The chairman of the state’s Public Utilities Commission told a House committee last week that he doesn’t think retail competition will ever materialize for Rhode Island’s small electricity users.
“I don’t think you’re going to get competition at the retail level no matter what you do,” PUC Chairman Elia Germani told the House Corporations Committee during a Dec. 10 hearing to review the state’s 1996 electricity deregulation law. “I’m skeptical we’ll get to the point where the typical residential energy user will be sought after (by non-regulated suppliers).”
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Germani’s comments came during the last in a series of hearings ordered in May by House Speaker John B. Harwood, who has expressed concerns that deregulation hasn’t sparked competition or lowered prices. The committee plans to use testimony from the hearings next year to draft legislation that it hopes will jump-start competition, according to corporations committee chairman Rep. Brian P. Kennedy.
Rep. John P. Shanley Jr., a South Kingstown Democrat and member of the corporations committee, said he was “confounded” by Germani’s opinion that the state might never achieve competition for small electric customers.
“If that is indeed the case, then a major reason for deregulation has been completely overlooked,” Shanley said. “If he’s right, why did we pass (the restructuring act?)”
Although some electricity retailers entered the Rhode Island market to sell power to businesses and residential customers when deregulation took effect in 1998, nearly all of them pulled out when they couldn’t compete with the Narragansett Electric’s Standard Offer, which is the rate paid by nearly all of the utility’s 460,000 customers.
But the Standard Offer rate started to creep higher last year, driven by higher costs for natural gas, which is used to generate much of New England’s electricity. It jumped from 3.8 cents per kilowatt-hour in June 2000 to 6.3 cents earlier this year -enough to prompt Harwood’s review of the 1996 Restructuring Act.
It also, however, brought about limited competition for Rhode Island’s large electricity users. Dozens of companies and institutions with high “load factors” – who use a lot of electricity at all times of the day – have been able to beat Narragansett’s Standard Offer rate in recent months by locking into long-term contracts with electricity retailers.
But retailers still won’t vie for contracts with small businesses and residential customers who use comparatively small amounts of electricity, because they can’t turn a profit by undercutting Narragansett’s Standard Offer.
“Our constituents see the system as being broken,” said Rep. John Douglas Barr, a Lincoln Democrat and House deputy majority leader. “There is no competition in their eyes.”
But Narragansett Electric Executive Vice President Michael Ryan, who said he wholeheartedly supports the idea of competition, suggested that the utility’s relatively low rate might not be such a bad thing for now.
“When you have marketers saying they can’t compete in Rhode Island because the price is too low, that’s not a bad deal,” Ryan told the committee.
Therein lies the Catch-22 of restructuring, Ryan said: In order to spur competition for residential and small-business customers, Narragansett’s rates must be high enough to prompt them to leave the utility for cheaper power from a retailer. But for the time being, the Standard Offer rate – which was set when restructuring took effect – is too low for that to happen, and nobody seems to want to raise it for competition’s sake.
“If we wanted to have residential (competition) in Rhode Island, we could take the Standard Offer rate of less than 5 cents and raise it to 6.5 cents,” said Ronald T. Gerwatowski, Nar-ragansett’s general counsel. “We’d see all kinds of activity. But is that a good thing, to raise everybody’s bill by 2 cents a kilowatt-hour? Right now, I don’t think it is.”
Eventually, though, that might be what happens.
The Standard Offer rate will increase incrementally through 2009, when it will reach about 7 cents per kilowatt-hour. Toward the end of that span, the increased rate should provide enough “head room” for electricity retailers to undercut the Standard Offer while still turning a profit, legislators say.
In theory, customers will be weaned off the Standard Offer rate – which is exactly what the restructuring legislation intended.
“I think that’s when the great awakening will happen in Rhode Island, in 2009 when the Standard Offer is gone,” Shanley said.
But Shanley said he holds out hope that the expiration of Massachusetts’ standard rate in 2004 might bring competition to Rhode Island sooner. Shanley and others have said that competition in Massachusetts could spill over into Rhode Island because retailers would already have critical mass in the region, increasing their economies of scale.
“We do have some time,” Gerwatowski told the committee. “Massachusetts is going to face a really difficult decision when their standard offer ends in January 2004, and then something’s going to have to give. (Rhode Island) has the luxury of waiting and seeing what happens.”
Mike Colias can be reached via e-mail at colias@pbn.com
