier pulls out of the market.
Kathleen E. Magruder, vice president of government affairs for The New Power Co., a New York-based competitive electricity supplier, said marketers want the ability to bill customers directly, rather than relying on the utility for billing. Without that option, Magruder said it’s hard to entice customers with special offers.
She added that educating customers about the retail electricity market is important for generating interest. She said Rhode Island could coordinate advertising and marketing efforts with neighboring states to make the message of a competitive retail market easier for customers to understand.
Another key to “busting open a competitive market,” Margruder said is “time-of-use metering,” which would allow customers to see in real time how much it cost to use electricity at different times of the day.
“If you let them know that it’s three times more expensive (to use electricity) at 5 o’clock than it is at 2 a.m., they have the opportunity to shift some of their usage,” she said. “Time-of-use meters I think are the silver bullet to competition. They are the things that will really open up the market.”
The House Corporations Com-mittee’s next hearing on deregulation, which will focus on the role of Rhode Island businesses and the general public, is set for 5 p.m., Nov. 26 in Room 313 at the State House.
