With Failure of Retail Auction, Eyes Turn to Declining Shopping in Connecticut

Apart from the global impact that the failure of the Connecticut retail auction has elsewhere in the country (see related story today), the failure means that retail electric suppliers in Connecticut will continue to face a challenging environment, one which has been seeing a decline in the number of shopping residential customers for the first half of the year.

Indeed, Matters had essentially written off the Connecticut retail market as saturated with little opportunity for significant growth until the auction proposal was released, a brilliant stroke aligning retail market and policymaker goals by using the auction to generate revenue to fill a budget gap.

With the auction failing to pass, however, retail suppliers are faced with Connecticut's underlying market fundamentals, which have led to decreasing residential shopping since the start of the year.

Specifically, the number of residential customers at Connecticut Light & Power on competitive supply at the end of each month of 2013 was as follows (change from prior month in parenthesis):

Jan.         486,941        
Feb.         486,255        (686)
March        484,509      (1,746)
April        482,647      (1,862)
(May data not yet published)

The number of residential customers at United Illuminating on competitive supply at the end of each month of 2013 was as follows (change from prior month in parenthesis):

Jan.         146,588        
Feb.         146,502         (86)
March        145,375      (1,127)
April        145,012        (363)
May          144,206        (806)

Among other things, the Connecticut residential market faces a default rate which is not market-reflective in any significant manner. With 45-50% of residential customers already switched, the market faces significant status quo bias for remaining Standard Service customers.

Additionally, later this year, CL&P will begin assuming the self-management of a portion of its Standard Service load, which will lead to a greater disconnect between default supply rates and market prices, and potentially lower rates (from opportune purchases as well as the elimination of a load following premium for certain amounts of supply).

These negative fundamentals are one of the reasons why the lack of forceful support for a retail auction in Connecticut across the retail supplier community was a short-sighted idea. While many suppliers were supportive of the auction, the support was not universal. And while retail suppliers not supporting the auction had legitimate and significant complaints -- lack of specific details and structure, no explicit load caps, inclusion of non-residential customers, and an accelerated development and review schedule -- an imperfect retail auction would have been preferable to the decline that Connecticut is seeing in retail shopping, which isn't expected to reverse significantly absent the type of transformative change the auction represented.