By Peter Healy
Correspondent
Norwalk-based North American Power has joined dozens of companies that offer lower rates than Connecticut’s top two traditional electric utilities provide in a deregulated market with the highest electricity rates in the continental United States.
Since it began operating early last month, North American Power has recruited 4,000 customers, said Kerry Breitbart of Weston, president of the privately held company.
Breitbart, 59, said his company chose Connecticut, where he has lived for 30 years, because the bulk of residential electricity consumers in the state still get their power from former monopolies Connecticut Light & Power Co. (CL&P) and United Illuminating Co.
“We see an opportunity here to have a professional business with considerable savings for consumers,” Breitbart said.
Before starting North American, he was president and chief executive officer of United Companies, which was involved in crude oil brokerage, crude oil derivatives and other products. Icap bought United in 2005. Breitbart also had been head of crude oil trading at Northville Industries.
North American Power employs 11 people at its headquarters at 11 North Main St. in the former Avrick Furniture building in South Norwalk. The company also uses about 400 independent energy brokers, Breitbart said.
Statewide deregulation enabled electric supplier companies such as North American Power and Stamford-based Viridian Energy to offer consumers alternatives to CL&P and UI since 2000. Despite deregulation, however, Connecticut still has the nation’s second highest electricity rates, trailing only Hawaii.
The suppliers buy power from wholesalers, who are monitored by Holyoke, Mass.-based Independent System Operator (ISO) New England, a non-profit company the federal government established to ensure fair competition and direct traffic on the high-voltage power grid in six states.
Other power suppliers include RBS Sempra Commodities, whose energy trading office is in Stamford, Dominion Energy of Richmond, Va., MXenergy of Stamford, Ohio-based Direct Energy, ConEdison Solutions of White Plains, N.Y., Verde Energy USA Inc., Public Power Energy Plus and Discount Power.
Some of them, such as North American Power, serve both residents and businesses, while others provide energy exclusively to either residential or commercial customers. Some retail suppliers, such as Dominion Energy, also produce power as a wholesaler.
Deregulation forced CL&P and UI to sell their power plants, but they still deliver power to customers over their transmission lines and provide services such as customer service, billing and power line repairs. CL&P sold its Millstone nuclear plants in eastern Connecticut to Dominion Energy. PSE&G of New Jersey owns the coal-fired energy plant on Bridgeport Harbor that had been a United Illuminating property.
Another group of 27 energy aggregators choose from numerous suppliers to get the best rate for their customers. Aggregators that operate in Connecticut include Santa Energy, the Connecticut Business & Industry Association and New Haven-based EnergyChoice. They serve businesses and residential customers.
The suppliers and aggregators are all jockeying for Connecticut consumers after the state opened its electricity market to outside competition in 2000.
The suppliers and aggregators are all jockeying for Connecticut consumers after the state opened its electricity market to outside competition in 2000.
As of January, Connecticut, 12 other states mostly in the Northeast and Midwest, and the District of Columbia have deregulated electricity industries, according to the U.S. Energy Information Administration, an arm of the federal Department of Energy. Eight states have suspended deregulation, according to the energy department.
Six municipal electricity providers in Connecticut, including South Norwalk Electric and Water and its 5,000 electricity customers, do not take part in the deregulated market.
The electric suppliers typically charge less than CL&P and UI because they buy power from wholesalers in the short-term markets rather than the long-term markets, during which time prices can change, said Phil Dukes, spokesman for the Connecticut Department of Public Utility Control (DPUC).
North American Power currently charges 9.89 cents per kilowatt hour, compared with 11.05 cents for CL&P, according to the Connecticut Department of Public Utility Control’s CT Energy Info Web site.
United Illuminating charges 11.57 cents per kilowatt hour to its residential Rate RT customers and 14.11 cents per kilowatt hour on-peak and 10.61 cents off-peak to its residential Rate RT customers.
The average Connecticut household used 731 kilowatts of electricity per month in 2008, according to the U.S. Energy Information Administration.
At 700 kilowatt hours per month, a CL&P residential customer can save anywhere from $15.69 per month by switching to Direct Energy, $8.13 a month with North American Power and 43 cents a month by switching to MXenergy, according to CT Energy Info, which has a list of all suppliers, aggregators and their rates.
Monthly savings for UI residential Rate RT customers who use 700 kilowatt hours range from $18.71 if they change to Dominion, $12.41 if they switch to North American Power and $5.06 if they pick Direct Energy, the CT Energy Info site said.
Despite the lower rates, only 301,557, or 19 percent, of CL&P and UI customers have chosen an alternative supplier as of Jan. 31, according to CT Energy Info.
On the residential side, 173,031, or 15.7 percent, of CL&P customers have switched, compared with 58,219, or 20.1 percent, of UI customers, CT Energy Info said.
Breitbart said the 1.26 million CL&P and UI customers who have not yet switched are a ripe market for North American Power and its competitors.
Residents make up the bulk of that untapped market, he said. About 53,000, or 42.5 percent of CL&P’s small-business customers have chosen a lower-cost electricity supplier, compared with 841, or 82.5 percent of large businesses, CT Energy Info said. UI’s business customers had similar switch-over rates.
To promote itself among the CL&P and UI holdouts, North American Power plans to advertise by direct mail, television and radio, and possibly on billboards, Breitbart said. The company is set to expand over several years into Pennsylvania, Maryland, New York, Massachusetts, Ohio, Illinois and Texas , but not necessarily in that order, he said. North American Power expects to operate in two new states by the end of the year, he added.
