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Direct Energy Raises Potential Low-Income Customer Aggregation As Solution To Mass. AG's Concerns

Suggests Alternative Provider Of Default Service, Citing Statute

Recommends Creation Of Massachusetts Electricity Market Improvement

Favors Task Force To Improve Billing Paradigm, Says Supplier Consolidated Billing Is Best Outcome

Proposes Additional Financial Assurance Requirements For Suppliers Engaged In Door-to-Door Marketing

March 11, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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

In comments to the Massachusetts DPU, Direct Energy suggested that a DPU-administered aggregation of low-income customers could address concerns raised by the Massachusetts Attorney General about service to low-income customers in the retail electric market.

Direct Energy's comments came in a DPU investigation reviewing the retail energy market and various customer protections, the opening of which had been first reported by (see story here).

Direct Energy said in its comments that, "The Department and the Attorney General have expressed concern that low-income customers are perhaps being charged rates that are higher than the rates charged to other customers. One possible solution to this issue is for the Department to sanction and oversee an aggregation for low-income customers. The aggregation would be similar to the municipal aggregations that have been executed in the Commonwealth, but the defining characteristic of this aggregation would be the low-income designation rather than a political or geographic boundary. The Department would have many options at its disposal to execute the aggregation, but one would be almost like a call option. The Department could work with a supplier or suppliers to prepare the aggregation of customers to be switched to a retail supplier. The retail supplier would not execute the switch transactions until it could guarantee that it would match or beat the utility's standard offer rate. The aggregations could be a series of short-term contracts with the customers, or if the Department chose, it could be a longer-term, fixed price that might vary from the standard offer rate over time. The renewal process could also be overseen by the Department, ensuring protections for the low-income group."

Direct Energy also said that, "Direct Energy believes that instituting monitoring of the market in some form in order to ensure that low-income customers are not treated unfairly should be one of the first priorities of a newly-established MEMIT [a proposed collaborative process discussed further below]."

"Additionally, Direct Energy supports the notion of enhanced penalties for violations of Department rules when those violations are committed against customers identified as low-income customers, if supported by the available evidence," Direct Energy said

Direct Energy also suggested the selection of an alternative default service provider as removing a barrier to effective competition

Direct Energy noted that, "Under the MA Restructuring Act, standard offer service could be offered by an entity other than the incumbent utility. The Restructuring Act states that the '[D]epartment may authorize an alternate generation company or supplier to provide default service, as described herein, if such alternate service is in the public interest. In implementing the provisions of this section, the department shall ensure universal service for all ratepayers and sufficient funding to meet the need therefor.' G.L. c. 164 sec. 1B(d)." [emphasis by Direct omitted]

"The implementation of a non-utility default service provider will likely resolve many of the market issues that are present today. At a minimum, it would eliminate the cross-subsidization issue addressed in sub-section 5 of this answer. By definition, if a non-utility company was the standard offer service provider, it would not have the resources of the distribution business to subsidize it so it would be competitively priced. A non-utility standard offer service provider could also become the common billing entity for electric supply and delivery, further allowing the utilities to focus on their core operations of transmission and distribution. The Department should consider moving toward that model and perhaps open a new docket that would formally investigate the potential consumer benefits and alternative business models associated with moving that service away from the utility. A thorough review of this alternative would allow the Department to fairly evaluate and consider which entity would be better equipped to offer a more competitively-priced service- a fully allocated utility or an alternative non-utility provider. Many studies performed over the years have shown that competitive entities are able to provide services more efficiently than regulated utilities," Direct Energy said

Direct Energy suggested the creation of a collaborative working group process, the Massachusetts Electricity Market Improvement Team, to address many of the issues raised by the DPU in its notice of inquiry.

"Direct Energy recommending that it may be more appropriate to move the issue to a working group or groups, and have the working groups generate productive solutions that will address known or proven market shortcomings. As such, Direct Energy respectfully requests that the Department convene a standing collaborative working group that will be capable of addressing some of the more challenging questions presented below. For ease of communicating this concept in this document, the group will be referred to at the Massachusetts Electricity Market Improvement Team or 'MEMIT'. The MEMIT should be empowered to address and advise the Department of some of the more technical implications associated with the concepts presented in the Department's Comment Request and that are certain to arise moving forward even as some of the tools envisioned in these questions are implemented," Direct Energy said

