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Consultant Says Broad Program For State-Endorsed Retail Supplier(s) Not Appropriate For Maryland

January 9, 2017

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Reporting by Paul Ring • ring@energychoicematters.com

Gabel Associates, which was retained by the Maryland PSC to review the potential for an opt-in electricity affordability program (state-endorsed opt-in aggregation similar to the program in Delaware, see Delaware program details here) told the PSC that such a program would be inappropriate for Maryland, noting Maryland's relative market maturity versus Delaware.

"[I]t is our conclusion that the status of the retail choice market in Maryland is relatively healthy, and that the Maryland market exhibits a number of characteristics significantly different than those that existed in Delaware at the time that Delaware’s electric opt-in affordability program (DEAP) was first conceived and implemented," Gabel Associates said

"The State of Delaware is significantly different than Maryland in terms of geographic size and distribution of population, as well as the number and composition of EDC territories. There is only one investor-owned electric utility in the State, Delmarva Power (Delmarva), which provides electric distribution service to about 80% of the State’s residents. Delmarva’s service territory encompasses virtually all of New Castle County in the northern section of the State, where roughly 60% of the State’s population resides in about a quarter of the State’s land mass. The remainder of the State receives electric service from a patchwork of Delmarva and Delaware Electric Cooperative (DEC) service territories. Moreover, in 2015 there were less than 20 PSC-licensed retail electric suppliers active in the residential market in the State, and only about 10% of Delmarva’s eligible residential customers had switched to competitive suppliers. Delaware ranked near the bottom of retail choice states in terms of residential market participation as well as market participant rankings of retail choice states in terms of efforts and achievements in the promotion of electric retail competition," Gabel Associates

"By comparison, the Maryland retail choice market is in overall healthy condition. The state is larger, with multiple large EDC service territories, and approximately 60 licensed suppliers that are authorized to offer services to residential customers in one or more electric utility service territory. While off somewhat from 2013 peaks, the residential retail choice market participation rate still exceeds 21% statewide, with about 25% located in the state’s largest service territory, BG&E. As noted, Maryland switching rates are down modestly from their peak (over 26% statewide) in 2013; however, this is far from an anomaly suggesting a market mis-function, as the switching statistics of numerous other retail choice states exhibit a similar decline in the wake of the price disruptions experienced during the January 2014 polar vortex. Therefore, Maryland still ranks in the top half of states in terms of residential switching rates, and has been ranked in the upper third of retail choice states in terms of residential market participation as well as market participant rankings of retail choice states in terms of efforts and achievements in the promotion of electric retail competition," Gabel Associates said

"The retail choice market in Maryland is substantially more developed and competitive than the Delaware choice market was at the time the DEAP was developed and launched, and the size, scope and nature of the MD market is significantly different than the DE market. While the size, scope, nature, and state of development of the Delaware market may well have warranted the implementation of a statewide opt-in affordability program with a single 'endorsed' supplier, the Maryland market is far different, and the approach taken in Delaware does not appear to be warranted or appropriate at this time for Maryland," Gabel Associates said

"[W]e do not believe that the implementation of a statewide opt-in program similar to that employed in Delaware, with the selection of a single, state-sponsored supplier to offer a pre-approved line of product offerings, is warranted in Maryland at this time. Moreover, we do not believe that a statewide, state-sponsored program with multiple selected suppliers, as some have advocated, would be advisable at this time," Gabel Associates said

"We do not recommend any major market structure reforms to stimulate additional switching. Maryland’s SOS procurement and pricing policies appear to be well thought-out and aimed at striking the appropriate balance between having SOS prices that are reasonably reflective of the market, while also mitigating against price volatility. This effective combination results in a reasonable product for non-switching customers," Gabel Associates said

"Rather than make major reforms, we recommend an approach more surgical in nature that focuses on initiatives to supplement ongoing efforts to enhance value and affordability amongst the low-income population, and continued review of switching rule and shopping refinements that complement efforts to enhance value and affordability amongst the low-income population (and that may have the additional benefit of making the retail market more efficient and effective)," Gabel Associates said

Click here for our related story today on a "surgical" pilot proposed by Gabel Associates for a retail supplier to serve a group of low-income customers based on a procurement by an agency or city

The PSC is accepting comments on the report, in Case PSC 47

Link to Report

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