What is ABACCUS?
If you’re new to ABACCUS, it stands for Annual Baseline Assessment of Choice in Canada and the United States. It is an annual report card on the status of retail competition in residential and commercial/industrial power markets.
Essentially, ABACCUS does three things:
- Identifies the markets in North America which have been successful and explains the regulatory and market design choices that led to those successes.
- Gauges progress in the implementation of choice and the electric industry’s achievements in market restructuring.
- Quantitatively assesses the many features and attributes of service across the states and provinces, and then scores and ranks them accordingly into a category of “Excellent,” “Good,” “Marginal,” or “Unsatisfactory.”
In addition to quantitative analysis, ABACCUS also relies on the judgment of the project sponsors to assess success levels and determine the future market outlook across the states and provinces.
Who is responsible for ABACCUS?
The ABACCUS project is led by Nat Treadway, Managing Partner at Distributed Energy Financial Group, LLC (DEFG) and the Energy Retailer Research Consortium (ERRC), an independent research consortium comprised of companies with a stake in competitive retail energy markets.
So, where does Connecticut rank on ABACCUS 2009?
Connecticut is doing pretty “Good.”
Commercial/Industrial Sector
Overall, Connecticut ranked 9th (out of 23 states evaluated), with a score of “Good” in the commercial/industrial sector. The 2009 ranking is down one place from 8th in 2008.
The report indicates that Connecticut currently has 8 competitive retailers making offers to large C&I customers (13th out of 18 states evaluated), with a customer switching rate of 65%. C&I customer switching rates for competitive offerings are high in several states because of the large number of retailers, sophistication of the customer segment, and many more customized product offerings.
Commercial and industrial customer choice has been largely successful in North America. Electricity choice is thriving for this segment because states and provinces have achieved a balance between the flexibility afforded to large consumers and the minimal regulatory oversight necessary to build confidence and draw in new retailers. The number of retailers in jurisdictions with active C&I markets is likely to continue to rise.
What is driving the success of the C&I sector?
C&I consumers in competitive electricity markets have access to numerous retail suppliers who offer options that vary with respect to contract term, price, risk, and other factors. There are opportunities for fixed price contracts, variable prices that adjust according to a published index, and formulas that combine several attributes and prices that vary by different time intervals with the wholesale market price. Demand and price‐responsive consumers can participate in wholesale markets for capacity, energy and ancillary services, including reserve markets.
Each business consumer can decide whether to take advantage of these market opportunities, or whether to reduce their exposure to market price variability. Their choice depends on their unique industrial process, willingness to respond, and the technical feasibility of the response.
Large C&I consumers are also able to invest in backup generation, on‐site energy storage, and end‐use load controls to manage usage costs. Building energy management systems are also becoming more sophisticated to facilitate better real‐time decision making.
Residential Sector
Compared to the C&I sector, residential market development is typically slower due to a greater degree of policymaker hesitancy, consumer protection rules, and energy retailers’ slower than normal market penetration efforts.
ABACCUS indicates that Connecticut currently has 9 competitive retailers making offers to residential customers (3rd best behind Texas and New York), and a 17.7% residential customer switching rate (3rd best behind Texas and Alberta).
This year, Connecticut ranked 7th out of 23 states evaluated with an overall assessment score of “Good” in the residential sector. Connecticut received this same ranking in 2008, and is up three places from a rank of 10th in 2007. Overall, the residential market outlook remains positive.
What are the key issues facing Connecticut?
Residential switching in Connecticut has increased significantly from 6.6% of customers to 17.7% of customers over the past year. Business customer switching has reached 76.7% of sales overall, and large customer switching exceeds 91%. While progress continues to improve, key issues still remain including:
Long-term Contracts
Connecticut regulators have considered utility requests to permit long‐term power contracts to hedge against future cost increases. The risks associated with hedging have significant consequences for retail market entry and growth. Long‐term contracts, which can become higher than future market prices, would potentially place a burden on consumers. Alternatively, long‐term contracts which become lower than market prices could potentially freeze competitors out of the marketplace.
Default Service
Connecticut placed limits on utility contracting for default service. Default service refers to a transitional regulated service (traditionally, the service provided by the host utility). The design of default service is arguably the most significant factor that determines the success of retail choice among residential consumers. In some instances, the design of default service has not supported competition. Instead, it has prevented consumers from engaging in the competitive market and discouraged behaviors that would effectuate a robust competitive framework.
Average Pricing
It is commonly known that average electricity prices have been used to compare states and criticize electric restructuring. ABACCUS indicates that these “snapshot” comparisons of prices are fundamentally flawed in that they assume that average electricity prices are the most important (or the only) measure of success. Emphasis on average price comparisons reveals a basic misunderstanding of economic value, consumer preferences, and technological advancement.
Both regulated and restructured states have seen price increases and decreases. However, a regulatory mindset is focused on percent rate requests and cents per kWh. ABACCUS highlights that the cents per kWh mindset is holding back progressive reforms that could lower costs and increase the value of energy services to consumers.
What else impacts competitive markets?
Wholesale Market Development
Wholesale market development must accompany retail competition. Effective wholesale markets are a key component of a successful retail market because a retail supplier can manage physical and financial risk in a way that is beyond the capabilities of a typical energy consumer.
ABACCUS states that through scale economies and a deep understanding of both the wholesale markets and the customers’ needs, a retailer can provide differentiated and customized risk management services that individual customers can choose. These products are generally not available through regulated rates. Retail customer participation in wholesale markets is good for the customers who choose to participate in the market because it typically lowers costs. It is also good for the grid network as customer participation in wholesale markets can reduce price spikes and grid congestion.
Social Goals
With heightened interest in climate change, there is also interest in energy efficiency, renewable energy technologies, demand response, and small‐scale power production/distributed generation. States and provinces employ a variety of mechanisms to achieve these goals. Some states have taken a policy approach through standards and codes. Others have used market‐based incentives to encourage businesses to offer new technologies and services.
ABACCUS does not yet attempt to directly measure how renewable energy (RE) and energy efficiency (EE) activities might be implemented. There are a wide range of options available, from government run programs to a robust retail marketplace for RE and EE services. ABACCUS recommends that collective government action should rely on market forces to the maximum extent possible to achieve these goals.
Technological Change
The electric industry is poised to combine new infrastructure investments (such as advanced meters, communications, smart grid technologies, and digital appliance control) with the entrepreneurialism of mass‐market retailers. In the future, consumers will be able to lower their total energy costs, increase their reliability and control, reduce their impact on the environment, and increase the value of electric services more easily. Consumers will soon interact with their electric devices in new ways, and technology will continue to transform the industry and the way consumers use energy.
So, What’s the Wrap?
Competitive retail electricity markets have been successful in delivering strong customer benefits in several jurisdictions that have adopted the model. 23 states with competitive characteristics were evaluated in ABACCUS 2009. Connecticut is one of those states. With a “Good” ranking of 8th place overall, the Connecticut market continues to show steady signs of growth and development.
To obtain a copy of the full 2009 ABACCUS report, or for more information, please visit www.defgllc.com or contact Nat Treadway at (713) 729-6244.
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