Low electric rates based on more than just supply

WALLINGFORD — The town has long touted low electric rates provided through its municipally operated electric company.

Motorists on Interstate 91 passing through Wallingford will notice a sign advertising cheap electric rates. Low prices aren’t just used as a draw for residential customers. When recruiting businesses, both industrial and commercial, the town makes low electric rates a point of emphasis.

In recent public appearances, Republican Mayor William W. Dickinson Jr. promised that he will continue to keep electric rates as low as possible. The mayor campaigned on the town’s low electric rates numerous times over his tenure as the town’s chief executive, which began in 1984. Dickinson’s opponent, Democratic Town Councilor Jason Zandri, has not made electric rates into a campaign bullet point this election season.

“I don’t feel like I need to,” Zandri said. “That’s not a campaign thing; it’s just not something I would choose to put part of my platform on.”

Zandri said that, while Dickinson always makes a point to highlight low electric rates when speaking at public appearances, the cost of power “has nothing to do with Mayor Dickinson.”

The town’s Electric Division is a business, Zandri said. “It was there before Mayor Dickinson and it will be there after Mayor Zandri.”

But there are policies regarding the municipal electric company that depend on the decision making of an individual, Dickinson said. Another person can become mayor and change the way things are now, he said.

“Over past years, there have been many arguments with regard to taking money from the Electric Division to use for other purposes,” Dickinson said.

Through an ordinance, the town receives about $1.8 million annually from the Electric Division based on an equation that depends on sales from the past year. The money goes into the town’s capital and non-recurring fund. If someone else were mayor, they could subsidize local government through the Electric Division with additional funding, Dickinson said. But rates must continue to support the Electric Division, not subsidize government, he said.

Nothing is set in stone though, he added, and “depending on what approach you take, that policy can change quickly.”

Dickinson said when he first came into power, money had been taken from the Electric Division to provide additional funds for local government.

“I didn’t continue that practice,” he said. “Individuals do make a difference.”

Zandri said the Electric Division has been a success and, if he were elected, he would not change anything, allowing it to “perform the way it has been performing.”

But for Dickinson to take credit for the Electric Division, Zandri said, “is like the mayor taking credit for the success of McDonald’s in town.”

The division is its own business, Zandri said, and the same low electric rates would be available if someone else were in power. The mayor does get credit, Zandri added, because Dickinson “could have negatively impacted” the Electric Division in a number of ways. For example, Dickinson could have sold the municipal electric company.

“You don’t sell the golden egg,” Zandri said.

The subject of selling the town’s electric company has come up in the past, Dickinson said. There were suggestions to “pocket the money and use it over a long time,” he said. But that’s not an approach the mayor agrees with.

“It’s difficult for government to hold on to large amounts of money without spending it,” he said.

In the long run, whoever bought the town’s electric company would likely drive up rates to recoup their expenses, the mayor said, so selling would not be prudent.

Zandri said he finds it ironic that Dickinson campaigns on low electric rates, especially because the mayor has an aversion to technology updates. When electricity was cutting edge technology 100 years ago, if the mayor were in power, “he would have said no” to building an electric company in Wallingford, Zandri said.

But Dickinson pointed to ongoing changes at the Electric Division as evidence he is open to modernization. When asked during a recent forum hosted by the Quinnipiac Chamber of Commerce how he would modernize the town in his next term, Dickinson pointed to his support of the Electric Division’s new policy on purchasing energy from the wholesale market.

Earlier this year, the town entered into an agreement to purchase wholesale power from Energy New England, a Massachusetts-based energy cooperative founded in 1998. Energy New England will replace the Connecticut Municipal Electric Energy Cooperative as the town’s energy supplier effective Jan. 1, 2014. CMEEC (typically pronounced SEE-meck) has been the town’s energy provider since 1994.

The town does not generate its own power, but instead purchases power off the energy grid. CMEEC purchases power from “counterparties,” such as energy producers or financial institutions, and resells the power to municipalities such as Wallingford.

Wallingford annually spent about $2 million on CMEEC’s services. Now, by paying Energy New England about $600,000 annually, the town will purchase power directly from the market, circumventing CMEEC. Energy New England will act as the town’s agent and consultant.

Rates in Wallingford tend to be stable because of how the Electric Division hedges when it purchases power, said Wallingford Public Utilities Director George Adair. Through a special agreement with CMEEC, the division purchased power through 2017. It’s a practice that will continue with Energy New England. The town will likely enter into seven master agreements with energy companies next week and will begin layering power purchases through 2017, Adair said. Hedging power purchases ahead of time “doesn’t necessarily give you cheap energy,” Adair said, “but smooths out spikes so you don’t get big jumps in costs.”

There’s no way anybody can get around market prices, Adair said. But by purchasing ahead of time, costs to the Electric Division are kept stable, in turn keeping rates stable. If the town didn’t hedge, it would be at the mercy of the market, which is unpredictable.

Hedging and the careful policies of the Electric Division have helped keep electric rates low. But other factors are at play, said Mike Coyle, a spokesman for the state’s Public Utilities Regulatory Authority.

It’s “almost universally true” that municipal power companies are able to provide lower prices than utility companies financed by investors, Coyle said. Connecticut Light & Power and United Illuminating — the state’s two major providers of electricity — are investor owned. Stockholders invest to get returns, Coyle said, so when both companies make a profit, they must pay a portion to investors. But there are no stockholders in municipally owned power companies, he said, so profits stay in house. In Wallingford’s case, the Electric Division contributes $1.8 million to the town annually, but that’s not a major portion of its profits, Adair said. According to the town’s 2013-14 budget, the Electric Division will have operating revenue of $71,136,294 this year.

Also a benefit for municipal power companies is “favorable treatments under tax law,” Coyle said.

Another factor that keeps municipal rates down is population, he said. Municipal electric companies serve a higher population density. Other companies, such as UI or CL&P, do serve large cities, but also serve much smaller towns “with fewer customers to spread the cost around.”

Municipal companies also face less regulatory obligations, Coyle said. For example, CL&P and UI pay into state energy efficiency programs and help fund renewable energy, such as windmills, he said.

But customers of UI or CL&P have more choice. Wallingford doesn’t offer customers the option to buy energy from another company. UI and CL&P offer the ability for customers to opt out of their standard agreement and purchase energy from different suppliers. UI and CL&P still transmit the power and bill customers, the power is just generated elsewhere.

Another difference is that Wallingford does not charge “time of use” rates. CL&P does not either. But UI has a different rate system that charges customers depending on what time energy is being used.

Wallingford, CL&P and UI all present bills to customers differently, making it difficult to present a direct comparison.

“You really can’t compare the three companies,” said CL&P spokesman Mitch Gross.

It’s difficult to make an “apples-to-apples comparison,” Adair said.

The kilowatt hour is the billing unit when it comes to electricity. For example, UI charges $0.076 per kilowatt hour. CL&P charges $0.075 per kilowatt hour. Wallingford charges $0.107 per kilowatt hour for the first 700 kilowatts in the summer. Over 700 kilowatts, the charge rises to $0.113.

Wallingford has a higher rate per kilowatt hour, but because transmission and distribution regulations are different for all three companies, the Electric Division proves cheapest overall. Utility companies recognize 700 kilowatt hours as the average household energy use for a month. A residential bill at that level of energy use would cost a UI customer $149.45, a CL&P customer $113.94, and a Wallingford Electric Division customer $97.67.

“We’ve just tried to run the place very responsibly from a fiscal standpoint,” Adair said.

aragali@record-journal.com (203) 317-2224 Twitter: @Andyragz



Back to WallingfordNews || Back To Top

Latest Comments