Energy Choice
                            

Matters

Direct Energy: Our Massachusetts Residential Customers On Fixed Priced Plans Have Saved More Than $500,000 Versus Default Service

RESA: Residential Customers Could Have Saved $93 Million In First 4 Months Of 2018 By Shopping For Retail Supplier

RESA Cites Inappropriate Comparisons In AG's "Incomplete" Report

May 9, 2018

Email This Story
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

During a legislative hearing concerning the Massachusetts Attorney General's call to shut down residential electric choice in the state, Direct Energy told lawmakers that its residential customers on fixed price products in the state have saved over $500,000 over the past fours years.

"Our data analysis shows that since 2014 (through the end of March 2018), our residential customers on fixed price products have saved more than $500,000 compared to what they would have paid on the utilities' Basic Service rates," said Chris Kallaher, Sr. Director Of Government And Regulatory Affairs For Direct Energy

Concerning allegations from the AG that retail suppliers target low-income customers, Kallaher said, "Direct Energy can unequivocally say low-income and non-low-income customers pay the same prices for the same products. Direct Energy does not target low-income customers for sales and marketing of any kind. When it comes to pricing and products, there is absolutely no difference between what low-income customers pay for Direct Energy’s products versus what any other customer pays."

"Direct Energy does not target low-income customers in the sales process. We have no income qualifications or questions in our sales process, and none of our products are differentiated by income," Kallaher said

Kallaher also described various quality control mechanisms used by the company in sales, including mandated drug tests and background checks for agents, and third-party verification of sales

The Retail Energy Supply Association presented an analysis showing that Massachusetts competitive electricity suppliers could have saved residential customers nearly $93 million in the first four months of 2018 if customers switched to the lowest available rate on the public DPU rate board from a competitive supplier

RESA noted that retail suppliers during the first four months of 2018 were offering anywhere from 150 to over 200 residential offers below the utility Price to Compare

In April 2018, of 340 retail supplier offers posted on the Massachusetts Department of Public Utilities’ Energy Switch Massachusetts shopping website, energyswitchma, 216 of them (nearly 64 percent) were lower than their corresponding utility default service rate.

"RESA believes the Attorney General’s report fails to take into account many things, including the differences in the types of products competitive electric suppliers offer, as well as the basic idea of why customers choose one product over another," said Tracy McCormick, Retail Energy Supply Association Executive Director. "Price is only one factor consumers weigh when choosing electricity supply. Suppliers are innovating and developing value-added products and services to differentiate themselves from competitors. While some offer smart thermostats, smart devices and energy services that allow consumers to take charge of their energy usage, others provide incentives like gift cards and loyalty reward points. Important among these value-added products are green energy options that allow consumers to express their environmental preferences through their electricity purchase."

RESA presented a report by Intelometry discussing various issues in the AG's (AGO) study.

The RESA report noted that, "The AGO Report analysis period extends from July of 2015 through June of 2017. This two-year timeframe incorporates two periods of steep Basic Service rate declines and ignores the period of sharp Basic Service rate increases prior to July of 2015."

"By focusing on a select period of overall declining rates in a vacuum, the AGO Report ignores the rational consumer behavior that likely occurred prior to the report’s analysis period," the RESA report said. Noting that residential customers at NSTAR saw a 60% basic service rate increase in January of 2015, the RESA report notes that such customers, "may have opted to lock into a 24-month retail supply offer to both save money over the prevailing Basic Service rate as well as prevent another rate shock in the next six months."

"Since the customer would have locked into a price reflective of the market at the time, there would be the appearance of overpayment when Basic Service prices dropped in July of 2015. In truth, the customer would have acted rationally at the time, buying both savings and long-term insurance. The AG Report ignores this, simply surmising that any customer that pays a supplier rate higher than Basic Service is being harmed," the RESA report said

"Missing from the AGO Report is the understanding that the costs and risks associated with a 36-month fixed price product can be far different than the costs and risks associated with a 6-month product, or that the state of the market at the time of pricing can greatly impact the price offered, or that green power is generally bought at a premium. Take, for example, the NGRID residential Basic Service rate which increased by 97% in November of 2014. The steep increase in this rate had nothing to do with gift cards, rebates or reward programs (of which the NGRID Basic Service rate provides none), but a function of the utility’s procurement process combined with the state of the market at the time. At no time does the AGO Report provide a meaningful comparable analysis of retail supplier prices as evidenced by the report’s claim that Constellation Energy can procure a green product for less than the cost to procure an equivalent product without a green provision," the RESA report said

