You asked how electric utilities in the northeastern states (New England plus New York) that have undergone restructuring procure power for those customers who have not chosen a competitive supplier. You also wanted to know how much the utilities charge for the power itself.

SUMMARY

Connecticut and most other northeastern states have restructured their electric power industries to allow customers to choose a competitive supplier. All of these states require electric utilities to continue to provide power to those customers who do not choose a supplier. This utility service is called transitional standard offer in Connecticut and by various other names in other states.

The way that the utilities procure power for this service varies by state and utility, and, in Massachusetts, by customer size. The most common procurement method is for a utility to enter into a series of overlapping wholesale contracts that extend over several years (this is called laddering). For example, in 2003 Connecticut Light & Power (CL&P) entered into contracts to meet all of its demand for 2004 and part of its demand for 2005. It subsequently entered into overlapping contracts to meet the rest of its demand for 2005 and 2006. The price of power under the most recently approved CL&P contracts is 14. 5 cents per kilowatt-hour (kwh), in contrast to a price of 7. 2 cents under the previous contract, which it entered into a year earlier. The Department of Public Utility Control recently approved a rate increase for the company in 2006 to reflect this increased cost, which was primarily due to increases in the costs of natural gas and other fuels used to generate electricity. Because CL&P had already contracted for half of the power it will need in 2006, its overall rates will increase by 17. 5% on January 1, 2006 and an additional 4. 9% on April 1, 2006.

Other utilities that have used the laddering approach have seen substantial increases in the price of power in recent years. For example, the price of power for residential/small business customers of Central Maine Power increased from 6. 95 cents/kwh for contracts it entered into 2004 for 2005-2006 to 11. 8 cents/kwh for contracts it entered into in 2005 for 2007-2008.

Some utilities have been able to enter into multi-year contracts for their entire demand. For example, United Illuminating was able to enter into three-year contracts in which the price of power for residential customers is currently 6. 25 cents/kwh in the winter and 7. 04 cents/kwh in the summer, when demand peaks. These contracts expire at the end of 2006, and unless wholesale prices decrease dramatically, United Illuminating customers will face a substantial rate increase in 2007.

Similarly, the major utility in Rhode Island entered into supply contracts in the late 1990s that run through 2009. Most of these contracts are subject to an adjustment to reflect changes in wholesale market prices, and the cost of power for residential customers will be 10. 0 cents/kwh starting January 1, 2006.

New Hampshire is unusual in that its largest utility generates most of the power it sells. The current price of power for this utility's residential customers is 7. 24 cents/kwh. However, the utility has applied for an increase to 9. 13 cents/kwh starting February 1, 2006 to offset increases in its fuel and purchased power costs.

The cost of power is the largest part of overall electric rates in all of these states. In addition to this charge, customers across the region pay charges for transmission and delivery of the power, charges for conservation and renewable energy programs, and various other charges.

It appears that there are several reasons for the variation in the cost of power in the region, These include when the contracts were signed, the extent to which the area served by a utility is subject to federally-mandated charges for congestion on the transmission system, and the fuels used to provide the power being sold under the contract.

CONNECTICUT

The law (CGS § 16-244c) requires electric utilities to provide transitional standard offer service from January 2004 through the end of 2006 for those customers who have not chosen a competitive retail supplier (only about 1% of customers have done so). United Illuminating was able to find wholesalers willing to supply its entire demand for the three-year period. The cost of power for residential customers under these contracts is currently 6. 25 cents/kwh in the winter and 7. 04 cents/kwh, in the summer, when demand is higher.

Although CL&P solicited similar bids from wholesalers, it did not receive appropriate responses. In part, this was due to the fact that CL&P's demand is nearly four times larger than United Illuminating's. Instead, CL&P entered into a series of laddered contracts. In 2003, it entered into contracts to meet all of its demand for 2004 and part of its demand for 2005. In 2004, it entered into contracts to meet the remainder of the demand for 2005 and part of the demand for 2006. Most recently, it has entered into contracts to meet the remainder of its demand for 2006. Between 2005 and 2006, wholesale prices rose dramatically primarily due to increases in fuel costs. As a result, CL&P's overall rates in 2006 will be approximately 22% higher than in 2005.

Starting in 2007, both utilities will be required to provide standard service to small and medium size customers who have not chosen a supplier, subject to procurement provisions designed to mitigate rate volatility. The will also be required to provide last resort service to large customers who have not chosen a supplier, at market rates.

