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New Report On Benefits Of Retail Choice Says Consumer Protections Undertaken To Date Should Be A, "Starting Point"; Favors "Aggressive" Steps For Consumer Protection The following story is brought free of charge to readers by VertexOne, the exclusive EDI provider of EnergyChoiceMatters.com
The Retail Energy Advancement League (REAL) publicized a new report, prepared by a consulting firm and authored by Paul Hibbard, former chairman of the Massachusetts Department of Public Utilities, which finds that, among other things, "harnessing the productive innovation and creativity of retail supply -- which is
already evident in the products that suppliers have brought to market -- will be a powerful tool in the
toolbelt states will need if they are to successfully achieve aggressive decarbonization goals while
managing the challenges of an industry undergoing rapid change in both supply and demand."
"While this is a relatively new challenge, the retail market has already demonstrated its ability to react in
concert with public policy goals. Across the U.S. suppliers have developed and sold product offerings
that accelerate low/zero carbon options; enable price responsive demand; help manage new loads with
vehicle electrification; help smooth load growth that will come with building electrification; and help
manage reliability challenges associated with the increasing variability of supply and demand. These are
challenges states will face at an increasing pace in the coming years, and retail supply can be a vital
piece of the decarbonization puzzle," the report states
REAL summarized the report as finding that, "consumers in states with restructured energy markets are better off than states still holding onto the monopoly utility model. States that allow competition are also better positioned to support the transition to clean energy, consumer adoption of electric vehicles, and reduce carbon emissions without relying on ratepayer or taxpayer dollars."
"Report findings demonstrate that retail energy choice has substantially increased the options available to consumers for the purchase of electricity, played a critical role in the development of clean energy resources, created and marketed a wide range of products that are designed to meet consumers' energy cost management and non-price preferences, and creates the conditions to lower all energy costs in the state market over time," REAL said
The report notes that, "retail supplier marketing methods have raised a number of concerns amount states
and consumer advocates."
"While retail supply is not the only industry or consumer product where some participants engage in
questionable or harmful sales and marketing activities, particular attention should be focused on their
prevalence with respect to the cost and delivery of a product as vitally important as electricity for
customers’ health and welfare. There are at least three reasons why deceptive, misleading and harmful
sales and marketing practices in retail electricity supply warrants heighted [sic] attention, strict licensing
requirements and compliance oversight, and consequential penalty systems. First, electricity is a basic
need, and energy costs are a non-discretionary expense, one that represents a disproportionately high
portion of the income of low and moderate income consumers. Second, until retail choice is as ubiquitous
as cell phone use and cell phone plans, electricity billing in general and retail electricity choice in
particular is confusing, and highly vulnerable to the development and use of manipulative marketing information and practices. Third, there is much to lose from consumer and societal perspectives if the
misleading, deceptive, and harmful practices of some retail suppliers are allowed to poison the water for
all, resulting in the severe curtailing or elimination of retail choice," the report states
"If retail supply is to continue and play an important role in the energy transition, the consumer protection
steps taken to date by states should be viewed as just a starting point. State regulators and consumer
advocates, utilities, and the retail supplier community should work together and take aggressive steps to
ensure that consumer protection and appropriate customer service become a defining feature of retail
supply, not its Achilles heel, while letting retail supply thrive," the report states
While the report does not offer specific recommendations on consumer protections, the report chronicles actions taken to date as including the following: "States have taken notice and have enacted multiple strategies to protect consumers and make sure that
any deceptive, misleading or harmful marketing and sales strategies are minimized or eliminated, and to
provide regulators tools to take action against bad actors. For example, some states have prohibited
service to ratepayers on energy assistance programs or required regular reports on numbers of such
customers served by competitive suppliers. In 2016, the New York Public Service Commission issued an
order prohibiting service to low-income customers by competitive suppliers. States can also implement a
'do not switch' option for consumers to block their accounts from unauthorized switching from basic
service."
"Optionality for customers can strongly support
consumer protection. If a customer finds that a service or product falls short of expectations, they
can select an alternative supplier. However, some states have logged diverse and multiple
complaints regarding the marketing approaches and strategies of some retail supply companies.
This is one of the most controversial and challenging elements of retail choice to date. While retail
supply is not the only industry or consumer product where some participants engage in
questionable or harmful sales and marketing activities, particular attention should be focused on
this issue since electricity is a basic need. Successful retail suppliers recognize that providing
quality service and continuously improving product offerings is a fundamental requirement to gain
the trust of customers and thereby gain market share. But state rules and regulations must
evolve to better protect consumers against deceptive advertising and inappropriate marketing
practices, and put in place robust requirements for licensed suppliers and consequential penalties
for bad actors," the report states
The report cautions against ending retail choice
"Retail choice was initiated with supplier licensing
rules and regulatory oversight that were in hindsight too light in many states, opening the door to bad
actors, deceptive practices, and bad outcomes. But it would be imprudent to eliminate retail choice at this
time because of these experiences. Instead, this can and must be improved both (a) to prevent harm to
consumers and establish customer service expectations and obligations that align with the importance of
a market that delivers an essential good, and (b) to allow retail choice to continue to evolve. Many states
have already reacted with revisions to strengthen consumer protection, marketing/advertising, and
customer service requirements on retail suppliers, and these changes appear to work. These moves are
appropriate, replicable in other states, and fully aligned with the consumer protection roles of state public
utility commissions. In short, the bad experiences some states have had with the actions and predatory
practices of some retail suppliers can be effectively ironed out of the framework for retail choice with
relatively straightforward changes to the regulatory construct.," the report states
"Doing away with retail choice as a response to challenges is akin to throwing out the baby with the bath
water; there are too many current and potential consumer and societal benefits to flow from healthy retail
choice markets for this to be the outcome of isolated practices in a nascent market. U.S. experiences
have shown that proper assessment of the impact of retail competition requires a holistic review of at
least the following metrics: (1) competition, (2) energy market evolution and state climate goals (3)
consumer control, engagement and preferences, (4) long-run consumer costs, (5) education and
transparency, and (6) customer service and consumer protection," the report states
The report finds retail choice bringing benefits in the areas of (1) competition, (2) energy market evolution and state climate goals, (3)
consumer control, engagement and preferences, (4) long-run consumer costs, (5) education and
transparency, and (6) customer service and consumer protection.
