ELECTRIC DEREGULATION: A
LOOK AT THE RETAIL MARKET
FOR RESIDENTIAL CUSTOMERS
Barbara R. Alexander
Consumer Affairs Consultant
83 Wedgewood Dr.
Winthrop, Maine 04364
(207)395-4143
E-mail: barbalex@ctel.net
NASUCA June 2013
1
DUAL RETAIL MODELS FOR
ELECTRICITY
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Approximately 15 states adopted electric
restructuring and enabled retail competition for the
generation or supply portion of the customer bill
 Distribution or delivery services regulated as
monopoly with traditional rate cases: poles
and wires; customer service
 Generation supply is not owned by the utility;
prices set through contracts purchased in the
wholesale market through regional
organizations regulated by FERC
Other states have retained their full “cost of
service” regulation of utility generation as well as
distribution services
NASUCA June 2013
2
CRUCIAL IMPORTANCE OF DEFAULT
SERVICE IN RETAIL COMPETITION
STATES
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MANY NAMES: DEFAULT SERVICE,
STANDARD OFFER, PROVIDER OF LAST
RESORT
MANY FUNCTIONS
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SUPPLIER DEFAULTS
CUSTOMER DEFAULTS
CHOOSE NOT TO CHOOSE: LARGEST GROUP
PURPOSE OF SERVICE IS KEY TO ITS
PRICING
KEY LINK TO UNIVERSAL SERVICE AND
AFFORDABILITY CONCERNS
NO DEFAULT SERVICE IN TEXAS
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3
Pressure to adopt short-term
procurement for default electricity
supply service
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Regulators equate short term wholesale market
prices as the only measure of “competitive”
service
Marketers want “ugly” default service to drive
customers in their arms and “create” competition
Utility management is risk adverse
Policy preference for time-varying rates with
advent of advanced metering—reflection of
wholesale market short-term prices
Examples:
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NASUCA June 2013
Pennsylvania PUC has proposed “end state” with 100%
procurement of default service quarterly by utilities
Connecticut Governor has proposed to auction off default
service customers to retail suppliers for $80 M budget
revenues
Ohio PUC has approved retail auctions for natural gas
service to eliminate distribution company role in default
service
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WHAT DO CUSTOMERS WANT?
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Surveys conducted by AARP in
Connecticut and Pennsylvania and
in Maine by PUC clearly document
that vast majority of residential
customers want stable electricity
rates and want the utility role in
default service to continue
While customers value competition,
they want to see savings of 10% or
more compared to default service
NASUCA June 2013
5
MANDATES RESULT IN SURCHARGES
AND FEES ATTACHED TO DISTRIBUTION
SERVICE FOR SUPPLY SIDE PURPOSES
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Efficiency Mandates
Renewable Energy Mandates: require
distribution utilities to sign long term
contracts for off shore wind projects
Smart Grid surcharges to pay for metering
that enables time-varying rates designed to
lower peak energy usage and prices for
supply service
Decoupling rate adjustments
RESULT: CUSTOMERS IN DEREGULATED
STATES SUBSIDIZE PROGRAMS TARGETED
TO SUPPLY SIDE OF THE BILL
NASUCA June 2013
6
COSTS TO IMPLEMENT RETAIL
COMPETITION
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Distribution Utilities have incurred
costs that are passed on to
distribution customers:
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Billing enhancements
Electronic Data Exchange protocols
Customer Education
Complaints and Inquiries
Support of retail market enhancements,
such as Referral Programs
STRANDED COSTS
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RESIDENTIAL SHOPPING:
SIGNIFICANT INCREASE IN SOME
STATES
New York: 22.5%
 Pennsylvania: 30% (PECO); 40% (PPL)
 Maine: 32%
 Connecticut: 44% (CL&P)
 New Jersey: 15%
 Massachusetts: 12.5%
 Maryland: 25% (BGE)
 Ohio: 70% (FirstEnergy); 47% (Duke
Energy) IMPACT OF MUNICIPAL
AGGREGATION
 Illinois: ALMOST ENTIRELY DUE TO
MUNICIPAL AGGREGATION
NASUCA June 2013
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DO CUSTOMERS SAVE MONEY BY
SELECTING ALTERNATIVE SUPPLIER?
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Why don’t the state regulators find
out the answer to this question?
Utilities bill for suppliers and use
their regulated collection methods to
collect supplier charges (Purchase of
Receivables) so data is available.
The publicly available information to
date indicates a disturbing trend.
NASUCA June 2013
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PPL Electric in Pennsylvania
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Over 70% of the low income
customers served by an alternative
supplier were paying more than the
PPL Electric default service price at
the time of the evaluation by an
intervenor in PPL’s default service
proceeding
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Niagara Mohawk in New York
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A study by PULP in a rate case documented that between
August 2010 and July 2012, 84 % of the residential electric
bills and 92 % of the residential gas bills of those who
switched to alternative suppliers were higher than the bills
of those who decided to keep getting their supply from the
utility.
And those statistics translated into huge disparities in
consumer bills. For instance, the data showed that over that
24-month period, those with higher bills paid nearly $500
more for electricity and $260 for natural gas.
Identified low income customers paid a net additional cost
of $13.3 million during this study period compared to
default electricity rates and $5.8 million during this same
period for gas service compared to default natural gas rates.
Only a very small percentage of low income customers paid
lower prices when served by an alternative supplier, 8.5%
of electric customers and 6.6% of natural gas customers.
These savings were modest over the 24-month period,
averaging $40 for electricity and $63 for gas.
