The dark underbelly of retail electricity competition
By Bruce Mohl | Common Wealth
Electricity meter
Giving consumers a choice hasn’t worked out very well
TWENTY-FIVE YEARS ago, Beacon Hill lawmakers dramatically changed the way electricity is bought and sold in Massachusetts. The old way was devoid of competition, with utilities producing and distributing electricity under the supervision of state regulators. The new approach opened the production of electricity to competition while leaving distribution under the purview of regulated utilities.
Consumers also saw their role change in 1998. Instead of merely taking whatever price regulators set for electricity, they were given a choice. They could buy electricity from retail sellers, they could buy from municipal aggregators, or they could do nothing and let their utility purchase electricity on their behalf. Most consumers took the lazy way out and did nothing.
On Monday, key players came together at a legislative hearing on Beacon Hill and concluded that giving consumers the freedom to choose their own electricity supplier has been a disaster. Unfortunately, there was no consensus on what to do about it.
Gov. Maura Healey, Attorney General Andrea Campbell, and Boston Mayor Michelle Wu formed a united front at the hearing, calling on lawmakers to eradicate the retail market for electricity. They accused the retailers of lying, cheating, and using deceptive sales practices to sell homeowners overpriced electricity. The best way to address the problem, they said, is to get rid of the retailers.
“This is not just a few bad apples,” testified Michael Judge, Healey’s undersecretary of energy, who previously grappled with the problem at the Department of Public Utilities. “The consumer experience of being marketed these products is consistently awful.”
Rev. Mariama White-Hammond, Wu’s chief of environment, energy, and open space, said she experienced the duplicitous tactics of the retailers first-hand when one salesman showed up at her front door representing himself as an employee of the city of Boston.
Campbell pointed to a report her office published last month indicating retail customers paid $525 million more to retailers between 2015 and 2021 than they would have if they just let their utility purchase electricity on their behalf. “It is egregious that we allow this industry to continue to harm and prey upon people who are really struggling to pay basic necessities like food, housing, and their utilities,” she said.
The retailers formed something of a united front as well, testifying that their businesses should continue to operate but with tighter regulation. They backed a bill filed by Rep. Tackey Chan of Quincy that would require retailers to post bonds worth $5 million, contribute funding to provide more oversight of their operations, tighten rules on door-to-door sales, and assess a fine of $10,000 per day for every license violation.
“We ask that you not paint all the companies with the same brush,” said Travis Kavulla, the vice president of regulatory affairs at NRG, a Fortune 500 company that participates in the retail market. “We understand additional regulations are needed.”
The retailers also pointed out that Campbell’s study didn’t take into account last winter, when the price of electricity purchased by utilities on behalf of their customers skyrocketed to astronomical levels.
Healey has been pushing a retail ban since she was attorney general – with no success. Her approach has gained some traction in the Senate, but none in the House.
At Monday’s hearing of the Telecommunications, Utilities, and Energy Committee, senators seemed wary. (Only senators attended because of an ongoing dispute between the House and Senate chairs.)
The Senate chair, Michael Barrett of Lexington, said doing away with electricity retailers would leave consumers with only two options – municipal aggregation and letting utilities buy power on their behalf. Municipal aggregation, where municipalities purchase power on behalf of their residents, has generally worked well, but more than 100 municipalities haven’t done it. That would leave them reliant on utilities to buy their electricity, so Barrett is backing legislation giving utilities more flexibility in purchasing power to hopefully avoid the sky-high prices of last winter.
Throughout the hearing, Barrett kept asking why the retail market didn’t work. Most witnesses focused on the many bad apples in the retail business, but an equal number acknowledged consumers are simply not sophisticated when it comes to buying electricity.
“The average person doesn’t know enough about how to read their bill,” said White-Hammond.