February 15, 2010

Currently in Connecticut there are ten retail electric providers offering service to residential customers as an alternative to CL&P and UI GSC default rates.  However, of these ten, only four of them (Direct Energy, ConEd Solutions, MX Energy, Dominion) offer fixed rates.  With a fixed rate you know the exact rate you will pay for electricity for a set term (usually 12 months). Shopping for competitive Connecticut electric rates can save both residential and commercial customers money.

The other six providers offer different types of variable rates that can, and often do, change from month to month.  These variable rate providers often advertise a low introductory rate that will be good for the first month of service.  After the initial month, you can expect the rate to increase.

These providers are in a marketing war with each other.  They will show that they are offering savings versus CL&P and UI default rates with their introductory rate.  However there is no guarantee that they will continue to show savings after that first month.  They are hoping that once you switch to their service you will remain their customer for a long period of time no matter how high their rates become.  On the plus side, these variable rate contracts are usually month-to-month, so if you keep an eye on your rate you can leave if it becomes too high.

If you are a homeowner with good credit we recommend looking into one of the providers with fixed rates.  With a fixed rate you will know exactly how much you are savings versus CL&P or UI default rates, and you will have the peace of mind of knowing that the rate will be good for a set period of time.  The electricity market has a wholesale and retail side.  The wholesale market prices are constantly changing and have proven to be very volatile over the years.  Variable pricing can result in huge rate increases over a short period of time.

Business Customers being served by one of the Connecticut Utilities (CPL, UI) are given many options now that the Connecticut electricity market has been fully deregulated.  Most offers that come from certified retail electric providers involve a certain fixed price per KWh set for a certain term.

Another option that exists for businesses is a floating wholesale index rate.  The index rate allows business customers to buy power for the posted wholesale electric price plus a small retail adder by the retail provider.  These rates have averaged below $0.09 per KWh compared to utility default rates of $0.1247 (28%) and competitive fixed rates of $0.105 (14%).  The wholesale index prices for Connecticut are posted and updated in real time at http://www.iso-ne.com/ which is the Regional Transmission Organization for New England.  The retail adder amount would be stated in a contract between a retail electric provider and the business customer.

Many large businesses who have the resources to educated themselves on all the benefits of electricity deregulation have been using index pricing to their advantage for several years.  Small and medium size businesses have the option to use index pricing as well with many of the competitive suppliers, however most suppliers do not spend time marketing the product because they feel that it will be too complicated for the average small business owner to understand.

If you are a small business owner who would like more information on index pricing, leave a comment on this article and we can provide you some literature and historic numbers on index wholesale electricity pricing.

Many businesses have been reluctant to look into the benefits of electricity deregulation because of the bad taste that telephone deregulation has left in their mouths.

When the telephone market first became deregulated, changing providers could be a huge headache for businesses.  There were interruptions in service, lengthy contracts, and promised savings that were negated by hidden charges and fees.  So now that electricity markets have become deregulated in states such as Texas, Pennsylvania, Connecticut, and New Jersey, there is a lot of hesitation for companies that are not educated about the logistics to look into an alternative provider.

Unlike the telephone market, the transition to an alternative provider in the electricity market can be extremely easy with no risk.  When an alternative electricity provider is chosen to save money, there are no interruptions in service.  This has to do with the way electricity deregulation is set up.  The lines and wires portion remains regulated by the state.  The same company that has serviced your lines and wires in the past will remain the same.  What has changed is your choice to select who supplies your electricity.  This means that nobody will have to come to you and change any wires or modify your electricity in any way.  The only thing that changes is the rate.

If you have not done anything and are still with your incumbent provider then you are on that provider’s default rate that the state mandates they charge all customers who are slow to choose a competive supplier.  Depending on your state and market conditions, the default rate can be anywhere from 10-30% higher then what a competitive supplier can provide you.

The only way to get off the default rate is to find an alternate provider to lock you in with a lower rate.  Then the alternative electric provider will supply your incumbent provider with the electricity which they will then supply to you.  You will not be able to tell a difference in service nor will you be able to tell when the switch is made because it is seamless.

Another issue that concerns bussinesses is the question of who they should contact if electricity goes out?  The incumbent provider is still regulated by the state and remains your lines and wires (or Transmission and Distribution) company.  They will still be the company to contact in the event that there is a power failure due to whether or other natural disasters.  They will still provide you with the same level of service that they always have, whether you continue to pay the high default rate or find another alternative provider.

There are no addition fees to make the switch from the incumbent provider to another, so there is absolutely no reason a company would not want to look into the benefits of electricity deregulation.  There are substantial saving available that can benefit any business.