Power choices remain strong in Pa.; First Energy to leave competitive-market program

| Friday, Aug. 8, 2014, 12:01 a.m.

The volatility in prices and supply that is pinching some power companies should not reduce the number of choices available to Pennsylvanians who are shopping for electricity.

The Public Utility Commission said the number of competitive suppliers it licenses has grown this year despite a backlash from customers who saw their variable-rate electric bills spike during last winter's extreme cold because of price fluctuations in energy markets.

It's unclear how negative publicity from the price problems will influence electric customers' decisions about whether to switch from their traditional utility to a competitive supplier. A report the commission issued last month showed the number of customers cutting ties with their traditional utility rose by about 12 percent last year to 38 percent of all customers statewide.

One company is rethinking its involvement in the competitive market. FirstEnergy Corp. this week said it will stop selling such plans for residential and mid-sized business customers, dropping out of most of the retail electric choice program to focus on its core utilities and generation.

The company said it wanted to cut the risk and costs of selling directly to customers in “a market construct that is eroding the price stability necessary to offer retail customers predictable prices.” The company seemed concerned about having to swallow losses on fixed-rate plans if prices spiked.

Most of the Akron-based company's 500,000 competitive-market customers in Pennsylvania will have to pick a new supplier when their contracts expire. The decision has no impact on the more than 2 million traditional utility customers whose rates are regulated. Competitors, who are looking to lure more customers to services with unregulated rates, said they still have plenty of options.

“Companies like ours, we're actually getting more engaged in the market, rolling out new products,” said Ron Cerniglia, director of government and regulatory affairs for Houston-based Direct Energy, North America's largest retail energy provider.

The message was the same from retail suppliers AEP Energy, Constellation and PPL Energy Plus.

“It's not uncommon to see certain players say they're exiting for strategic reasons, or an extremely volatile event occurred,” said Mark Huston, president of Baltimore-based Constellation, a subsidiary of Exelon Corp.

That event was the so-called polar vortex of January and February, when sharply cold weather sent demand for power in the Northeast, Mid-Atlantic and parts of Midwest skyward while supply dwindled. Utility bills for people who chose variable-rate plans shocked consumers and prompted state investigations of suppliers.

Suppliers who had fixed-rate plans with customers often had to eat the extra costs.

“We were providing a fixed price, which means we take on the risk. Now we're looking to better control our risk exposure,” FirstEnergy spokeswoman Diane Francis said. The company will continue to market electricity to large industrial customers, whose use is more consistent and less affected by weather.

During an earnings call this week, company CEO Anthony Alexander cited the polar vortex as evidence of the growing volatility. Last week, British energy company Centrica, the parent company of Direct Energy, put part of the blame for a drop in profits on the cold weather event.

Cerniglia and Huston said suppliers that were well-hedged and who are offering innovative products to entice customers can better survive the volatility.

Direct Energy is offering high-end Nest thermostats to new customers and plans in which customers can pick certain days or nights on which their power is free. Constellation offers a discount to customers who bundle their electricity and natural gas.

“We're trying to be as creative as we can to entice customers,” Huston said.

The PUC is investigating several suppliers based on complaints that they unfairly charged customers high prices during the cold weather. No sanctions have been announced, but the state Attorney General's Office has asked the commission to revoke the licenses of five companies.

Irwin “Sonny” Popowsky of Philadelphia, a former state consumer advocate, said he sees no trend of suppliers fleeing the market.

“I think you have to consider FirstEnergy on its own merits. They're making some big changes,” he said.

The company asked for its first delivery base-rate increases for its utilities in Pennsylvania in 20 years and is delaying capital projects at generators such as the Bruce Mansfield coal-fired plant in Beaver County. It proposed a new regulatory framework for its utilities and generators in Ohio.

“The FirstEnergy Corp. decision was more about risk. That's not atypical of the utilities, which are generally conservative,” Cerniglia said. “They would prefer more of the regulated returns, rather than getting involved in the competition.”

David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or dconti@tribweb.com.

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