You asked why Connecticut Light & Power (CL&P) customers who chose its “green option” are being affected by the recent 22. 4% increase in the company's transitional standard offer service. You also requested a discussion of recent trends in consumption for electricity, natural gas, heating oil, and gasoline.

SUMMARY

The customers are subject to the rate increase because they are still receiving power under transitional standard offer. As authorized by the Department of Public Utility Control (DPUC), CL&P and United Illuminating (UI) have implemented a green option program by purchasing renewable energy credits (RECs) from renewable energy suppliers on behalf of participating customers. DPUC supported the credit trading approach because it determined that it was cheaper and easier for the renewable energy suppliers and the utilities than having the suppliers sell the power itself to customers participating in the program

Under the green program the utilities are buying the actual power used by customers participating in the program and by other transitional standard offer customers from wholesalers who primarily generate electricity from nonrenewable resources. Virtually all of CL&P's recent rate increase is attributable to increases in wholesale power costs. DPUC has allowed CL&P to pass these costs on to its customers, including those participating in the program.

In general, energy consumption grew between 1999 and 2004 (2005 data are not generally available). Total electricity consumption grew modestly (7. 6%) and steadily during the period. The trend in natural gas and heating oil was more variable. Gasoline consumption primarily grew from 2000 through 2003.

THE GREEN OPTION AND THE CL&P RATE INCREASE

Introduction

The restructuring law currently requires CL&P and UI to provide transitional standard offer service to customers who do not choose a competitive supplier. Starting in 2007, the utilities will be required to provide “standard service” to small and medium customers who do not choose a competitive supplier and “last resort” service to large customers who do not choose. There are separate power procurement and pricing rules for each of these services (CGS §16-244c).

Both competitive suppliers and the utilities must obtain part of the power they procure for their customers from renewable resources under the state's renewable portfolio standard (RPS). The law allows them to meet this requirement by participating in a credit trading program (CGS § 16-245a). The credit is separate from the power itself and is traded on a separate market.

Legislation Authorizing the Green Option Program

Although two competitive suppliers in Connecticut offered options that exceeded the RPS, fewer than 2% of all customers chose a competitive supplier and many of these chose other options.

To facilitate the development of renewable resources, the legislature passed PA 03-135. Under the act, DPUC can require a utility to offer, through a competitive supplier, alternatives to transitional standard offer service and standard service, including an option that includes more renewable energy than the RPS requires.

DPUC Implementation

DPUC began the proceeding to establish a green option program in the fall of 2003. At the hearings, the utilities and most intervenors supported an approach in which the utilities would actually supply the power but would increase the proportion of their power coming from renewable resources by buying credits from renewable energy suppliers. The intervenors included competitive suppliers (including several renewable energy suppliers), environmental organizations, Connecticut Innovations, Inc. , (which administers the Connecticut Clean Energy Fund), and others. DPUC approved the use of this approach.

It is not clear how well DPUC and the utilities communicated how the program works. The DPUC's website describing the program does not discuss RECs.

Similarly, the frequently asked questions page on CL&P's website on the program includes the following:

If I sign up for one of these options, is the power coming to my house from renewable resources?

When you choose one of the clean [renewable] energy companies, you are asking the supplier you select to arrange for you to financially support the renewable resources in the energy mix you selected. The clean energy premium you pay helps to support the generation of clean, renewable power.

The answer is accurate, but may not fully convey the fact that the customer is not actually buying power produced from renewable resources.

Rate Increase and Impact on “Green Option” Customers

As noted above, the utilities continue to buy the power they need to serve customers who participate in the “green option” program, as well as other customers who have not chosen a competitive supplier. They buy this power from wholesalers who primarily rely on nonrenewable resources.

The DPUC periodically adjusts the price the utilities charge for this power to reflect changes in the utilities' costs, most notably changes in the price of the power the utility pays to the wholesalers. As noted in OLR Report 2006-R-0034, CL&P recently procured half of the power it needs in 2006 to serve its customers (it had previously entered into contracts for the rest of the power). The price CL&P paid for this power was more than double the price it had paid under the previous contracts. As a result, CL&P's overall rate for transitional standard offer service in 2006 will be 22. 4% above the rate it charged in 2005. (A small part of the increase reflects a previously approved increase in the rates CL&P charges for distributing electricity. ) This rate increase will affect customers who are participating in the green option program.

CONSUMPTION TRENDS

Table 1 presents consumption data for 1999 through 2004 for electricity and natural gas (total and residential customer), home heating oil, and gasoline (2005 data are generally not yet available). The electricity data are for CL&P and UI, which account for approximately 95% of all sales in the state (six municipal utilities account for the rest). The natural gas data exclude a small amount of gas used in the gas distribution system itself. The data for gasoline includes a small amount of gasohol sales.

Table 1: Trends in Connecticut Energy Consumption 1999-2004

^{Source: Energy Information Administration}

In general, energy use has grown since 1999. Total electricity sales in 2004 were 7. 6% above 1999 sales, and the growth for residential sales was 13. 7%, with steady growth in the intervening years in both cases. CL&P's total sales in 2005 were approximately 3% above 2004 sales. Natural gas and fuel oil sales had a more mixed sales trend, presumably reflecting the fact that sales of both fuels depends on weather. Gasoline sales were stable from 1999 to 2000, increased steadily in 2001 to 2003, and then were stable in 2004.

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