Power Markets Week

More commercial and industrial customers are buying power from retail marketers in several Northeast states, with competitive buying by the largest users exceeding 90% in some areas, according to figures released by the states.

Shopping for suppliers by residential consumers still has not taken off, however, as demonstrated by switching rates that are mostly in the single figures.

Maryland has seen a tremendous surge in competitive buying since transition periods ended for most utility service classes last summer, increasing utility rates that were frozen at 1999 levels (PMW, 30 Aug, 11). Medium-sized commercial users saw rate hikes up to 30%, while large commercial users face increases as great as 57%, and the largest users were pushed off capped rates altogether, forced to buy power at fluctuating market prices if they continue buying from their utilities.

As a result, almost 78% of large C&I peak load (2,074 MW) is being supplied by retail marketers in Maryland, according to the latest figures from the Public Service Commission, reflecting activity through November 2004. That figure is actually skewed downward by Allegheny Power, where traditionally low rates have dampened shopping. In the territories of Baltimore Gas & Electric and Conectiv Power Delivery, 91% of large C&I load is served competitively.

Among medium C&I users in Maryland, marketers provide 30% of peak load (732 MW), and among small C&I, 5% (64 MW). Total C&I switching runs about 44% (2,870 MW).

Residential competitive buying in Maryland only accounts for 3% (192 MW), and almost all of that is in the territory of Pepco, where utility affiliate Pepco Energy Services and gas distributor affiliate Washington Gas Energy Services signed long-term contracts with small customers early in the restructuring period, before wholesale prices rose.

Maryland shopping began increasing around the end of the transition, since many big users anticipated the change and signed contracts with marketers before capped rates actually ended. In August 2004, large C&I customers were buying 73% of their load from competitors, while the entire C&I class bought 40%. Earlier in 2004, however, C&I customers bought only 29% of their load from marketers.

Retail choice among large users also is flourishing in New York, where rates have traditionally been high, and where most of the biggest users are subject to market prices if they stay with their utilities. The latest figures from the New York PSC, also reflecting activity through November, show 65% of all large customer usage (MWh) supplied competitively, compared with 61% in April 2004.

The November figure was 86% for New York State Electric & Gas, 82% for Con Edison, 64% for Niagara Mohawk Power, which still serves many industrials on special contracts, reducing the shopping figures, and 61% for Central Hudson Gas & Electric.
New York competition also is healthy among small and medium commercial users, who are buying about 36% of their power from marketers, compared with 31% last spring. Residential shopping is still low, however, representing only 7% of electricity purchased in that class.

In Pennsylvania, most of the major utilities will retain rate caps until 2010 or 2011, so shopping is still subdued. At the end of 2004, commercial customers were buying 1,544 MW from marketers, compared with 1,528 MW at the end of the third quarter, while industrials bought 722 MW, compared with 659 MW at the end of the third quarter.

The most activity occurs in Duquesne Light territory, where rates traditionally have been high. Commercial customers there were competitively buying 908 MW, or 43% of their load, while industrials bought 297 MW, or 41%. Even residential shopping is fairly active in the Pittsburgh utility territory, with the small users buying 274 MW, or 22% of their load from marketers. The only other significant inroads by marketers in the state are among the industrial customers of Metropolitan Edison and Pennsylvania Power, who are buying 19% of their power, and among PECO's commercial users, who are buying 23% competitively.

Consumer Advocate Sonny Popowsky expects Duquesne activity to accelerate, since the capped rates that prevailed since 2002 expired at the end of 2004. Although big users can sign up for fixed rates from the utility, those are higher than before, reflecting more expensive power that the utility buys in the wholesale market (PMW, 4 Oct '03, 15).

Overall participation dropped in Pennsylvania, from 426,102 at the end of the third quarter to 246,395 at the end of the year. But the earlier figure included 167,320 residential customers that PECO Energy bid out under its "market share threshold" program. Most of those were won by Dominion Retail, which could have continued serving them after the year-long program ended in late 2004, but only if it could beat PECO's rate. A Dominion spokesman said high wholesale prices prevent it from offering power at prices below PECO's rate so those customers went back to the utility.

However, Dominion has the permission of the state Public Utility Commission to take the customers back automatically if wholesale prices fall and it can arrange supplies that offer customer savings for a year. At that point, it would give those users the chance to remain with PECO, the Dominion spokesman said.

Popowsky said no new marketers are offering power to small users, and he thinks the 180,273 remaining residential shoppers are mostly buying under long-term contracts that they signed before wholesale prices rose. The residential market "may not develop at all, except for customers that want green power" at higher rates, he said. That is because the transaction costs are too high for marketers, and the savings too insignificant for small users.

Because the competitive market may not evolve at the residential level, Popowsky's office is fighting to retain fixed rates for small customers in the ongoing PUC case on provider of last resort service.

In New Jersey, 8,644 non-residential users were shopping at the end of 2004, buying 3,165 MW. That is a big increase from the 350 MW of competitive load that was being supplied in the spring of 2003, before rate caps fell away for the biggest users. Those customers now receive fluctuating rates if they stay with their utilities.

Washington, D.C., could see an increase in customer switching in 2005, since Pepco's transition period ends in February and wholesale bidding yielded prices that will raise utility rates by 32% for large customers. Since those results became known last year, several retail marketers said they are trying to sign contracts with customers in the district. In October, 39% of non-residential load was supplied competitively.