NASUCA June 2013
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Illinois CUB’s Gas Market Monitor
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Citizens Utility Board in Illinois publishes an analysis
of how natural gas supplier plans have actually
impacted customer bills since 2003.
94% of the alternative natural gas supplier plans
have resulted in higher prices for residential
customers over the term of these contract terms
compared to default service.
The average customer loss is $1,202.00. This trend
has been evident for many years and for almost all
suppliers.
NASUCA June 2013
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OPAE Analysis in Ohio
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Data submitted by the Ohio Partners for Affordable
Energy in two recent natural gas proceedings in which
the regulatory commission has proposed to eliminate
default service and auction customers off to retail
suppliers also demonstrates that the bulk of
competitive natural gas supplier offers are higher in
price than default service provided by the natural gas
utilities.
At Columbia Gas of Ohio customers purchasing
commodity natural gas from unregulated suppliers
have paid over $861 million since the advent of retail
choice for natural gas service. According to this study,
in the most recent six months for which data is
available, Ohio customers served by marketers have
paid $37 million more than what would have been
charged for default natural gas service, and that figure
does not include any winter heating months.
NASUCA June 2013
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CANADIAN STUDY
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The Office of Auditor General in Ottawa evaluated supplier
offers for electric service. Approximately 15% of
residential customers had selected an alternative supplier,
primarily based on the marketing theme of “price
protection and stability.” Most of these supplier plans are
fixed price for a 4-5 year period.
The Auditor sampled customer bills from 2006 to 2009
from various suppliers and found that the supplier fixed
price ranged from 8.49 cents per kWh to 10.53 cents per
kWh but that during this same period the regulated
default service price was 5.4 cents per kWh to 6.3 cents
per kWh.
The same retail customers paid from 35% to 65% more
for their electricity compared to the highest default
service rate over the term of their contract.
Over the term of a five-year contract (which was typical of
the contracts entered into by residential customers) a
customer using 1,000 kWh per month would pay about
$2,000 more for electricity than under the regulated
default
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RESTRUCTURING STATES HAVE
RETAINED HIGHER PRICES THAN
AVERAGE
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IMPACT OF RESTRUCTURING
AT RETAIL LEVEL
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NATIONAL EIA DATA CONFIRMS
HIGHER PRICES FROM SUPPLIERS
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State
CT
DC
DE
IL
MA
MD
ME
MI
MT
NH
NJ
NY
OH
PA
RI
Competitive Supplier
18.37
12.91
12.78
11.58
16.14
13.44
15.40
13.25
9.84
14.94
16.30
19.27
11.04
13.33
13.96
Full Service Provider
17.92
13.44
13.72
11.79
14.49
13.29
14.47
13.27
9.75
16.52
16.23
18.06
11.57
13.24
14.34
Note: Compiled by John Howat at NCLC; these prices reflect averages of all
suppliers; residential prices only.
NASUCA June 2013
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Consumer Protection Policies:
Retail Suppliers
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State regulators are not doing their job of
regulating the conduct and contract terms of
alternative suppliers
Licensing is designed to make it easy to enter the
market
State regulators don’t have the skill set or the
political will to “regulate” a competitive market
where deceptive practices and unfair contract
terms should be prohibited
Rules fail to address frequent abuses of door to
door and telemarketing sales conduct
Enforcement is lax and important tools such as
license revocation and restitution to affected
customers rarely invoked
NASUCA June 2013
18
FIXED PRICE?
A supplier in PA is offering a long term fixed price contract
with the following:
In addition to the charges described above, if any regional
transmission organization or similar entity, EDC,
governmental entity or agency, NERC and other industry
reliability organization, or court requires a change to the
terms of the Agreement, or imposes upon [SUPPLIER] new or
additional charges or requirements, or a change in the
method or procedure for determining charges or
requirements, relating to your electric supply under this
Agreement (any of the foregoing, a “Pass-Through Event”),
which are not otherwise reimbursed to [SUPPLIER],
Customer agrees that [SUPPLIER] may pass through any
additional cost of such Pass-Through Event, which may be
variable, to Customer. Changes may include, without
limitation, transmission or capacity requirements, new or
modified charges or shopping credits, and other changes to
retail electric customer access programs.
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NASUCA June 2013
19
VARIABLE PRICE?
A Supplier in Ohio is offering a variable rate contract with
the following description of how the price will change
during the contract term:
“Under [SUPPLIER’S] variable price plan, your price may
fluctuate from month to month based on wholesale market
conditions applicable to the Distribution Company’s service
territory.”
 Another Ohio Supplier:
“In a variable-rate model, your supply rate is based on a
variety of factors including our costs to purchase energy,
applicable taxes, fees, charges, costs, expenses and margins
and can change each month.”
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THESE CONTRACTS DO NOT REFLECT ANY EXTERNAL INDEX
OR FORMULA OR CONTAIN A HIGH OR LOW BANDWIDTH
FOR THESE MONTHLY PRICE CHANGES
NASUCA June 2013
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IS THERE ANY GOOD NEWS?
NOT REALLY
 IMPROVED REGULATIONS FOR
DOOR TO DOOR MARKETING IN PA
 APPARENT LEGISLATIVE REJECTION
OF CT PROPOSAL TO AUCTION OFF
CUSTOMERS
 PA LEGISLATION THAT MANDATES
STABLE AND PRUDENT MIX OF
CONTRACTS FOR DEFAULT SERVICE
STILL INTACT
NASUCA June 2013
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