"[R]etail suppliers offer many different types of products to residential customers that incorporate varying contract lengths and value-added service options. The prices at which retail supply products are offered can vary greatly depending on the state of the market at the time, the length of the contract period, value-added provisions and other factors. The AGO Report essentially combines all bills of a given retail supplier for a given month into a single number without accounting for when any single product billed was procured, the structure associated with the product, the inclusion of value-added services or the reason why any individual customer opted for the product in the first place. The report then compares this number to 6-month Basic Service rates structured and procured in a completely different manner than any of the products incorporated into the first number. Such comparisons are inappropriate," the RESA report said

"Take, for example, a residential customer that signs a 12-month contract with a retail supplier in April of 2015. Drawing a simple comparison between that customer’s fixed price and Basic Service rates six months later without acknowledging that the customer actively chose to take service under a long term fixed price contract would be misleading. Since Basic Service rates declined in July of that same year, a simple comparison would imply the customer was worse off for choosing 12 months of price insurance, when in truth the customer may be perfectly happy with supplier service," the RESA report said

"A more appropriate comparison would have been to isolate customers that sign up for supplier service in a given month and compare the overall value of such products to the prevailing Basic Service rate at the time of signup. The AGO Report, however, fails to do this and essentially ends up comparing apples and oranges," the RESA report said

The RESA report noted that the AGO Report’s Weighted Average Competitive Supplier Rate line in year one of the study ($0.12583 per kWh) is substantially lower than even the lowest Basic Service rate in the preceding Basic Service rate period ($0.14228 per kWh), "and is likely a function of customers locking in with competitive supplier service both to save money over the steep Basic Service rates in early 2015 as well as to avoid future rate shocks."

"Since the AGO’s Weighted Average electric company Rate is derived from Basic Service rates, this line simply follows the movement of Basic Service rates. In year two the AGO’s Weighted Average electric company Rate declines as Basic Service rates drop. The AGO’s Weighted Average Competitive Supplier Rates, which inappropriately incorporates customers who entered into long term supplier contracts at the start of 2015, drops also but to a lesser extent due to the stickiness of the curve. As previously stated, a more appropriate comparison would have been to isolate customers that sign up for competitive supplier service in a given month and then compare the overall value of such products to the prevailing Basic Service rate at the time of signup," the RESA report said

The RESA report said that the AGO report fails to consider complaint data in context

"The AGO Report states that 'From January 1, 2014 through December 31, 2017, the AGO received more than 700 complaints from residential consumers regarding various competitive suppliers. Due to the high number of complaints from consumers, the AGO is concerned that the market as a whole might not be operating as intended by the Legislature.' Customer complaints to the AGO are a serious matter and should be examined and resolved. However, the number of complaints should be put in perspective in terms of the market as a whole. According to the AGO Report, approximately 490 thousand residential customers participate in the retail supplier market in Massachusetts and another 450 thousand participate in municipal aggregation. If all 700 complaints to the AGO occurred in just one of the four years and came from non-Municipal Aggregation customers exclusively, the complaint rate for that year would be 0.143%, meaning that 99.857% of customers participating in retail choice were happy with supplier service. If the 700 complaints were spread out over four years the complaint rate would be even lower," the RESA report said

Link to RESA report

The AG opposed an "incremental" approach to issues in the retail market, telling lawmakers that, "the problem here isn’t limited to a few bad actors."

ADVERTISEMENT
NEW Jobs on RetailEnergyJobs.com:
• NEW! --Director - Sales Management & Strategy -- Retail Supplier
• NEW! -- Operations Analyst -- Retail Supplier
• NEW! -- Sr. Business Development Manager -- Retail Supplier
• NEW! -- Sales Support Specialist -- Retail Supplier
• NEW! -- Natural Gas Operations Manager -- Retail Supplier
• NEW! -- Energy Consultant
• NEW! -- Director, Retail Energy Supply & Pricing -- Retail Supplier -- Houston
• NEW! -- Sales and Channel Partner Manager -- Retail Supplier