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Do Regulators Really Want Innovation from Retail Suppliers? During yesterday's DNV KEMA retail energy executive forum, regulators from Illinois, Ohio, and Pennsylvania all said that retail suppliers need to offer innovative products and services, and that competing on price alone is not what they want from the retail market.
But do they mean it?
Consumer advocates, and therefore regulators, judge the retail market on price. One need only look at the current state of the New York market, which has adopted online snapshot comparisons between ESCO and shadow-billed default service costs and may soon post this information on bills, as what happens when retail suppliers add value to their product, which may necessitate the per kWh price rising above a plain-vanilla default product during snapshot intervals.
Chairman Todd Snitchler of the Public Utilities Commission of Ohio said, for example, that merely offering a minimal percent-off the default rate is not what the Commission wants to see, and that it wants to see bundles and other innovations from suppliers.
Matters is also reminded of statements from the Pennsylvania Public Utility Commissioners during the retail market investigation, some of whom chided retail suppliers for only offering savings of a few percentage points versus the Price to Compare.
However, price competition, which regulators claim to want to leave behind in favor of product innovation, is incubated by the default service model, and presence of a Price to Compare (Beat), in place in every electric market except Texas.
Indeed, it appears that one of the reasons the Pennsylvania PUC may be shelving the retail opt-in aggregation program is that the rate under the program may not produce savings for the customer after the initial 4 months.
While retail choice should produce the choice of lower rates for those customers wanting that type of product, and suppliers' apples-to-apples products should not exceed default supply costs, it is disingenuous of regulators to clamor for innovation, but then emphasize price in creating default service and judging retail market outcomes.
Regulators on the KEMA panel readily acknowledged that Texas has by far the most innovative offerings from retail providers. It needs not be said that this is because it has removed the concept of default service, and essentially with it, price competition. Texas REPs now compete on customer value, of which price is a large component, but not the sole component.
Of course, this competition in Texas has also driven down prices to historic lows, with competition driving REP margins to unsustainably low levels, according to some market observers. In contrast, while all markets are experiencing margin compression to some extent, the presence of default service and a Price to Compare allows retail suppliers to "huddle" around the default rate, and only beat it by a few percentage points, in order to maintain higher margins, instead of having to worry about competing against other retail providers undercutting them on price.
Chris Weston, outgoing President of Direct Energy, noted that Direct Energy's popular "Free Power Day" product is not its product with the lowest rate, but that customers have responded favorably to the product because it maximizes their value. By allowing customers to shift usage to their chosen day, with no energy charges for usage on that day, the product allows customers to make decisions to maximize value, and the product does result in lower costs despite the higher per kWh rate.
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March 27, 2013
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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