Don’t end competitive electricity market

Despite Healey concerns, consumers have benefited

IN 1998, MASSACHUSETTS made the groundbreaking decision to deregulated the electricity industry – declaring for themselves that they should have the right to choose their electric supplier. Now, more than two decades later, despite the will of the voters declared all those years ago, legislation has been proposed aimed at putting an end to the competitive electric supply industry. The Retail Energy Supply Association (RESA) vehemently disagrees with such a measure. While these legislative changes may be presented as a means of helping families, they would ultimately hurt the Bay State by stripping away the rights of residential customers – their right to choose, their right to convenience, and their right to benefit from the very latest in innovation.

 Competition and choice breed innovation. Remember having to pay for a long-distance call or leasing a phone owned by the local Bell company? For decades, the Bell System, or Ma Bell, owned the monopoly on phone service. That is, until the early 1980s, when a federal court stepped in and ordered its dissolution. The breakup helped spark a burst of innovation that ultimately created the smartphone on which you may be reading this.

Remember having to make a call on a phone tethered to the wall? By ending the retail electric supply industry and sending consumers back to utility monopoly, this legislation would essentially tether you back to the wall.

Today, in a competitive marketplace, if consumers are unsatisfied with the service they receive from a business — a plumber or electrician, for example — the solution is not to ban all plumbers and electricians. The solution is not to eliminate choice altogether. The solution, simply put, is to allow consumers to make a different choice.  Ending the competitive electric supply market for individual residential consumers, as proposed in the Massachusetts Legislature, would do just the opposite, however.  It would take away the right for consumers to choose.

 In March 2018, Attorney General Maura Healey issued a report titled, “Are Consumers Benefiting from Competition?” The report raised questions about the success of the competitive marketplace for consumers and paints an inaccurate picture of the goals and practices of energy supply marketers. Despite the statements she has made publicly, the short answer is, yes.

Even more troubling, RESA’s own analysis of the attorney general’s study, conducted by Intelometry, Inc., a retail energy systems and data provider that specializes in retail energy markets and operations, discovered several fundamental concerns in the attorney general’s office’s approach.

According to RESA’s Intelometry analysis, the attorney general’s report:

  • Ignores the pitfalls of basic service rates;
  • Draws inappropriate comparisons between retail supply products and basic service rates;
  • And discounts the basic idea of why customers choose one product over another.

Further, the attorney general’s report ignores the fact that banning the retail electric supply industry would not only leave residential customers stranded on utility monopoly supply service, it would rob them of the benefits and value not readily provided through traditional utility regulation. These benefits include:

The setting of efficient market-based prices

An additional analysis conducted by Intelometry, Inc. reveals that retail electric supply companies routinely offer dozens of rates below the Massachusetts basic service price. In all, the analysis found that retail electric suppliers could have saved Massachusetts consumers more than $196 million in 2018, when compared to utility-offered basic service.

This is because, unlike Massachusetts utilities whose rates can change massively from one basic service price period to the next, retail suppliers are able to offer many different types of products to residential consumers that incorporate varying contract lengths that extend beyond the utility’s 6-month basic service term. Those seeking budget certainty can opt for a multi-year term of service – a 12-, 18-, 24- or even a 36-month fixed price product.

Further, data from the US Energy Information Administration shows that, in Massachusetts from 2008 to 2017 on an inflation-adjusted basis, electricity prices for all sectors have decreased by 11.2 percent. Over that same period, electricity prices in monopoly states (those without retail choice), have increased by 6 percent.

 The development of innovative products and services

Suppliers are constantly innovating and developing value-added products and services to differentiate themselves from competitors. From smart thermostats and other incentives such as gift cards and loyalty rewards, suppliers offer customers a range of products to choose from that meet their individual needs.

 The ability to meet clean energy policy objectives

According to a 2018 Consumer Reports/Consumers Union Survey, 76 percent of Americans support increased use of renewable energy, such as solar and wind. Sales of renewable energy in competitive markets have also doubled in just the last five years.

The ability to efficiently meet clean energy objectives is among the most important of the value-added products retail electric suppliers offer. Whether it be a product that enhances in-home energy efficiency and savings, or one that allows for the purchase of a renewable or green energy product, consumers can express their environmental preferences through their electricity purchase.

As with any industry, we know that additional consumer protections may be appropriate and warrant revisiting from time to time to ensure best practices are followed. RESA commends the Massachusetts Department of Public Utilities for taking the appropriate action of thoroughly investigating the current residential competitive supply marketplace and has welcomed the opportunity to provide the DPU with insight into ways to promote and protect consumers’ interests, while enhancing the market for the benefit of all stakeholders.

Meet the Author

Daniel Allegretti

Consultant/Spokesman, Sigma Consulants/Retail Energy Supply Association
RESA is dedicated to protecting consumers and maintaining a sustainable competitive market, while preserving all consumers’ right to choose their supplier. Because experience shows that retail competition provides consumers with better value and increased innovation, RESA urges lawmakers and stakeholders to remember the lessons of monopolies past and allow Massachusetts consumers to remain untethered from the utility monopoly. It’s not only what Massachusetts consumers want and voted for, it’s what they deserve.

Dan Allegretti is a consultant with Sigma Consultants who wrote this op-ed on behalf of the Retail Energy Supply Association.