The price of oil has declined. Why isn't the GSC rate on my elelctric bill going down?
It is important to remind customers that CL&P and UI do not earn a profit from the GSC portion of your electric bill. The GSC rate you pay is the cost that The Connecticut Light and Power Company (CL&P) and The United Illuminating Company (UI) pay to purchase the electricity they deliver to you - no more, no less.
Long Term Contracts
In 2000 and again in 2003 CL&P and UI entered into longer term fixed price contracts to purchase the electricity that is delivered to their customers. Because the price was fixed, consumers experienced stable GSC rates during the term of these contracts. However, while consumers saw no increase in GSC rates, the underlying cost of electric generation rose during the life of these contracts.
Long Term Contracts End - 2003
As these contracts ended, CL&P and UI needed to enter into new GSC purchase agreements. These new contracts reflected the significant increase in the cost of electricity that had occurred over time. As a result, in 2003 and again in early 2006 customers experienced dramatic increases their GSC rates which affected their overall electric bill, primarily driven by generation costs. Generation costs continue to impact your electric bill.
Legislature Acts to Avoid Unstable GSC Rates for Standard Service
To avoid the instability in the cost of electricity that occurred in 2003 and 2006 CL&P and UI were required to purchase Standard Service Generation in a manner that is frequently referred to as “laddering.” Under laddering, the total supply of electricity for a future period is purchased over time, in smaller blocks, creating a blended supply portfolio and an average price. The purpose for laddering these contracts is to produce just, reasonable and relatively stable GSC rates while still reflecting underlying market prices.
Laddering results in price averaging. Therefore, when the current market price of electricity rises, as it did in the summer of 2008 when oil prices reached $140/barrel, CL&P and UI's average GSC contract price did not increase.
On the other hand, when current market prices fall, the average GSC contract price does not follow the market either. Under both scenarios the GSC rates that CL&P and UI pass along to its customers reflect the blended average price of the many contracts purchased over time.
So, although the current market price for oil has declined, and may be reflected in lower current wholesale prices for electricity, the average of CL&P and UI's Standard Service GSC rates will remain at the average of the contracts that were entered into during late 2007 and throughout 2008. The two companies will continue to purchase additional portions of their Standard Service electric load going forward. Therefore, the current market price for electricity will be reflected in future GSC rates.
Supplier of Last Resort Service - Large Business Customers
CL&P and UI's large business customers (those with monthly demands that exceed 500 kW) take service under what is called Supplier of Last Resort Service GSC rates. Supplier of Last Resort Service generation contracts are not laddered. Instead, these contracts are finalized close to the three‑month period in which this supply of electricity will be used. So, Last Resort Service GSC rates more closely reflect the current market price of electricity.
More Information
DPUC Docket No. 06-01-08PH02 or
Connecticut General Statutes Section 16-244c(c)
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