A complex power market

A complex power market


The arcane business in which the Wallingford Electric Division (WED) operates defies simple description, and it certainly defies simple analysis.

So the decision to leave CMEEC, our supplier for twenty years, has spawned many articles in the R-J and more than one column, all of them reflective of two certainties: 1) CMEEC is upset at losing Wallingford as a customer, and 2) the head-spinning complexity of this industry has led to some unfortunate but understandable oversimplifications and inaccuracies being published.

First of all, you don’t have to be a really intuitive news analyst to see that CMEEC is very upset that Wallingford chose Energy New England over them. Articles quoting their CEO Drew Rankin and the current dispute between the Division and CMEEC over co-owned assets are pretty good clues.

And why wouldn’t they be miffed? Wallingford represented approximately 40% of their purchases.

Losing that big a customer is not only a huge setback for the organization but also an embarrassment for their management. CMEEC was the incumbent. CMEEC was the one with the 20-year relationship with the Division.

How could they get outfoxed by some out-of-state outfit when they were holding such a seemingly strong hand?

I’m afraid that the answer may be that CMEEC “assumed” that the process of getting up to speed, of going to school to learn and really understand the other alternatives, as well as the inertia and risk-averse culture that permeate most municipal governments, would discourage WED management and send Wallingford back into their arms.

They did not believe that Wallingford would actually be willing to do the heavy lifting necessary to enact such a change.

It was a catastrophic strategy on CMEEC’s part to underestimate their competition and their customer, and it cost them — big-time.

Secondly, it is not easy to explain the difference between ENE and CMEEC. ENE is an arrangement wherein the company acts as an advisor and assistant to the WED to find power generators and implement contracts between the Division and those entities, and they audit invoices and other paperwork from those suppliers and ISO to make sure they’re correct. They’re an agency.

CMEEC was and is a reseller — a broker, if you will. They make the purchases from the generators and resell it to their members and, formerly, to Wallingford. They handle all the details such as hedging, auditing, dealing with ISO — essentially everything. But this buyer/reseller arrangement is very different than an agency model, and CMEEC had no experience as an agency.

So when the comparisons were made, the Division ruled out CMEEC’s agency proposal specifically because they thought it a risk to be the test case for CMEEC’s venture into the agency model.

The decision became: do we want the agency model (ENE) or the same arrangement as we have had for the past twenty years (CMEEC)?

One other clarification: the dispute that the WED has with CMEEC concerning the shared assets and how much Wallingford should pay has been described as a potential $8 million loss. That is incorrect.

The argument centers on arriving at a fair calculation of the overhead costs to be assigned to maintaining these assets.

Yes, CMEEC has reformulated how the overhead should be shared, but they are certainly not the last word.

The $8 million figure is the In-The-Stratosphere, You-Can’t-Be-Serious price that CMEEC wants. Wallingford is challenging that assessment, and somewhere along the continuum between $0 and $8 million is a reasonable number to be found.

Wallingford officials have decided that they can competently play in the complex power purchasing market as long as they have an agent to guide and advise them. Wallingford recognized that change is the one constant in their industry.

Change brought opportunity and Wallingford grabbed it, understanding that sitting still in such a dynamic environment is not an option.

CMEEC would do well to objectively analyze why they are on the outside looking in.

Stephen Knight is a former Wallingford Town Councilor.


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