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Connecticut consumer advocates, lawmakers eye ban on variable-rate electricity contracts

By: Luther Turmelle |

Consumer advocates and some political leaders say they want to ban third-party electric power suppliers from offering variable-rate contracts to residential customers.

Senate President Martin M. Looney, D-New Haven, said the contracts are “deceptive and unpredictable.” Looney made his comment during a Tuesday press conference held while the legislature’s Energy and Technology Committee was holding hearings on the proposed legislation, Senate Bill 573.

“Variable-rate plans can easily hurt the average consumers, particularly vulnerable seniors,” Looney said, surrounded by members of the Connecticut chapter of AARP at the Legislative Office Building. “Some suppliers have engaged in deceptive marketing practices to sell these unpredictable plans. Electric customers deserve stable, predictable electric rates, whether obtained through standard offer service or from a multitude of highly competitive offers in the private supplier marketplace.”

State Rep. Lonnie Reed, D-Branford, co-chairwoman of the Energy and Technology Committee, said the goal of the legislation is to “get rid of the bad actors,” that abuse the third-party supplier marketplace. But neither Reed nor Connecticut Consumer Counsel Elin Swanson Katz would identify specific companies they believe mislead consumers into committing to contracts that make it easier for the third-party power provider to shift customers into expensive variable-rate contracts.

“This effects thousands and thousands of customers, the majority of whom didn’t sign up for variable-rate contracts in the first place,” Katz said.

Katz’s office did a study last year that found in September alone, variable-rate power contracts by third-party providers collectively cost consumers $10 million more than they would have paid if they had been signed up for standard offer service. The standard offer involves letting Eversource Energy or The United Illuminating Co. purchase the power for consumers and pass the cost of the procurement along to the customer.

Katz said that during the final three months of 2014, 15 third-party power providers were found to be charging per-kilowatt hour variable rates that were higher than what standard offer customers were paying.

“The downside outweighs any upside there might be,” she said.

From the perspective of John Erlingheuser, advocacy director at the Connecticut office of AARP, there is no advantage to continuing to allow residential electric customers to have access to variable-rate plans.

“Believe me, there are very few people out there trying to game the system, play the market,” he said of consumer interest in variable rates.

Reed said the ban, if approved by the legislature and signed into law by Gov. Dannel P. Malloy, would not keep third-party electric suppliers from offering variable rates to commercial customers.

“A lot of these (commercial customers) have people whose job it is to keep track of this,” she said of variable rates.

State Sen. Paul Doyle, co-chairman of the Energy and Technology Committee with Reed, said he “hasn’t heard an outcry from small business” regarding variable-rate electric supply contracts the way he has heard complaints from residential customers.

“It’s not that straightforward,” Doyle said of variable-rate plans, adding he recently went looking to switch from the standard offer to a third-party provider.

Several third-party provider testified before the Energy and Technology Committee Tuesday.

Christopher Kallaher, director of government & regulatory affairs at one of the providers, Direct Energy, said adequate consumer protections are already are in place.

“The hallmark of a competitive market is choice, including the choice of pricing and product offerings,” Kallaher said in a written statement. “By removing the variable price choice, customers will be forced to take service under a fixed price. If customers enter into fixed price agreements, they could be stuck paying higher prices for a significant period of time with no ability to avail themselves of better pricing options without facing early termination fees or breach of contract claims; thereby, creating a new source of complaints and frustration.”