Monday July 31 2006


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Michael Kagan sees changes
in New England markets

Kagan is Constellation NewEnergy's vice president for New England.
        He's watching changes in customer buying as the area's C&I market matures.
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        Constellation NewEnergy is the nation's biggest competitive retailer with some 15,000 mw of retail load in just about every open market.
        Customers are taking a longer look at markets and their power needs, Kagan told us.
        Most expect power prices to rise in the long term but are attracted by hybrid products that allow them to hedge parts of their needs but to shop for most at market prices.
        He's had calls from customers who wanted to lock in more supply for next year and through 2008 as lower demand created a drop in wholesale prices.
        C&Is "have really put the regulated model behind them," Kagan noted.
        They're unfazed by all the political controversy over higher rates -- most of it aimed at small users.
        "People rallied around competition 10 years ago," he observed, and it's still a good idea.
        The mistake in the first place was that deregulation's benefits were originally "billed a little bit too small," in Kagan's view.
        Advocates mainly stressed lower prices and didn't talk about greater transparency and new services from choice, he noted.
        You can't control the international gas market, he added.
        C&Is aren't waiting for PUCs in various states to set new market rules.
        Kagan expects the Connecticut market to take off next year as the state shifts to market pricing.
        C&Is are less inclined to see utilities' default services as "viable options," Kagan noted -- especially as default rates change more frequently.
        In Massachusetts, for example, rates change every three months.
        Customers take a longer view than that, Kagan said.
        They're becoming savvier about energy markets too.
        They learned last year from Hurricane Katrina that default service rates don't tell you what's happening in the market.
        That lesson was learned by customers who came up for contract renewals after Katrina had spiked power prices, Kagan said.
        Customers are depending less on buying pools, he noted.
        Buying pools are a big factor in newly opened markets, he explained.
        That's not to say pools aren't still working.
        Even in Massachusetts -- one of the region's most mature C&I markets -- buying groups such as the Massachusetts Municipal Assn and High Technology Council are going strong.
        Energy brokers' roles are subtly changing as well, Kagan said.
Customers are beginning to use brokers for more than just putting out RFPs for energy.
        Customers are seeking -- and brokers are offering -- more advice on long-term energy strategy and the economics of energy-efficiency investments.
        Those are services Constellation and other marketers provide too.
        Broker payment methods are changing as well.
        Fee-for-service arrangements are becoming more common than markups on power deals, Kagan said.
        It's analogous to the financial services market where individual investors are consulting financial planners and paying fees compared with the commissions brokers used to make by selling mutual funds.
        C&Is like to know that their broker is "agnostic" to the deals they recommend, Kagan said.
        Kagan is seeing changes on the wholesale side as well -- including the entry of more financial players who started to join the market after the credit crisis created in Enron's wake.
        Financial traders are bringing more liquidity and creativity to the market, he told RT.
        One thing hasn't changed as markets have matured, Kagan said, and that's the need to educate customers.
        New England customers are confused by reliability must-run and coming capacity fees they have to pay.
        The charges can be part of wires bills or generation rates.
        But C&Is do understand they'll be paying for those fees regardless of their supplier.
        Is Kagan worried that Maine may quit NEPOOL?
        He doesn't expect it to make a difference.
        But he's skeptical that Maine customers would save money.
        Most of Maine's generation is gas-fired, he explained.
        Maine utilities get cheaper nuclear and coal-fired baseload power from the rest of the region as NEPOOL members.
        They'd lose access to that cheaper power by leaving NEPOOL.
        What the state would save on New England ISO fees it might pay in higher generation costs, Kagan said.
        It doesn't seem to make sense, he added.
        Heavy rains up and down the East Coast are impacting power prices and demand, said Kagan.
        The rain has cut some air-conditioning load in New England thus depressing power prices, he noted.
        But wet weather has raised load for sewage districts running their pumps to deal with the water.
        That makes for some "interesting demand dynamics."
        Kagan's traders expect today's lower load and lower gas storage use to depress gas prices too going forward.
        Originally published in Restructuring Today on June 28, 2006

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Conference Links

What will Texas market look like when Jan 1 rolls around?
When: 08/25/06 , 12:00 PM - 1:30 PM CDT
Where: Your home, work or cell phone
http://www.restructuringtoday.com/conferences/texas.html

CEA Technologies Inc (CEATI) -- Issues in Power Quality
When: Sep 12, 2006 - Sep 13, 2006
Where: Montreal, Quebec, Canada - Fairmont Queen Elizabeth Hotel
http://www.ceatech.ca/Meetings/PQ/Issues-Power-Quality.pdf

UPLC -- Broadband Power Line 2006
 When: Sep 17, 2006 - Sep 20, 2006
Where: Omni Charlotte Hotel -- Charlotte, NC
http://bplconference.org/

NET-ATHOME™ -- The world’s most international connected home event
When:  September 26 & 27, 2006
Where: Hilton Hotel -- Cannes, France
 www.net-athome.com/

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