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Updated: In Push To End Residential Electric Choice, Mass. AG Study Says Subset Of Suppliers Responsible For 75% Of Residential Consumer Loss From Retail Choice

Mass. AG Study: Economics Suggest Retail Supply Market "Will Always Fail" Individual Residential Customers Due To No-Mark-Up Default Service, Suppliers' Marketing Costs

Direct Energy Criticizes "Flawed" AG Study

Earlier:

Shock: Massachusetts AG Calls For "End To Competitive Electric Supply For Households In Massachusetts"

AG: Suppliers "Built An Entire Business On Deceptive Practices"

AG: Retail Supplier Customers Paid $176 Million More Than Default Service Over 24 Months


March 29, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com

Updated 3/30. Note: an earlier version of this story, appearing below, was first posted at 11:30 am on March 29, with an alert to our email alert subscribers

As first reported by EnergyChoiceMatters.com yesterday morning, the Massachusetts General is seeking an end to residential electric choice in the state.

The AG's recommendations would not impact residential service under opt-out municipal aggregations, and would not impact C&I choice.

The AG released a study showing that retail supplier customers paid $176 million more than what they would have paid under default service for the period July 2015 to June 2017 (Link to AG's report).

The report states, "Massachusetts residential electricity consumers who took service from a competitive supplier paid a total of $176.8 million more than they would have paid if they had received basic service from their electric company over the course of the two study periods. Specifically, customers overpaid by $65.4 million during the 2015–2016 study period and by $111.4 million during the 2016–2017 study period. The increase in losses from the 2015–2016 study period to the 2016– 2017 study period suggests that customer losses are getting worse and not better."

The report states, "the difference between the average residential competitive supply rate and the average basic service rate -- which I also refer to as the 'premium' -- increased by 72 percent between the 12-month period spanning July 2015 to June 2016 and the following 12-month period, spanning July 2016 to June 2017. Accordingly, the increase in the total loss between the two study periods is almost entirely due to suppliers charging higher premiums for their electricity, rather than suppliers simply providing service to more customers. The gap between the rates that consumers pay suppliers and the rates that they would have paid their electric companies for the same usage occurring in the same time periods has increased significantly. During the 2016–2017 study period, the average rate that suppliers charged all of their consumers in the Commonwealth was $0.1219 per kWh, which was 35 percent higher than the average rate of $0.0905 that these same consumers would have paid for the same usage had they taken service from their electric companies"

The AG's study was developed under data by the Massachusetts EDCs which provided the AG with detailed supplier-specific data separately for the two consecutive twelve-month time periods spanning July 2015 – June 2016 and July 2016 – June 2017.

Concerning its allegation that suppliers are disproportionately targeting low-income customers, the AG's study said that low-income households make up approximately 21 percent of the residential competitive supply market, yet make up only 12 percent of the market for all electric customers. Furthermore, over one-third (36 percent) of all low-income customers take service from a competitive electric supplier, the AG's study said

The electric companies also provided supplier-specific data disaggregated to the zip code level for the most recent month of the second twelve-month study period (June 2017), as well as electric company-specific counts of bills for both low-income and all other residential consumers at the zip code level. The AG's study, "found patterns of apparent targeting of economically disadvantaged communities and households by suppliers."

The AG's study also said that 10 suppliers were responsible for a large portion of the consumer loss shown under the study. The AG's study said that there are about 50 suppliers serving residential accounts in Massachusetts; of that amount, a handful billed a relatively de minimis number of accounts during the study period.

The AG's study found that the 10 suppliers with the highest average rate premium accounted for 60% of the consumer loss. Of these 10 suppliers, average rates range from nearly 13¢ to nearly 17¢, with premiums ranging from nearly 4¢ to nearly 8¢

Furthermore, when taking into account the impact from the number of bills issued by a supplier, a separate subset of 10 suppliers were responsible for 75% of the consumer loss. "In aggregate, they account for 75 percent of the net consumer loss, with some suppliers accounting disproportionately for consumer loss. For example ... approximately 10 percent of all bills are rendered on behalf of Supplier #37, and yet Supplier #37’s consumers account for 18 percent of net consumer loss in the Commonwealth," the AG's study said

The AG's study did find some suppliers provided savings over the study period.

"Twelve percent of bills are associated with competitive suppliers who charged rates that would provide savings relative to the electric company rates. For this small group of customers, savings are, on average, $74.56 per year, or less than a third of the average annual overpayment of $269," the AG's study said

"These numbers suggest that the 'upside' of participation in the competitive supply market is very limited. Specifically, the numbers suggest that a customer who participates in the competitive supply market has relatively low odds of saving a small amount of money and relatively high odds of paying significantly more money," the AG's study said

"Moreover, many of the customers who experienced savings during the two study periods may not save long-term. Some consumers pay less than electric company rates for some of the time but these lower rates may be “teaser” rates, meaning that the rates may start low and then increase in subsequent months.20 Accordingly, it is possible that a significant portion of the customers who take service from suppliers who charged less than basic service during the two study periods will ultimately pay more than basic service in the future," the AG's study said

The AG's study said that the data, and experience in other states, show that, "the economics of the competitive supply market suggest that the market will always fail individual residential consumers," for the following reasons:

• Suppliers compete with the electric companies’ basic service, which is a wholesale price that tracks current wholesale market prices relatively closely and is bought in bulk without any profit mark-up.

