Retail Supplier: "Market Conditions" in New England Have "Limit[ed]" Ability to Serve Customers with Stable Rate (But Capacity Markets Supposed to be Less "Volatile")

Market conditions in ISO New England limited a retail supplier's, "ability to meet our goal to provide you with a stable competitive electricity price," Easy Energy of Massachusetts said in a notice on its website concerning its withdrawal from the retail electric market.

Easy Energy was subject to a default at ISO New England, which resulted in the transfer of its customers to default service. Based on Easy Energy's statement on its website that, "Easy Energy has voluntarily withdrawn from the electricity market as of December 27, 2013," it appears that Easy Energy chose default, apparently because the retail electricity supply business is no longer viable for niche providers in the volatile New England wholesale electric market.

ISO New England, with its "assured" resource adequacy from its centralized capacity market and meager $1,000/MWh energy market offer cap, has now seen three defaults by retail energy suppliers in the past 11 months -- versus zero in the "volatile" ERCOT energy-only market.

Note this is precisely the opposite of the narrative that Texas capacity market supporters are attempting to paint. Indeed, one integrated energy company with a large retail book in ERCOT said that it does not support an energy market price cap higher than $9,000 per MWh (and therefore prefers a centralized capacity market as the solution to resource adequacy), "due to concerns about the viability of an energy market with extreme volatility."

This same ERCOT market participant, "also believes an energy market with extreme volatility will negatively impact market liquidity, increase the risk of market participant defaults, and increase the risk of POLR transitions."

This concern about the "volatility" of the ERCOT energy-only market has now been proven to be a strawman, however, as the default-prone ISO New England market, with its centralized capacity market, has now shown. Yes, dealing with risk, hedging, and credit in a $9,000/MWh price cap world will be challenging to retail providers and other market participants -- but the challenge is an incremental one. Fundamentally, energy markets are risky, and even dealing with a $1,000/MWh energy offer cap challenges retail providers, as seen with ISO New England.

Introducing a capacity market doesn't suddenly remove the volatility inherent in an energy market -- because most volatility isn't driven by installed capacity issues, but rather, the amount of available generation (as is the case at ISO New England). We particularly note that those retail providers making the case for a capacity market in Texas are not who you would naturally think would be most concerned with continued reliance on a "volatile" energy-only market -- namely small, independent and niche retail providers who are not backed by parental guarantees.

No, most retail provider support for the Texas capacity market crusade is coming from large, integrated companies owning retail books, who either own generation in ERCOT or are part of large, diverse energy holding companies with national or international operations.

This is because independent retail providers see the management of volatility, even at $9,000/MWh or higher, as an opportunity to build a better mousetrap and beat their competitors with more innovative and sophisticated strategies -- even if they lack the parental credit and financing support of their integrated competitors. However, introduction of a capacity market would not meaningfully remove any volatility from the ERCOT market, but would now make these independent REPs pay for the fixed costs of their competitors' generation assets, which, ironically, their competitors use to manage this same energy market volatility. In short, the Texas capacity market would subject independent retail providers to the same volatility challenges they face today, except now these independent REPs would be subsidizing their competitors' strategies of owning generation to manage this volatility and swing load.

Back to Easy Energy's statement:

"When we launched Easy Energy we strove to create an electric supply company differentiated by knowledgeable, helpful and friendly communications. We encouraged you to save energy through conservation and empowered you with honest energy market information. Finally, we wanted to save you money on your electric bill," Easy Energy says on its website.

"In New England, almost 50% of our power comes from burning natural gas. Where natural gas is a natural resource, prices are low and stable. In New England, natural gas has added transportation cost and supply is highly unstable because we are at the end of the pipeline. These factors resulted in very high electricity prices last February and again this December," Easy Energy says on its website.

"These market conditions have begun to limit our ability to meet our goal to provide you with a stable competitive electricity price. Therefore, we have moved you back to your utility for electricity supply as of December 27, 2013 and are accepting no new enrollments," Easy Energy says on its website.