Given Volatility, FirstEnergy CEO Questions Whether, Retail Market Will, "Exist In The Same Format That We See It Today"
February 25, 2014 Email This Story Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
FirstEnergy Corp. CEO Anthony Alexander told investors during yesterday's earnings call that given the volatility that has been introduced into the retail market, there's a question of, "whether or not a retail market for customers exists in the same format that we see it today."
"[W]e could see some very different forms of retail contracts," due to the volatility, Alexander said.
Alexander was responding to an analyst's question regarding the appropriate sizing of the FirstEnergy competitive retail business given recent market volatility.
Alexander said, "I think you're always looking at where your right level of sales are, and in part it's driven by what the market provides or delivers to you. If customers are willing to pay the risk premium associated with [the supplier] carrying the volatility in the market, then I suspect you'll see retail sales at certain levels. If customers are not anticipating paying that, then I would expect it [retail volumes] would be adjusted downward, because the costs don't go away from a volatility standpoint. And some part of the market is going to have to carry it. And at the end it's going to be whether or not it's going to be from a customer standpoint, or ultimately at that point whether or not a retail market for customers exists in the same format that we see it today. We are already seeing the impact of variable pricing on not only industrial customers, but residential and commercial customers that have chosen that path, whether or not they stay in that environment over a long period of time, if volatility continues to be a issue in the market, and my own sense is that perhaps it will given the structure of it, we could see some very different forms of retail contracts."
Expanding on the last point, Alexander said, "[T]here could be more adjustment clauses in them, there could be more risk premiums added to fixed price contracts. There's a whole series of things that could be put in place to try to mitigate or address those types of differing issues."
Leila Vespoli, FirstEnergy Executive Vice President of Markets, said that FirstEnergy Solutions, "expect[s] to see increased PJM charges for ancillary expenses in the first quarter of 2014, the majority of which we expect to recover from retail customers."
Asked by an analyst about passing-through such ancillary costs to customers, Vespoli said that the issue is contract-specific, but that, "I think it would be safe to say that we are going to be adding that language where we can in the future."
Donald Schneider, President of FirstEnergy Solutions, added that, "as we move forward and price new contracts on the retail side, we will bake in the higher volatility, so that will naturally drive the margins up."