Scant energy profits in state

Rob Varnon
Connecticut Post Online
September 5, 2006

Stamford-based MXenergy Inc. sells electricity in two states, natural gas in 12 and has approximately 600,000 customers, but its chief executive said he doesn't expect to offer contracts in Connecticut any time soon because the profit incentive just isn't there.

"We're not in Connecticut," said Jeff Mayer, MXenergy's founder and CEO, because Connecticut's rates and regulations are cumbersome and not conducive to private competition.

He wouldn't give details, but said regulatory requirements in Connecticut increase costs on private companies providing electricity.

MXenergy employs 60 people in Stamford and approximately 200 in other states, including Texas, Florida and Georgia.

Mayer admitted it is a little strange he doesn't actually sell electricity or natural gas in his and his business' home state, but said maybe, some day, he will. His customers are the retail users, such as home and business owners.

Connecticut isn't the only difficult place to sell electricity. The nation began deregulating its markets, which means they were supposedly being opened up to private competition, in 1999. But almost seven years later, Mayer's company only sells electricity in New York and Massachusetts, according to MXenergy's Web site.

Bidding for electricity is a major problem, Mayer said. It's a commodity that can't be stored and has to be used immediately, so companies like MX have to negotiate to buy a block of electricity ahead of time and hope it can find the customers to sell it to. That's why Mayer said he wants his customers to buy longer contracts, so he can plan out purchases.

The advantage to the consumer is rates are fixed for a period of years, he said, which helps them plan their budgets.

Another problem with the electricity market is everyone, including the utilities, is trying to buy from the same sources, which creates higher demand for electricity, he said.

Edward Levene, vice president of Norwalk-based Levco Tech Inc., said Mayer's assessment that private electricity providers are bidding against the utilities to fill contracts is correct.

Levco, with approximately 40,000 customers, is the only private, non-regulated company selling electricity contracts to Connecticut residents. It only operates in Connecticut Light & Power Co.'s territory, Levene said, because CL&P sells power at the market rate and Levco can offer prices at or lower than CL&P. The United Illuminating Co. was selling power at lower-than-market rates for the last two years, he said, because UI had long-term contracts with electricity producers.

Those contracts expire at the end of this year, so Levco is evaluating whether it will compete for UI customers in 2007.

The state Department of Public Utility Control is reviewing UI's contracts, but will not disclose the prices UI has locked in — a move Levene said makes it difficult for private companies to compete. The DPUC said revealing the prices before October will make it less likely UI and CL&P will receive the best prices.

UI and CL&P are default providers, required by state law to secure enough power to meet the needs of their customers in case private-sector companies do not sell electricity in the market. Levene admitted he wants to know right now what UI's rates are going to be so he can try to undercut them. However, he added, not knowing won't prevent him from trying anyway.

While Levene and Mayer differ on whether money can be made in Connecticut's electricity market, a spokesman for the region's grid operator said more companies are interested in selling electricity in New England.

Ken McDonnell, an Independent System Operator New England spokesman, said his organization has been fielding calls from potential power plant builders interested in getting into the New England market.

That interest is growing because utilities and private companies are competing against each other to buy blocks of electricity, he said, which, because it means more customers, makes it more profitable to invest in new power plants.

McDonnell called Mayer's contention Connecticut's retail market isn't attractive to private companies, an issue for state regulators and politicians. Each state determines how its market will function, he said, while the ISO oversees the power generation market and makes sure there is enough of it to meet the region's needs.