We all know the price-lowering power of competition — or at least we think we do.
But we also know — or think we do — that competition hasn’t worked when it comes to the provision of electricity to Massachusetts residents.
In May, the state attorney general’s office released a report concluding that from 2015 to 2021, Massachusetts customers who bought through electricity retailers paid $525 million more for power than utilities would have charged them.
That has led Attorney General Andrea Campbell and Governor Maura Healey to call for ending the state’s residential retail market.
Yet when I sat down recently with two sector advocates, I was impressed by the picture they painted of the promise of a properly monitored consumer-choice program.
Abby Foster, vice president for policy at the trade association Retail Energy Advancement League, and John Hanger, a consultant who previously served in top regulatory and policy-making positions under three governors in Pennsylvania, argued that depriving residential customers of the power to buy their power on the retail market, rather than from regulated utilities, would be an overreaction to problems that can be solved other ways.
The duo noted that some of the benefits of consumer choice are ignored by studies that evaluate efficacy simply based on price. If, for example, a climate-concerned customer wants to purchase 100 percent renewable electricity, even at a premium, retail plans provide that option — and any premium they pay helps develop the climate-friendly energy sector. That’s all the more important because much of Massachusetts’ electricity is generated by burning natural gas.
Market competition has also started to flip the switch on innovation, Foster argued, noting that some customers in Massachusetts have plans that offer free chargers for electric vehicles and free charging itself, if it’s done during periods of lower electrical demand, such as nights and weekends.
Residential retail electricity plans are helping prompt a power-usage shift. Think: doing your laundry and running your dishwasher early or late in the day to take advantage of cheaper rates. In other states and in Europe, demand-response plans actually notify customers of specific peak-demand periods when they can save money by dialing back usage.
Despite the AG’s finding on higher prices here, there’s some evidence that a well-functioning residential retail market can lead to significant savings.
For starters, the fact that business and commercial customers have taken broad advantage of retail plans shows that the private sector sees it as providing bargains, Hanger noted.
As you’d expect, REAL has a report of its own, done by former Massachusetts Department of Public Utilities commissioner Paul Hibbard, a policy analyst REAL hired to study the retail market. Hibbard looked closely at Texas and Pennsylvania, both of which have robust retail-electricity markets.
In the Lone Star State, the kilowatt-hour cost was initially higher in retail areas, but over time the price gap has disappeared. Further, when the infamous winter storms of 2021 wrought havoc on the state and sent power prices soaring, the 75 percent of retail customers who had chosen fixed-price contracts for their power on the retail market “had an average electricity bill of $86 per month” compared to an average bill of about $373 per month for non-retail customers.
In the Keystone State, prior to electricity choice, the generation cost of electricity was 15 percent higher than the national average, but 20 years on, it is now an electron or two — 0.1 percent — below the national mean. Hanger noted that in the Philadelphia residential market, the price for power is, on an inflation-adjusted basis, about half what it was two decades ago.
“Lots of places can do that with a properly structured market,” he said.
So how to make our program better?
One key: better enforcement of existing laws, including banishing the rascals, rogues, and reprobates peddling power at rip-off rates. Hanger said he was stunned to learn that Massachusetts has never taken the license to operate away from a single supplier.
Further, Foster said, Massachusetts doesn’t have any prohibitions on marketing plans to low-income households, often the target of scam artists.
Along with other reforms, state Representative Tackey Chan, Democrat of Quincy, has proposed an office of competitive-market oversight within the Department of Public Utilities, paid for by the retail electricity suppliers. The state also needs a better effort to educate consumers, and customers should be able to switch plans within a couple of days.
By now your circuits are probably overloaded. Mine certainly were.
But overall, I thought Foster and Hanger made a good case.
Rather than nix the state program, let’s first try to fix it.