Specifically, with respect to long-run consumer costs, the report states, "Competition for the provision of electricity creates the conditions to
lower all customers’ costs over time. Evidence from a review of statewide data supports the idea
that retail choice can and does deliver long-run cost-reduction benefits in the retail supply of
electricity for all customers. Moreover, while a review of the literature focused on the price-only
impacts of retail choice reveals a range of methodological challenges, it also supports the idea
that all classes of consumers – commercial, industrial and residential – have benefitted from retail
choice."
Citing prior analyses, the report notes that, in aggregate, retail choice customers fared better during winter storm Uri than muni and co-ops in Texas
"Retail choice played a critically important role in the Texas crisis from the perspective of retail consumers.
While disastrous at the wholesale level, the majority of residential customers in the retail market in Texas
were shielded from the impacts of price volatility in the wholesale market. Specifically, approximately 75
percent of retail residential customers in Texas had chosen and were under fixed price retail electricity
supply contracts, which successfully shielded them from the extreme price volatility that resulted from the
storm and subsequent events. Of the remaining 25 percent, roughly 24 percent were on variable rate
plans and only less than 0.5 percent of residential customers were on wholesale index pricing plans. Thus
the severe volatility in the wholesale market affected only a minority of residential retail electricity
customers [sic][.] In the aftermath of the energy crisis, analyses determined that customers with access to retail choice
incurred a lower average cost per residential customer compared to their non-retail choice counterparts.
A residential customer with access to retail choice had an average electricity bill of $86 per month
whereas a customer served by an muni or co-op had an average electricity bill of $373 per month."
"These outcomes illustrate how retail choice benefitted the majority of residential customers in Texas
during and after the crisis by providing opportunities to select fixed-price, or price-stable, rate plans. The
2021 energy crisis may highlight significant risks associated with operation of power systems and
wholesale electricity markets during times of severe weather or other episodic events, and raise important
issues related to coordination of natural gas and electricity systems, and investment in energy
infrastructure winterization. But the experience in Texas during the crisis is unrelated to the existence of
robust retail competition in the state. To the contrary, it appears that the availability of diverse products
and pricing plans due to retail choice if anything mitigated the impacts of the Winter Storm Uri electricity
crisis on retail customers," the report said
Addressing other comparisons concerning prices under retail choice, the report said, "price analyses related to retail choice universally suffer from a range of flaws that
reduce the value of their results in assessing whether and to what extent retail choice will provide long-run
cost benefits to consumers. They tend to compare results across time periods that are too short,
across electricity products that are diverse in pricing structure, contract term, and value-added options,
and across incomparable time periods or geographies."
Other recommendations from the report include, but are not limited to, the following:
• "[S]tates, utilities, and retail suppliers need to double down on efforts to increase consumer
education and establish familiarity with retail choice. Competition thrives with active, growing and
informed consumer demand. Efforts to-date in most states to inform consumers about the availability and
details associated with choosing one’s electricity supplier have not been adequate to the task. Texas
provides a solid benchmark in this respect – choice was not optional from the get-go, and consumers are
now familiar with electricity choice and fully comfortable with choosing (and re-choosing) suppliers"
• "[W]ith strong consumer protection rules in place, consider active steps to level the playing field
between distribution utilities providing default service, community aggregators, and retail
suppliers. The principle of competitive retail supply is that a vibrant competitive market of suppliers will
drive prices down and maximize the benefits to consumers of electricity purchase decisions. But the flip
side of this coin is that the market needs to be truly fair and level across suppliers. In many states, this
simply is not the case as incumbent utilities have primary or exclusive access to customer data and billing
administration, and these frustrate the purpose and conditions of competition. Some states have taken
effective steps to level the playing field – by allowing supplier confidential access to customer data, and
by allowing the customer-selected supplier the opportunity to be the point of contact with the customer
through billing administration. States should work with stakeholders to develop acceptable and effective
steps to level the competitive playing field."
"We stand ready to work with regulators on implementing the proposed reforms outlined in the report," said Chris Ercoli, President and CEO of REAL. "By prioritizing consumer education initiatives, creating a fair environment for competition, and ensuring fundamental consumer protections in place, restructured states can unlock the full potential of competitive retail energy markets and foster a more transparent, inclusive, and sustainable energy landscape."
See the report here
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REAL Says Report "Finds Retail Energy Key To An Affordable Clean Energy Transition"
July 17, 2023
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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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