MAINE

Two utilities, Central Maine Power (CMP) and Bangor Hydroelectric (BHE) serve approximately 90% of Maine electric customers. Both utilities were initially able to enter into multi-year contracts to meet their entire demand. However, due to changes in the wholesale market, both utilities began entering into laddering contracts last year. At that point, the utilities entered into contracts to serve their entire load for the period March 2005 to February 2006 and two-thirds of their load for the following 12 months. The 2005-06 price for power for residential and small business customers was 6. 95 cents/kwh for CMP and 7. 14 cents/kwh for BHE.

In December 2005, the Maine PUC approved laddered contracts for the remaining third of the 2006-2007 demand, two-thirds of the 2007-2008 demand, and one-third of the 2008-2009 demand. The prices for the 2006-2007 part of these contracts were 11. 8 cents/kwh for CMP residential and small business customers and 12. 2 cents/kwh for BHE customers. When blended with the existing contracts, the overall rate for CMP customers will be about 9% higher in 2006-2007 than it was in 2005-2006. The increase for BHE customers is about 10%. In both cases, the prices for the two subsequent years are somewhat lower than the 2006-2007 price.

MASSACHUSETTS

Massachusetts requires utilities to provide basic service to all customers who do not choose a competitive supplier. The procurement policies for this service vary by the size of the customer. Utilities procure power for their large customers (generally those with 200 kilowatts of demand or more per month) every three months and at one time. For smaller customers, they use laddered contracts. In the case of the NSTAR utilities (Boston Edison, Cambridge Electric, and Commonwealth Electric) the utilities enter into contracts that overlap over a three-year period. A utility will buy power for 50% of its load under a one-year contract, 25% under a two-year contract, and 25% under a three-year contract. The other utilities buy one-year contracts for 50% of their load every six months.

For all customers, the price of basic service varies monthly and will rates set several months in advance. Currently, the price of power for service ranges from 12. 8 cents/kwh for Massachusetts Electric residential customers to 15. 5 cents/kwh for Boston Edison residential customers. Prices will fall during the spring, when demand drops. For example, the April price will be 8. 8 cents/kwh for Massachusetts Electric residential customers and 10. 3 cents/kwh for Boston Edison residential customers. Prices will then increase in the summer, when demand increases.

NEW HAMPSHIRE

The procurement policies vary significantly by utility. In the case of Public Service of New Hampshire, a Northeast Utilities company that serves approximately 70% of the customers in the state, the company owns enough generation to supply approximately 80% of its load. It meets the rest of its demand by periodically entering into bilateral contracts with other generators and making purchases on the spot market. Its residential supply cost is currently 7. 24 cents/kwh. However, the company has an application before the Public Utilities Commission to increase its rates to 9. 13 cents/kwh starting February 1, 2006 to offset increases in its fuel costs and the costs of purchased power.

The state's two smaller utilities, Unitil and Granite State, currently obtain the power for their residential customers from 3-year contracts with Mirant and Constellation Energy, respectively. The residential supply cost is approximately 5. 3 cents/kwh for both companies. Both contracts will expire this spring. Thereafter, both companies have said they will procure power using laddered contracts.

NEW YORK

Procurement policies for provider of last resort service vary somewhat by utility, but generally a utility will seek proposals for laddered contracts, allowing the bidders to offer contracts for a specified amount of supply for a period of six months to two years. In recent years, most bids have been for one-year periods.

The price of power varies widely within the state. As of July 2005, the price charged by Central Hudson Gas & Electric was 5. 76 cents/kwh. New York State Electric & Gas had a price of 7. 14 cents/kwh. Niagara Mohawk and Rochester Gas & Electric both charged 7. 19 cents. In contrast, the price charged by Consolidated Edison, which serves New York City and Westchester County, was 13. 64 cents/kwh.

RHODE ISLAND

Virtually all of the customers in Rhode Island are served by Narragansett Electric. As part of the state's restructuring of the electric industry, the utility entered in long (12-year) contracts with several wholesale providers that run through 2009. Most of these contracts have fuel adjustment clauses. As a result of increases in fuel costs, the price charges to standard offer customers has risen significantly in the past year. From August 2004 through October 2005, the price of power for residential standard offer customers was 6. 7 cents/kwh. In October 2005, the price increased to 8. 2 cents/kwh and the price will increase to 10. 0 cents/kwh this month. The Rhode Island PUC hopes that the price will remain steady for the following nine months.

A small number of residential customers and a substantial proportion of business customers are on last resort service. This service is provided to customers who (1) chose a competitive supplier who subsequently left the market or (2) ceased taking service from a supplier. Narragansett procures power for these customers every six months, and the rate for this power changes every month depending on the provider's estimated costs. Currently, the price for last resort service is currently 8. 5 cents/kwh. It will increase to 10. 8 cents in January 2006 and then fall to 10. 6 cents/kwh in February.

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