Dithering about Default Energy Service

Capital strikes, according to a 2018 article in the academic journal Politics and Society, are a “powerful, strategic, and routine basis of business’s political power.”

What’s a capital strike?  It occurs when business interests deliberately withhold their resources from the economy – or threaten to do so.

The phrase “capital strike” has been wafting through my brain lately as I watch what various parties have been telling the Public Utilities Commission (PUC) about the future of default energy service.  Electric consumers are on default service if they do not – as 81 percent of Eversource customers don’t – exercise their right to buy power from a non-utility supplier.

Default energy service prices have soared over the past two years.  Ten cents per kilowatt-hour used to be the norm.  Now the price ranges from 13 cents at the New Hampshire Electric Cooperative to 26 cents at Unitil.

Clamor for default energy service reform has been the result.  Proposed legislation pending in both the House and the Senate.  The PUC has an open investigation.

You might be wondering:  How is it that the Electric Cooperative can charge half of what Unitil is charging for exactly the same service, procured at wholesale from the same regional market?

The answer is that Unitil, Liberty, and Eversource buy default service energy via a request for proposals (RFP) issued every six months, and take whatever price comes in over the transom.  In contrast, the Electric Cooperative has a four-person procurement team that actively manages a wholesale portfolio that includes everything from longterm power purchase agreements to ‘spot’ purchases made, essentially, in real time.

Essentially, the Co-op is doing what any responsible person would do with their resources – diversify.  A key management technique is referred to as laddering – basically, making sure all of your wholesale contracts don’t expire at once.

If what has been filed with the PUC is any indication, nobody in the electricity business wants Eversource, Liberty, or Unitil to follow the Co-op’s example.  The investor-owned utilities could not be accused of enthusiasm when it comes to the prospect of actively managing their default energy service portfolios.

But what really gets me is the perspective of the Retail Energy Supply Association (RESA).  RESA counts among its members the conglomerates that are the biggest owners of generation in New England: companies like Constellation (based in Baltimore), NextEra (headquartered in Florida), and Calpine (of Houston).

Constellation owns Mystic Station north of Boston.  The biggest generator in New England, Mystic Station uses natural gas delivered by boat and enjoys a special “reliability must run” guaranteed income mechanism approved by federal regulators.

NextEra owns Seabrook Station, our friendly neighborhood nuclear plant.  Calpine owns Granite Ridge in Londonderry, the biggest natural gas generator in New Hampshire.

Oh, and did I mention that Constellation or NextEra currently have the contracts to provide default energy service for the residential customers of Eversource, Liberty, and Unitil, except for a small share of the Eversource load?

With those facts in mind, consider this nugget from RESA’s January 23, 2023 filing with the PUC:  “[E]lectric suppliers are justifiably very hesitant to enter a market and make the necessary long-term investment where there is regulatory uncertainty in the form of an ever-lingering possibility that an Electric Utility may be permitted to enter into ratepayer-subsidized long term contracts that could substantially erode or eliminate market incentives for customers to choose competitive supply.”

That sure reads like a threatened capital strike to me.

Has anything like that ever happened when utilities issue their default energy service RFPs and are at the mercy of whatever wholesale suppliers deign to make bids?  Gosh I wish I could tell you but the PUC has ruled the information confidential.  Suffice it to say that if you knew what I know about the number of bidders to provide default energy service to residential customers, the phrase “capital strike” would be bouncing around in your brain too.

What about the utilities?  How open are they to active management of their default service portfolio in quest of a better deal for the customers they profess to love?

The responses range from lukewarm to hostile.

“[A]nalyzing future price trends to chart a specific strategy to result in lower costs for customers is not an exact science,” warns Liberty. “Future price trends are a reflection of the information known at the time, which includes a time premium to reflect the opportunity for increased volatility considering a whole host of technical and fundamental indicators and those indicators can change rapidly and without notice.”

“Unfortunately, changes to the default energy procurement process in New Hampshire cannot overcome market conditions, and New Hampshire is likely to face persistent high energy prices for the near future,” opines Eversource. “However, if the Commission believes that mitigating price volatility/price stabilization should be a policy priority, shifting to laddering purchases could help accomplish that objective.”

Unitil likes the status quo.  The company told the PUC it “believes that its current method of procuring default service is generally sound and produces appropriate and market-reflective rates consistent with New Hampshire law and policy.”

The state’s Department of Energy thinks we should just let the utilities decide for themselves.  “[A]s active market participants, the utilities are ‘closer’ to the markets” than other stakeholders and so “each utility’s solicitation framework should remain flexible and up to each individual utility, subject to Commission approval.”

One must admit the defenders of the default service status quo have at least one valid point.  If we change the wholesale procurement model now while prices are high, it might (to apply a euphemism) have adverse consequences for the posterior regions of the human anatomy if market prices ever decline.

But that’s no excuse for throwing up our hands and deciding there is nothing to be done about default energy service.  In fact there are all kinds of things our state could do to reform the way we buy default energy service on behalf of the customers of Eversource, Liberty and Unitil.

For example: We could imitate Maine.

In Maine, it’s actually the PUC itself that does the procurement, on an annual statewide basis.  Default service prices there range from 17.6 cents for Central Maine Power customers to 16.4 cents for customers of Bangor Hydro.

We could even ditch the whole RFP paradigm in favor of a live, descending clock auction in which all of the players can observe each other’s bids in real time and prices start at a high level and decrease until supply equals demand.  This could reduce the ‘risk premium’ that are embedded in the offers utilities currently receive, from bidders who have no idea what their competitors are proposing.

But all of that requires those responsible for default energy service to act as if they’re the agents of the customers who pay the bills.  That seems mighty difficult to do unless, like the New Hampshire Electric Cooperative, the customers actually own the place.