"Implementing the MEMIT is not intended to delay implementation of any tools that might be needed for the Department to oversee the retail electricity market. Rather, it is intended to ensure that the Department is collecting the right data, looking at the right information, analyzing it in an appropriate context, developing more informed decisions and implementing more effective tools over time," Direct Energy said

Direct Energy further recommended a specific "task force" to address the billing paradigm for the retail market

"In response to the Department's questions regarding the revision of utility billing for suppliers' services, Direct Energy recommends that a separate task force be convened to specifically address the changes that are needed to the current billing paradigm. For a variety of reasons, the current system is not working, and many creative options are available that would enable a robust, customer-focused, and educational electricity invoice. Such a consumer invoice would enable many more advanced retail products and services, but unfortunately, is not practically available for residential consumers today," Direct Energy said

"The best billing outcome for improving customer awareness of competitive suppliers and competitive supply options would be the implementation of Supplier Consolidated Billing ('SCB'). SCB offers many consumer benefits and is more consistent with how a productive combination of product suppliers and transportation suppliers co-exist. UPS, for example, won't send you a bill from a department store, but it makes infinite sense for the department store to charge you for transportation and shipping. Direct Energy fully understands that a move to SCB would require a legislative change and is outside the scope of this docket. However, SCB is the optimum end-state for the most effective and efficient electricity market where suppliers can develop, sell and appropriately invoice customers for, and educate customers about, advanced energy products," Direct Energy said

"Moving forward, the Department should consider billing from the customer's perspective as an engaged energy consumer and not from the perspective of a 'ratepayer' or of the utility. The bill should emphasize what is important to the customers. It should focus on product attributes, energy efficiency attributes, renewable attributes, budget attributes, frequent flyer miles or whatever other concerns the customer has. Items like regulated distribution rates and riders that go out to the fifth decimal place and are not manageable, arcane industry jargon and other items historically placed on electricity bills are not of great interest to the customer. The consumer needs and wants to be made aware of things that can be impacted. Like an invoice from, the detail is in the products and product attributes. The transportation/shipping charge is a line item," Direct Energy said

"The type of billing arrangement discussed in this question warrants further and comprehensive stakeholder discussion. In a perfect non-SCB world, the billing host would present all of the suppliers' products on the bill in the exact format that the supplier would put them on their own hypothetical SCB bill. That would require the utility to be able to invoice for multiple products from multiple suppliers in a manner that wouldn't further confuse the consumers," Direct Energy said

"The billing host could be the incumbent utility. Alternatively, similar to the website concept discussed above, the billing function could be outsourced. There is no fundamental reason why the utility is in the billing service business. Billing services are not in any way a monopoly function. Outsourced utility billing could still fall under the purview of the Department and the Department could regulate the distribution bill format, the bits of information from the distribution company that are required on the bill, and other bill aspects. The independent billing entity could also be required to submit supplier bills in the same envelope and the Department could mandate that certain bits of information be included on those invoices. Beyond that, however, the suppliers could coordinate with the billing host to design and deliver an invoice that would mirror exactly what the suppliers hypothetical SCB would look like. The billing host could be a for-profit entity and would be paid independently by the utilities and by the suppliers. If the billing host was the utility, it should be required to offer billing flexibility, within the bounds of what is technically feasible, not within the bounds of what its current billing system can offer," Direct Energy said

"Obviously, there are many other issues that would need to be discussed and resolved before the Department can issue meaningful requirements for comprehensive billing. Direct Energy urges the Department to convene a task force that is specifically challenged with addressing the myriad of billing issues associated with this question. This task force should be commissioned with defined mandates and deadlines that are solely focused on alternative billing solutions. This task force, which should be separate and distinct from the MEMIT collaborative, should be required to report back to the Department with its findings and recommendations not longer than one year after it is convened," Direct Energy said

Direct Energy also favored an increased financial assurance requirement for suppliers engaged in door-to-door marketing

While Direct Energy cautioned against regulations that will not lead to market improvements, Direct Energy said, "because Direct Energy firmly believes that the market participants should be acting in an ethical manner, it is supportive of imposing an increased financial assurance requirement on companies engaged in door-to-door marketing. But before imposing the requirement, the Department should move this issue to the MEMIT collaborative to discuss important areas such as the appropriate level of assurance and the violations that would lead to forfeiture of the assurance and the burden of proof that a violation occurred."

D.P.U. 19-07

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