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Report: Pennsylvania Average Residential Rates For Shopping Customers Higher Than Default Service Rates

Report: Restructuring Has Benefited Most Mass Market Customers, "Through Utility-Offered Default Service Products"

October 31, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

From 2011 to 2014, "statewide average annual retail electricity rates to residential shopping customers were higher than utility default service rates," a report from Christina Simeone and John Hanger, published by the Kleinman Center for Energy Policy at the University of Pennsylvania, says

Moreover, the report concludes that, "The results indicate that retail restructuring has benefitted most small commercial and residential customers, through utility-offered default service products."

"During full implementation [of choice] (2011-2014), Default Customer prices for electricity delivered to the residential sector were less expensive than Shopping Customer prices. This trend was also observed during the pilot and phase-in period," the report concludes.

"[T]hese data are presented on a statewide average basis and the results do not necessarily mean residential customers are unable to find a competitive supplier that can offer savings compared to the default utility," the report said

"Competitive retail suppliers’ note there is only one standard type of Default Customer product per EDC, whereas Shopping Customers may be presented with a variety of product types. Some of these product types may create greater value for the customer through beneficial attributes (e.g. renewable energy credits, special discounts, and incentives) and have a commensurately higher price," the report said

"On the other hand, some (e.g. consumer advocates) argue that Shopping Customer products are higher priced, because competitive retail suppliers have higher costs, and/or these products have greater exposure to market volatility," the report said

"Data limitations impact this conclusion. Competitive retail suppliers argue many retail offerings provide additional attributes (e.g. renewable energy, discounts and incentives) that command higher prices, making comparison with standard utility service inappropriate. Supporters of utility default service argue higher retail supplier costs and greater market volatility drive cost premiums. More research is needed to determine the magnitude to which these factors contribute to the observed residential price differential," the report said

EGS generation and shopping customer prices increased faster than Inflation, the report said. "Using 2011 as the full [choice] implementation base year, actual prices in 2014 were greater than inflation adjusted prices for 2001," the report said

The report also examined residential and small commercial generation and transmission prices and total bundled bills from 1996 (prior to restructuring), adjusted for inflation, compared to January 31, 2016 default utility prices.

The report concluded default service customer prices increased slower than inflation.

"The results indicate that retail restructuring has benefitted most small commercial and residential customers, through utility-offered default service products. Residential generation and transmission default utility prices were 2 to 41 percent lower than 1996 inflation adjusted generation and transmission prices for Duquesne, MetEd, PECO, Penelec, Penn Power, and PPL. For West Penn Power, the 2016 default utility generation and transmission price was 7 percent higher than the 1996 inflation adjusted generation and transmission price," the report said

"These benefits were primarily achieved by requiring utilities to purchase energy, capacity, and related services in competitive wholesale markets, rather than through cost-of-service regulated generation. Residential customers taking restructured default generation and transmission service from their local utility have the potential to save over $818 million in 2016, compared to inflation-adjusted 1996 regulated generation and transmission costs," the report said

In contrast to the residential experience, during what the report considers the full implementation period for choice (2011-2014), prices to shopping customers were lower than default service customer prices. This trend was also observed in the pilots and phase-in period, except from 2005 through 2009, the report said

Noting that the study found that economic benefits for residential customers lagged when compared to those enjoyed by commercial and industrial customers, the Retail Energy Supply Association emphasized that residential customers can save money by switching providers, noting:

• The appropriate comparison for residential benefits is to examine available competitive offers that not all consumers take advantage of.

• Today, customers can save money in all major Pennsylvania utility areas. A quick search on the PUC’s shopping website, www.papowerswitch.com reveals there are many offers available below the utility’s default service offering.

• The lowest-available 12 month fixed price offers represent more than $314 million in potential annual savings to consumers if all remaining customers switched to these offers (See the attached chart). Available savings are over $700 million when comparing available 3 month offers to the utility’s default service price.

"These findings point to the need for further policy considerations to better promote better competition at the residential level," RESA said

"One step Pennsylvania’s policy makers should consider is removing regulated utilities from the business of providing default service and instead focus them on investing their resources in their core business of providing distribution and transmission services. This approach has worked well in Texas, the state widely recognized to have the most robust competitive electricity market working in the best interests of consumers and economic development," RESA said

RESA also further emphasized that residential prices from retail suppliers may reflect value-added services. While the report cites green energy as one value-added product offering unavailable to consumers taking default energy service from their utility, RESA emphasized a, "wide range of additional value-added product offerings available to residential customers, such as energy efficiency tools like smart programmable thermostats, travel rewards, and various fixed-price terms that allow customers to choose the level of price stability that meets their individual needs."

Link To Kleinman Center Report

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