Independent retail electricity providers have sprung up in various states across the US where deregulation has occurred and policies have been put in place to spur competition.
Approximately 20 states have enacted such policies, but the trend toward choosing electricity suppliers appears to be growing.
One retail provider, North American Power, has attracted 165,000 customers in two years in what has become a “crowded” market, Taff Tschamler, North American Power Senior Vice President, Business Development told the audience at the recent Platts Utility M&A Conference in New York.
Residential customers are getting more comfortable with retail providers, said Shahid Malik, President of Energy Resources and Trade at PSEG. Power producers have been buying retailers in order to vertically integrate their operations, which provides a natural hedge between electricity prices at different points along the value chain and provides greater credit availability, said Malik.
Some markets are becoming vibrant, while others languish – this is ultimately due to policy and those that spur the market,” – Tschamler
Adding a retail component back into a utility offers a more diversified customer base, which is positive from a regulatory perspective because it spreads customers across several markets and regions. This diversification also brings challenges though, because dealing in numerous markets is complicated, credit risk is multiplied and regulatory risk management becomes more complex, Malik said.
Rupesh Shah from hedge fund RASR Capital said he expects to see additional integration in the retail space going forward. Shah sees a “consolidation play” in the next 3 to 5 years.
While discussing regulatory issues faced by retailers, Tschamler said retail suppliers are insulated from federal policies for the most part, with state policies being a larger concern. “Some markets are becoming vibrant, while others languish – this is ultimately due to policy and those that spur the market,” he said.
Roughly 50% of residential customers in Connecticut have left the incumbent utility for a retail supplier, which is a direct result of policies that encourage electricity market competition, Tschamler said.
Educating customers about retail power providers is one of the greatest challenges companies like North American Power face. “Education is key, but the onus should be on retailers and regulators to ensure a competitive market place,” said Malik.