Connecticut customers might be reluctant to latch onto alternative suppliers and aggregators because their rates when compared with the traditional utilities might appear too good to be true, said Tyler Lynch, president of EnergyChoice.
Coincidentally, “This Sounds Too Good to Be True,” is the title of a section on North American Power’s Web site.
Connecticut Attorney General Richard Blumenthal endorsed alternative suppliers as one remedy for high energy prices.
“I strongly encourage consumers to shop around for electricity, although they should assure they fully understand the terms and conditions of an alternative supplier,” Blumenthal said in an e-mail response to a Hearst reporter’s query.
Blumenthal and other longtime critics say Connecticut’s electricity rates are anything but good, partly because they raise the already high cost of running a business in the state.
For the first nine months of 2009, Connecticut's average rate was 17.5 cents per kilowatt hour, compared to the national average of 9.82 cents, according to a report by the Connecticut Office of Legislative Research. The gap has grown in the past five years. In 2004, Connecticut's average rate was 34.8 percent above the national average. Last year, the gap had grown to 74.3 percent,
Theories abound as to why the rates got so high, and stayed there even after deregulation.
Dukes, the DPUC spokesman, mentioned the high cost of land on which to build power plants, reluctance of Connecticut citizens to have plants built near their homes and the high cost of paying people to work in the plants as possible reasons.
The state Office of Legislative Research lists the culprits as Connecticut’s lack of fossil fuel deposits, federal wholesale market rules, environmental policies and even deregulation itself.
Blumenthal of Greenwich and state Rep. Vickie Nardello, D-Prospect, co-chairman of the legislature’s Energy and Technology Committee, blame federally approved auctions for the high prices.
In those auctions, Blumenthal and Nardello claim the price of fuel that wholesale power plant owners sell to the retail suppliers and aggregators is often linked to the bid offered by the most expensive power plants, which use natural gas rather than cheaper coal and nuclear power.
“Nuclear plants are paid as if they’re gas plants, coal plants are paid as if they’re gas plants, and what happens is you create windfall profits for those particular owners of those plants because of the fact they’re getting paid much more than the cost of producing the electricity,” Nardello said in an interview with WFSB Channel 3 in Hartford. She could not be reached for further comment.
Blumenthal, who has been pressing for an independent energy authority for Connecticut since 2006, agreed.
“Connecticut power plants — the Millstone nuclear plants and the Bridgeport coal generator — produce some of the cheapest power in the United States, but the state has the highest electricity prices in the continental United States,” Blumenthal said in an e-mail.
“The primary cause of this contradiction is anti-competitive, irrational rules imposed by grid operator ISO-New England and the Federal Energy Regulatory Commission (FERC),” Blumenthal said.
“Under these rules, which I have fought at FERC and in the courts, all power plants are paid as if they burn the most expensive fuel, usually oil or natural gas. That has allowed Millstone and the Bridgeport plant, which supply more than 50 percent of our power, to earn windfall profits of 44 to more than 100 percent, driving prices through the roof, he said.”
ISO New England defended its bidding system.
“The uniform clearing price method is not unusual, it’s the norm,” said ISO-New England spokeswoman Marcia Blomberg. “Most commodity markets operate with a uniform clearing price structure.”
“It’s no cheaper to run a market under the pay-as-bid system, as some have suggested,” Blomberg said. “In that system, producers have an incentive to offer the highest possible price they think they can get. The uniform clearing price system selects the cheapest generators, which tend to be the most efficient and the cleanest power plants, so there are environmental as well as cost benefits,” she said.
“(The uniform pricing system) also has provided the incentives that have led to investment in a more reliable power system, including significant improvements to the transmission system to keep the lights on in southwest Connecticut,” she added.
As an energy cost reducer, Blumenthal plugged his 4-year-old proposal for a Connecticut electricity governing body.
“A Connecticut electricity authority ... will significantly lower prices by bypassing federal rules that inflate prices,” Blumenthal continued. “The authority will buy power directly from producers, cutting out predatory middlemen like hedge funds and investment banks, and sell it at cost to utilities.”
“It will finance and perhaps even own plants, purchasing their power at low, cost-of-service rates and increasing our power supply,” Blumenthal said of the proposed entity.
Blumenthal said he will push for a state power authority at this year’s General Assembly session, which ends May 5.
“I am optimistic that the legislature will vote this year to create the authority, which is vital to bringing down power prices,” he said.
During the past five years, the legislature passed bills aimed at reducing electric rates. They included incentives to build new power plants, require electricity purchase contracts to lessen the effects of volatile energy prices and promote energy efficiency and conservation.
“The state (of Connecticut) can pass all the laws it wants, but it will always be trumped by federal law (FERC),” said Tyson Slocum, director of the energy program at Washington, D.C.-based Public Citizen, a lobby group.
Robert McCullough, an energy consultant in Portland, Ore., and adjunct professor at Portland State University, also said the roots of Connecticut’s energy woes lie outside its boundaries, in the bidding process.
“There’s not a lot of pressure to keep the bids low,” McCullough said. “The public can’t see the bids and who made them until four months after they are made. Some bid the maximum price all the time.”
McCullough said New England’s power delivery system is flawed and unwieldy, with many layers of bureaucracy.
“To get a block of inexpensive power to Connecticut is twice as hard as getting it to Massachusetts and four times as hard as getting it to Maine,” he said. “The best example we can think of as to why the Connecticut market is such a disaster area (for electricity) is that it operates at the edge of the New England ISO. It’s like driving on a freeway where every town has a toll booth.”