The honeymoon’s over. Customers in the Northeast and in California have recently been stung by broken promises when their chosen energy service providers (ESPs) ditched them. As is so often the case in relationships gone sour, the main point of contention was money. The downward spiral of the ESPs’ ardor was inversely related to the upward spiking of wholesale power costs.
There to pick up the pieces were the incumbent utilities. Granted, it probably wouldn’t have been their choice-especially at these wholesale costs-to rescue the stranded customers, but as the designated providers of last resort, they had no choice.
Residential and commercial & industrial (C&I) customers were sent back to their ex’s. PECO saw 35,000 of its former residential customers return after Conectiv Energy Services said farewell; NewEnergy turned back about 140 C&I customers in California to Pacific Gas & Electric and Southern California Edison.
These failed unions show just how tenuous the early transitional period can be in a new relationship. The savings touted during the courtship as being attainable in a competitive market were precluded by the volatility of the summer’s power prices. As early as May, spot market prices in New England hit $6,000 per MWh, up from $25 to $30.
The standard offer rate set by regulators for utilities in transition to competition is tough to beat by alternate suppliers. The standard offer rate is often lower than the market rate-that gap becomes even greater when wholesale prices shoot upward.
The Energy Council of Rhode Island (TEC-RI), representing major energy users, reported that about 15 of its largest members will pay nearly $2 million more in electricity costs this summer because of higher prices. That kind of hit smarts.
Many Rhode Island large C&I customers signed up with Select Energy, a Connecticut-based alternate power supplier that said it could beat the major utility’s (Narragansett Electric) price. However, after 18 months, Select Energy decided not to renew the contract with TEC-RI. No other suitors were anywhere to be found.
Returning to the ex in this case did (nearly) cost a pretty penny-the “last resort” service rate for customers unable to find an alternate supplier was 4.5 cents per kWh vs. the standard offer rate of 3.8 cents per kWh for residential and commercial customers who did not switch to another supplier.
In contrast, during the early, happier days with Select Energy, TEC-RI members were paying just under 3.5 cents per kWh.
In Maryland, the Mid-Atlantic Power Supply Association (MAPSA), a New Jersey-based association that represents non-Maryland marketers of electricity, is attempting to craft a prenuptial agreement that would-in their opinion-offer fair comparison between incumbents and alternate suppliers.
Retail choice was slated to begin on July 1. However, the Maryland State Court of Appeals accepted MAPSA’s petition preventing Baltimore Gas & Electric (BGE) from allowing its customers (about one million) to switch power providers.
MAPSA contends that BGE’s standard offer rate of 4.06 cents per kWh through May 2001, increasing to 4.28 cents per kWh by May 2003, is too low-they propose a one-cent hike to make the rate more competitive.
Robert S. Fleishman, vice president of corporate affairs and general counsel of Constellation Energy Group, the parent of BGE, said, “Clearly MAPSA’s prime motivation is profits.” He went on to say, “MAPSA stands alone among suppliers in its objections to the settlement. Fifteen power suppliers are licensed by the PSC [Public Service Commission], and an additional 17 are in the licensing process so that they will be positioned to enter the market when the traditional summer price volatility subsides.”
This may be a case of dÃ©jÃ vu. The alternate suppliers may be eager to make the commitment now, but which of the 32 will scream loudest when hanging on for dear, profitable life on next year’s roller coaster of summer prices?
Ohio-based FirstEnergy also retreated from deregulated markets for the summer. Stating that it cannot compete in such volatile market conditions, it plans to resume marketing outside of its usual contract area after the summer peak demand has passed.
Time will tell if these separations from alternate suppliers are temporary or permanent. Deserted customers may harbor bitter memories, making reconciliation impossible.