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Report: Low-Income Customers On Competitive Supply At Utility Paid 108% More Than Default Service

Regulator's Staff Proposes Product, Rate Increase Limitations; Auto-Renewal Rules


December 15, 2020

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Copyright 2010-20 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

The aggregate cost to low-income natural gas customers on competitive supply at National Grid Gas in Massachusetts was 108% higher than the default service cost, according to a filed presentation from Massachusetts DPU Staff.

DPU Staff's presentation, to be discussed at a December 16 technical session, includes Staff recommendations for product limits and other requirements for suppliers, discussed further below

For electricity, the statewide incremental cost above basic service in 2019 for low-income customers on competitive supply was $17.7 million, with the aggregate competitive supply cost being 29% higher than the basic service cost (or about $12 per month), as shown below:

As shown below, 55% of one retail electric supplier's residential customer base consisted of low-income customers. Low-income customers constitute 9% to 20% of a utility's residential customer base, depending on service area.

For natural gas, at National Grid Gas, the incremental cost above default service in 2019 for low-income customers on competitive supply was $2.7 million, with the aggregate competitive supply cost being 108% higher than the default service cost (or about $30 per month). For natural gas, at Nstar Gas, the incremental cost above default service in 2019 for low-income customers on competitive supply was $900,000, with the aggregate competitive supply cost being 70% higher than the default service cost (or about $22 per month), as shown below:

Staff's presentation includes proposals to address these findings and other issues. Staff stressed that the proposals are those of Department Staff alone, and that the proposals do not represent the official view of the Department on these issues

Furthermore, Staff said that the proposals are intended solely to facilitate robust discussion during this technical session, to allow Staff to determine the most effective and efficient next steps in this phase of the retail market investigation

As such, the proposals should be viewed as "directional", rather than "definitive"

Additionally, Staff said that certain proposals, such as product limitations, may be necessary due to the "immature" nature of the market, but may no longer be necessary if customers were better informed and educated about the competitive market.

"Department staff seeks to work with stakeholders to develop product limitations that do not intrude on suppliers’ reasonable business practices, while providing consumers with protection against unreasonable practices," Staff said

As such, "A recurring theme in [Staff's proposals] is the issue of whether the consumer protections that product limitations would provide could be achieved equally by increased reporting requirements that would assist the Department in identifying suppliers whose 'performance' may warrant further scrutiny."

With respect to Staff's specific proposals, Staff said that the low-income (LI) cost data noted above, "raise significant concern regarding the manner in which the competitive market serves LI customers."

Staff proposes two options to address concerns about low income customers.

Under one option, Staff proposed to establish a product limitation akin to that proposed by Staff during stakeholder process. As first reported by EnergyChoiceMatters.com, Staff proposed that the price to a low-income customer may not exceed the default service rate.

Alternatively, Staff proposed requiring that all suppliers report pricing information on low-income products to assist the Department in identifying suppliers whose "performance" may warrant further scrutiny. Staff suggested that such suppliers may be subject to information/notification requirements (e.g. providing LI customers with information regarding the "premium" they are paying vis-à-vis basic service)

Staff also addressed concerns with variable rate products, regardless of the customer's income level

In terms of variable rate product limitations, Staff proposed two options.

Under Staff's first option, a variable rate may not exceed an established product limitation, such as a to-be-determined percent from the previous month.

Alternatively, Staff proposed requiring all suppliers to report pricing information on monthly price products to assist the Department in identifying suppliers whose "performance" may warrant further scrutiny. Such suppliers may be subject to information/notification requirements (e.g. provide monthly-price customers with information regarding the premium that they are paying vis-à-vis basic service)

Staff also proposed notice requirements for variable rate products.

Staff proposed that suppliers be required to provide notification to customers whenever price increases from one month to the next. This would apply equally to 'tiered' fixed-price products

Staff proposed that uniform requirements be established for suppliers regarding: (i) the timing of posting of upcoming monthly price, and (ii) the vehicle(s) through which these prices will be made available to customers

Staff also proposed rules governing automatic renewals, applicable to products whose original term had a fixed price of at least 6 months

Staff's auto-renewal proposal includes three components:

1. Terms and conditions of new product must remain unchanged from initial product, except as specified (customer has given affirmative authorization for specified terms and conditions; Staff said that it is not intuitive that customer seeks/agrees to changes)

• Price structure (fixed-price products can automatically renew only to new fixed-price products)

• Price components (cents per kWh/therm; monthly charge)

• Term

• Renewable content

2. No early cancellation fee, regardless of whether initial product included such a fee

3a. Pricing Limitations (2 options):

i. (a) new price cannot increase by greater than [to be determined]% from the existing price (applies to each price component); and (b) contract can only be automatically renewed once; OR

ii. New price cannot exceed 'best available' product price by greater than [to be determined]%

- OR -

3b. Reporting requirements

• Require all suppliers to report pricing information on automatic renewal products to assist the Department in identifying suppliers whose “performance” may warrant further scrutiny/additional notification requirements

Staff also addressed enroll-by-wallet proposals

Staff noted that the current requirement for a customer account number for an enrollment, "seems to 'force' suppliers to rely heavily on door-to-door ('D2D') and telemarketing to enroll customers."

These marketing channels, from Staff’s perspective, "tend to lend themselves to aggressive/deceptive marketing practices," Staff said

Department Staff seeks an approach that reduces the necessity of using these marketing channels, and allows suppliers to market their products in public settings ( e.g. kiosks)

Setting forth its guiding principles on enrollment information, Staff said that suppliers should be allowed to enroll customers with personal information that is well- known by the customer, but not others

However, "Improvements in market efficiency cannot be achieved at the expense of consumer protections against slamming," Staff cautioned

"One outcome that these principles would preclude is allowing successful enrollments to be based on information that is included in the distribution companies’ Customer Information Lists," Staff said

As previously reported, the DPU is seeking to expand the role of third-party verification (TPV) in ways that would protect customers from purchasing supply products about which they are insufficiently informed. As exclusively first reported by EnergyChoiceMatters.com, Staff has proposed a more "interactive" TPV process which would require customers to accurately state information included on the Contract Summary Form as a condition for successful enrollment (rather than just answering 'yes')

The December 16 technical session will further discuss this issue

Docket 19-07

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