While Connecticut’s official nickname is the “Constitution State,” it is also know by other monikers including the “Nutmeg State” and the “Provisions State.” One of the lesser-known nicknames is the “Land of Steady Habits.” While this was intended to allude to the strict morals of the state’s inhabitants, it also reflects the standards to which they hold electricity suppliers.
Connecticut Electricity Switching
Customer participation in the Connecticut electricity choice market was extremely limited prior to the expiration of rate caps. More residential electricity suppliers entered the market beginning in 2006 and Connecticut customers gradually warmed to the idea of switching service away from their utility. By 2008, less than 7% of consumers had switched away from CL&P (now Eversource) and United Illuminating (UI). Switching to competitive suppliers increased to almost 18% in 2009 and eventually topped out at 44% in 2012.
By most measures, an electricity choice market would be considered robust and competitive if 44% of customers switched away from utility standard service. The extreme cold in the winters of 2014 and 2015, however, exposed issues with how some retailers were marketing to Connecticut consumers.
Variable Rate Electricity Plans
The primary issue was with variable rate electric plans. Many of these plans used introductory pricing to appear lower than utility electric rates. Variable rate plans also lacked transparent mechanisms for setting monthly prices. In other words, they were not indexed to natural gas prices or average day-ahead electricity prices. Suppliers often set rates high enough to cover costs while remaining lower than prevailing utility rates. When the polar vortex resulted in a prolonged spike in wholesale energy prices, electricity suppliers were obliged to increase variable rates to cover their costs.
The rate increases caught customers off guard and drew the attention of state regulators. This lead to a thorough review of Connecticut electricity suppliers ranging from risk management practices down to the font size used in marketing materials.
In the wake of extremely high variable rates, participation in the electric choice market dropped precipitously from 43.5% in 2013 to less than 35% by the end of 2014. Consumers in the Land of Steady Habits sent a clear message to the market that variable electric rates were not preferable to relatively stable utility rates. Connecticut subsequently passed a law banning variable pricing plans.
Fixed Electricity Rates
With variable rates relegated to history, reputable electricity suppliers are turning to other ways to attract Connecticut consumers back to the market. Fixed rate electricity plans offer customers a number of alternatives to utility standard service. Competitive suppliers are offering fixed rates guaranteed for up to 36 months, renewable energy plans, and plans that include a smart thermostat.
Unable to offer variable rate plans, some electricity providers have turned to offering short, odd-term fixed price plans. These short-term fixed price plans, often only a few months in duration, have some of the same problems as variable price plans. Essentially, they look attractive compared to prevailing utility rates but they fail to provide price protection during the riskiest months of the year. Connecticut electricity shoppers should consider not only the rate but also see if the rate plan covers the winter months.
It remains to be seen if Connecticut consumers will return to the market now that regulators are monitoring marketing practices more closely. Ultimately, higher market participation will encourage more innovative rate plans and technology offerings that will benefit consumers.