The following is a contributed article by Elin Swanson Katz, who has served as the State of Connecticut's Consumer Counsel since 2011, and Andrew W. Minikowski, a staff attorney in the Office of Consumer Counsel.
When many states made the decision to deregulate their electricity markets, two primary arguments were advanced in favor of the idea that increased competition would benefit end-use consumers.
First, competitive electric suppliers would be able to deliver retail rates to consumers that were lower than those provided by the then-vertically integrated public utility companies. Second, that increased market competition among suppliers would foster greater innovation across the industry, leading to breakthrough product offerings in renewable energy, energy efficiency and rate structures.
Over 20 years later, both of those prophecies remain unfulfilled.
Failure to deliver savings
In Connecticut, the persistent failure of competitive suppliers to deliver savings to customers compared to the utility standard offer compelled our office — alongside U.S. Senator Richard Blumenthal, AARP and other community groups — to call upon our Legislature to abolish individual, residential retail supply contracts.
Between 2015 and 2018, Connecticut ratepayers on competitive supply paid approximately $200 million more for electricity than they would have on the standard offer over the same time period. Those consumers that do save money on competitive supply constitute a tiny portion of the ratepaying public. For example, in December 2018, of one supplier's 23,152 customers, only 171 paid less than the then-standard offer; of another supplier's 7,461 customers, only five came out ahead.
Unfortunately, these higher rates disproportionately impact low-income consumers, as well as minority groups and households where English is not the primary language. Clearly, residential ratepayers in Connecticut are not enjoying the lower rates that deregulation promised to deliver.
Compounding the problem of consumers' monetary losses on competitive supply is the practice of many suppliers of engaging in deceptive and flagrantly illegal marketing and sales practices.
Despite numerous enforcement proceedings resulting in civil penalties in the millions of dollars, many suppliers nonetheless persist in employing misleading marketing tactics to lure customers onto competitive supply. Unscrupulous suppliers frequently misrepresent themselves as being the electric distribution company, provide incorrect information about rates, and explicitly violate Connecticut's robust body of consumer protection laws for electric consumers.
These issues are not confined to Connecticut but have proved persistently problematic in other deregulated states, including Massachusetts, New York, Illinois, Maryland and others.
A lack of innovation
The other promise of deregulated competition — a vault forward to hitherto unforeseen innovation in energy markets — has also failed to materialized. The nation's energy sector currently stands in a period of pronounced flux as states, businesses and policymakers peer into the future in an attempt to determine what our energy system will look like in the coming decades.
If ever there was a time for innovation and bold thinking about energy generation, it is now. Yet as they have demonstrated over the past 20 years, competitive suppliers operating in deregulated markets are not equipped to meaningfully heed this imperative call.
In addition to offering rates above the standard offer, competitive suppliers have not offered significant supply products to consumers that would help the energy sector move in a new direction. Most of the value-added products offered by suppliers consist of fairly standard product promotions common in any industry, including gift cards, airline miles and member loyalty programs.
Suffice it to say, such products are not the sort of market innovations that will transform the future of energy. Many consumers are now interested in renewable energy, yet in Connecticut we have frequently experienced suppliers failing to meet their state-mandated renewable energy requirements and deceptively marketing their green product offerings.
Catalyzing energy markets
We believe that deregulated competitive suppliers are not the right candidates to spur energy markets into a new stage of innovation.
In Connecticut, they've had nearly a quarter-century to do so and have produced nothing other than higher bills and confusion for ratepayers. Rather, the traditional utility standard offer has the potential to serve as a launching pad for new supply offerings and energy efficiency initiatives that would be both reliable and publicly transparent.
In our state, the standard offer procurement process is shaped by the participation of several state departments and overseen by a procurement manager. As a result, consumers taking the standard offer can trust that the offer is what it purports to be.
The utilities could provide standard offers consisting of 100% renewable energy or other percentages at a fair price with consumers having the opportunity to take advantage of a verified renewable product. Likewise, the utility's deployment of new infrastructure and technology would ensure that any innovative rates offered to consumers would actually be compatible with the current state of the distribution system's technical capabilities.
Furthermore, consumers understand their traditional utilities and are accustomed to interacting with them — to the extent that these companies can offer new options to consumers, consumers will be more likely to take advantage of them.
Electric deregulation imagined a future where consumers enjoyed lower rates and had access to a diverse range of new supply product offerings. Instead, residential consumers are simply paying more money for the same electricity.
As states and policymakers contemplate their energy futures, they should seriously ask whether the unfulfilled promises of deregulated competition have any place in making those futures a reality.