POWER July 2011 - 21

We do occasionally have a small amount of spot market exposure
in the portfolio, but mainly in months where we see low price
volatility. We typically enter a month no less than 95% to 100%
hedged to expected load and will fill in the rest with either dayahead
or spot purchases. This is pretty typical practice for an REP
running a well-managed supply portfolio.
Axford: Is it fair to say that Pennsylvania is looking like the
next Texas for customer choice in retail electric markets?
Tonge: I think so. If you look at Pennsylvania, there are several
things in common with the Texas market. First, the number
of competitors-about 10 to15 providers in Harrisburg and Philadelphia
markets. Second, the pace of switching in PPL and PECO
territories has been staggering. Nearly 50% of all PPL residential
customers have switched since the price caps were removed about
18 months ago. In Philadelphia, about 16% of PECO's residential
customers have switched since the price cap came off on January
1, 2011. Today, there's market frenzy in Philadelphia because
this is far and away the largest zone for households and meters
in Pennsylvania.
Axford: Did Pennsylvania make a conscious effort to copy the
Texas model? What are the major differences?
Tonge: Well, the [Public Utility Commission (PUC)] commissioners
in Texas and Pennsylvania (Barry Smitherman and Robert
Powelson, respectively) have exchanged compliments about how
each state has handled the transition to customer choice. I think
the major difference between the states is that Pennsylvania customers
still have the old " utility rate to compare, " once known
in Texas as the " price to beat. " Unlike Texas, the poles and wires
have not been completely separated from the competing incumbent
provider in Pennsylvania.
Another important difference is that most new entrants to the
Pennsylvania market must bill their customers via the incumbent
provider. One challenge that all REPs face is to develop strategies
to build a relationship with the customer. In Pennsylvania, we
don't yet have an anchor, the monthly bill, to better establish
that relationship. In Texas, all completive electric providers bill
the customer by e-mail or direct mail, and customers see their
logos, websites, and promotional programs. We will continue to
look at billing options in Pennsylvania as well as other markets.
Axford: Why do you think Pennsylvania has such a robust market
for switching while other states in the Northeast, such as
Connecticut and New York, have had a less-exuberant response
to competition?
Tonge: First, I think kudos must go out to the PUC in Pennsylvania.
One thing Pennsylvania did very well was to conduct a
series of consumer education seminars. There were opportunities
for consumers who were sitting on the fence wondering, " What
does all this mean? " to come in and hear about competition
from the commission staff and the retail providers themselves.
Second, I think the media in Pennsylvania latched on to the fact
that this was a watershed event with a date certain for competition
to begin. It was newsworthy. The media got on top of it and
helped explain the consequences of switching, or not switching,
to the average household customer. Of course, the media did not
endorse a particular competitor, but they did help create a buzz
in the marketplace.
Axford: Is there a critical mass needed in a competitive power
market before the switching rate takes off? It seems like New York
and Connecticut have not been able to achieve the critical mass
like Texas and Pennsylvania.
Tonge: Spark Energy has been happy with the market in Connecticut,
and we continue to add customers at a good clip. From
my perspective, there is a little less certainty in Connecticut that
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July 2011 | POWER
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21
all of the political forces are 100% on board for competition
with no looking back to the old regulated model. If a company
like Spark Energy does not see a commitment for market longevity,
they will be more careful about their investments in that
market.
New York is a bit different. There are many incumbent utilities,
and the competitive dynamics are strongest around New York
City. Other regions of the state have lower electric prices and are
not as attractive targets for REPs. The statewide switching rate in
New York is at 20.7%, which is a 12.5% year-over-year increase
from December 2009.
I am optimistic about New York as a place for Spark Energy to
do business because I feel that the PUC is committed to competitive
markets. It just hasn't generated the buzz that we are
getting in Pennsylvania.
Axford: How does Spark Energy see the newly opened market
in Illinois?
Tonge: We're in the Chicago area right now. Like in Pennsylvania,
we have taken an innovative approach to our marketing
arrangements in Chicago. We want to look, feel, and act as part
of the community. We have partnered with important local institutions
to speed up our brand recognition. We are allowed to
send our bills directly to customers in Illinois, but for now we are
billing through ComEd while we grow our customer base.
Axford: Is the speed of switching in Illinois as fast as Pennsylvania
or even more rapid?
Tonge: Illinois feels like Pennsylvania in some ways. Neither
the Illinois Commerce Commission nor ComEd have published any
switching statistics for the first 90 days of competition (since
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