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Failure of Connecticut Retail Auction a Sober Reality Check for Retail Expansion Prospects in Other States The failure of Connecticut to pass a retail auction of Standard Service customers during this year's legislative session is a sobering reminder of the Herculean challenges facing an expansion of retail choice, and like the Pennsylvania experience, will negatively impact efforts in other states to open retail competition.
While the large support for the auction, particularly from the Malloy administration, was positive, the fact that the auction failed despite such strong political backing and the urgent need for the revenue from the auction to fill the state's budget gap augurs against the success of auctions, or retail competition expansion generally, in other states, where such strong backing is not present.
Not that prospects were strong to begin with, but potential retail auctions in Ohio and Pennsylvania certainly face even stronger headwinds now that Connecticut lawmakers have rejected such a proposal. Matters also cites the District of Columbia and Maine as potential states in which a retail auction could have at least been strongly considered, given each state's prior consideration (and in Maine, use) of retail-provided default service, had the Connecticut auction been adopted.
As much as states are individual laboratories, they are also quick to copy the successful policies of their neighbors. A successful retail auction in Connecticut could have served as a catalyst for other states demonstrating the value of the auction, and assured other states that customers will benefit from the auction. Indeed, the initial opening of retail choice in the late 1990s, while driven by lobbying by certain large competitive generators, may also be attributed to states following the lead of the initial pioneers and copying a "hot" policy.
Indeed, Pennsylvania PUC Vice Chair John Coleman had said that the Connecticut auction was being closely watched by policymakers, but now policymakers have seen a state retrench from the original proposal.
Now, auction opponents across the country can point to Connecticut's decision as validation that their states should not move forward with such radical market design changes. In this vein, the experience will be very similar to Pennsylvania, another lost opportunity where significant market reform was touted, but the final result represented a retrenchment from such policy.
Already, the Pennsylvania PUC's own words and embrace of utility-provided default service have been used in several states to oppose retail market reforms and instead maintain the status quo, and we expect similar talking points to emerge from Connecticut.
And while it's true that the Connecticut auction was going much further than simply providing customers with retail choice -- and was essentially cutting the cord of default service -- Matters sees a negative impact more generally on efforts to open new states to retail choice, such as Arizona and Indiana.
The pro-auction coalition in Connecticut, as well as Pennsylvania, consisted largely of sympathetic policymakers and retail suppliers. However, the experience of Connecticut and Pennsylvania show that these groups, alone, will be unable to enact significant retail market reform.
Nor does Matters believe that adding a few large commercial and industrial customers to the supporters of retail choice, such as the coalitions in Arizona, Michigan, and California, will change this balance. The failure of the Connecticut auction was a stark reminder of the power of consumer groups (consumer counsel, attorney general, AARP, etc.), which can largely be credited with stopping the auction (although the lack of industry-wide support from retail suppliers did not help). These groups can also be credited with the current negative retail climate in New York (potential end of non-recourse POR, etc.)
Matters fails to see a winning path in new states considering retail choice without assuaging opposition from consumer groups, absent policymakers essentially taking a leap of faith on retail choice. Had a successful Connecticut auction been conducted, such a leap would have been much easier, but now, the merits of retail expansion will have to stand on their own, and the challenges which have prevented any new retail electric market from opening in the last decade (excluding Sharyland-Cap Rock) will continue to dominate.
In short, the Connecticut auction was the opportunity for a game changer -- something that would kick-off some real positive momentum for retail expansion. But much like the Pennsylvania retail market investigation, it now serves as validation of the concerns that states aren't ready to embrace retail choice.
A retail auction may potentially still come to Connecticut, in next year's session, but while retail suppliers now have additional time to further build support from lawmakers, there is also now more time for organized opposition from consumer groups, and more time to find alternate sources for revenue to fill any budget gap.
See related story today for auction's impact on the Connecticut market itself
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June 12, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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