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Retail Exec: 'Entire Industry' Failed Customers During Polar Vortex; Says Wholesale Market Unable to Meet Peak At Reasonable Prices

May 9, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

"I believe that the entire utility industry, including electricity generators, energy distributors, and transport service companies failed the consumer," during this winter's polar vortex, IDT Energy CEO Geoff Rochwarger said during an earnings call this week.

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"No one should have to open their mailbox to find that their electric rates have doubled, tripled, or quadrupled from the previous month as many businesses and homeowners in the Northeast did this past winter," Rochwarger said.

"I believe the entire energy industry, ourselves included, can and must do much better. This winter’s wholesale price spikes were unlike anything we have seen in our nine years in this business, and probably unlike anything that even more experienced industry veterans have seen during their entire careers. We have seen extreme cold spells before, but never was the market as unprepared as it was this year. A confluence of several material issues in January and February associated with this past winter’s polar vortex, including extreme and sustained cold weather, failures to deliver full demanded power by the ISOs, and erratic commodity trading in the financial markets, drove price spikes in both the wholesale electricity and natural gas markets where IDT Energy and other retail providers purchase their supply," Rochwarger said.

"In some regions, wholesale prices increased briefly by factors of more than eight. IDT Energy abided by all legal and regulatory requirements and we are working closely with regulators as they investigate where the breakdowns in the procurement process occurred. We applaud their efforts to expose the root causes behind the cost spikes, and to call into account those companies that sought to take advantage of the end consumer," Rochwarger said.

"It is our only hope that in doing so, regulators refrain from following the path of over-correction, and instead work so that free, competitive markets are able to provide adequate supply to meet peak demand at reasonable prices through real freedom of consumer choice," Rochwarger said.

"Once the magnitude of the problem became clear, we responded correctly and responsibly. We sharply reduced our margins to cushion the impact of the commodity price increases, and then provided rebates to hard hit customers. All in all, we will be rebating approximately $3.5 million to customers this spring, and have forfeited operating profits from the quarter’s operations," Rochwarger said.

In light of the, "inability of the wholesale energy market to meet peak demand levels at reasonable prices," Rochwarger said that IDT Energy is changing its product strategy.

"Going forward, we are taking a hard look at our business and will be doing some things differently in light of the inability of the wholesale energy market to meet peak demand levels at reasonable prices," Rochwarger said.

"Most importantly, we are developing new products that will provide customers, at their choosing, with the option to limit their exposure to future price spikes through fixed prices and/or capped rates. These products, even when carefully hedged, entail additional commodity price risk. Minimizing that risk has always been a key to the longevity and success of IDT Energy. But the market is evolving and our product offerings have to evolve with it. With these new products, we will be assuming somewhat more commodity risk, but will do so in a carefully controlled, monitored, and appropriate way," Rochwarger said.

"These new products notwithstanding, we continue to observe that within our targeted customer segment, residential and small business customers, the consumer appetite for pure variable rate plans coupled with the freedom to choose without terms or fees remains strong even after the polar vortex. It will continue to be our core offering for the foreseeable future," Rochwarger said.

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