• The electricity delivered to the consumer is exactly the same whether purchased from a supplier or the electric company.

• Suppliers have significant expenses for overhead (marketing, multiple employees).

• Due to these structural disadvantages, suppliers cannot, on average, "beat" basic service long-term.

• Suppliers, however, have a high level of sophistication relative to residential consumers regarding the relatively complex energy supply markets.

"These factors create a harmful combination that results in consumers overpaying for sometimes absolutely no benefit," the AG's study said

While the AG favors a complete prohibition on individual residential electric choice, to the extent such a ban is not adopted, the AG's study suggested various other customer protection measures. Among other things, these include a ban on variable rates, a ban on retail choice for low-income customers, and requiring suppliers to publicly post all of their individual, customer-specific historic rates on the DPU website, and the number of customers on each rate

Commenting on the study, Chris Kallaher, Sr. Director, Government & Regulatory Affairs, Direct Energy, said in a statement that, "It is disappointing to see the Attorney General rely on a single, flawed report and flawed conclusions to deny millions of Massachusetts consumers the right to choose an electric supplier."

Kallaher said:

"• The report starts with a profoundly misguided premise – that a comparison to the monopoly utility’s basic service rate is an appropriate measure of the health of the retail market – and adds assumptions and faulty analyses to support the view that Massachusetts consumers are not capable of making their own energy choices.

"• These flaws include the failure to accurately account for the differences between the products and services offered by competitive suppliers and the one-size-fits-all utility default, and the failure to seek information directly from suppliers about how and where they market to consumers.

"• Direct Energy and other suppliers would have been happy to discuss these matters with the Attorney General to prevent the release of such a one-sided report, but we were not given the opportunity to do so. As a result, the Attorney General is now pursuing a path that would be bad for Massachusetts consumers and bad for the Commonwealth’s broader energy goals.

"• The Massachusetts General Court chose to restructure the electricity market 20 years ago because it saw that competition would bring better results for Massachusetts consumers and businesses than a continuation of the utility monopoly, and Massachusetts consumers are clearly better off now than they would have been without restructuring.

"• The report released today provides no valid support for the notion that the benefits of restructuring can be preserved while turning the clock back and depriving residential customers of the right to choose their electricity supplier.

"• We are confident that when the facts are known, the General Court, the Baker Administration and, hopefully, the Attorney General herself will see that ending electricity choice for any customer group would be a serious mistake."



Earlier (3/29):

Update, 12pm 3/29: The AG's report is available here

The report states, "Massachusetts residential electricity consumers who took service from a competitive supplier paid a total of $176.8 million more than they would have paid if they had received basic service from their electric company over the course of the two study periods. Specifically, customers overpaid by $65.4 million during the 2015–2016 study period and by $111.4 million during the 2016–2017 study period. The increase in losses from the 2015–2016 study period to the 2016– 2017 study period suggests that customer losses are getting worse and not better."

The report states, "the difference between the average residential competitive supply rate and the average basic service rate -- which I also refer to as the 'premium' -- increased by 72 percent between the 12-month period spanning July 2015 to June 2016 and the following 12-month period, spanning July 2016 to June 2017. Accordingly, the increase in the total loss between the two study periods is almost entirely due to suppliers charging higher premiums for their electricity, rather than suppliers simply providing service to more customers. The gap between the rates that consumers pay suppliers and the rates that they would have paid their electric companies for the same usage occurring in the same time periods has increased significantly. During the 2016–2017 study period, the average rate that suppliers charged all of their consumers in the Commonwealth was $0.1219 per kWh, which was 35 percent higher than the average rate of $0.0905 that these same consumers would have paid for the same usage had they taken service from their electric companies"

Earlier:

"It's time to end competitive electric supply for households in Massachusetts," the Massachusetts Attorney General said at a news conference today.

The AG said that customers have been, "abused and overcharged" for way too long.

The AG listed customer complaints as alleging, "outright deception" by suppliers, including suppliers pretending to be the EDC

The AG also alleged instances of supplier agents attempting to "force" their way into homes

The AG alleged suppliers targeted elderly and low-income customers

The AG is to release a study showing that retail supplier customers paid $176 million more than what they would have paid under default service for the period July 2015 to June 2017 (study not available at press time)

The AG said that low-income customers are paying $230 more per year on retail supply

The AG said that she would work with the legislature, DPU, governor and consumer advocates to protect customers and end individual residential retail electric choice

The AG said that her recommendations would not impact opt-out municipal aggregation

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