OPC: Utility competition leads to higher prices for Marylanders

Are Maryland residential customers benefiting from lower prices as a result of retail utility competition? Two recent reports indicate the answer is “no.” The Office of People’s Counsel (OPC), which represents the interests of utility customers statewide, and the Abell Foundation have each published reports highlighting the higher gas and electric prices that residential customers pay in contrast to the regulated utility rates. The OPC report makes a preliminary finding, based on a comparison of actual supplier price offers and utility supply rates, that residential customers as a whole are paying more for energy supply. This is consistent with the Abell Foundation report that relies on supplier data collected by the federal government.

The OPC report asks the question whether residential customers are paying a higher unit price for electricity and gas if they buy it from retail suppliers instead of their local utility. The preliminary data, shows the answer is “yes” for residential customers as a whole, a finding that’s in line with the experience of at least one other state (Massachusetts). This does not mean, and the OPC report does not state, that no suppliers offer lower prices, or that some supply prices are not lower for certain periods of time (for example, teaser rates). But it does mean that, taken as a whole, the promise of lower supplier prices — in comparison with utility supply prices — has not been delivered for residential customers.

There are several hundred licensed energy suppliers in Maryland actively serving residential customers and over 60 suppliers soliciting residential customers at any one time. This may seem like a good indicator of true competitive activity, driving down prices for consumers. So why are so many households paying more for electricity and especially gas supply than if they stayed with the regulated rates? Only a few suppliers appear to have price offers lower than the utility rates. OPC’s monthly review of supplier price offers shows that most offers exceed the utility rates, and this does not include the impact of variable rates, which go up month to month but do not seem to come down.

Real world experience makes clear that the retail supply market operates very differently for residential customers (and I suspect, small “mom and pop” businesses) in comparison to medium and large commercial and industrial enterprises. Some residential retail suppliers rely primarily on direct mail or online marketing. However, a number of suppliers use door-to-door marketing (which includes tables set up in the mall, at the local Walmart or in front of energy assistance offices) and “cold call” telephone solicitations. The Abell Foundation report provides a clear picture of the higher prices — and higher bills — that can flow from these marketing techniques. The investigations in Maryland and other states show that deceptive marketing practices related to these types of marketing occur frequently. In fact, consumers are now receiving phone calls with cloned utility numbers offering “discounts.” The real world experiences of those customers, dismissed as the “result of a few disreputable electricity suppliers,” are very real and very harmful.

These higher prices for essential electric and gas services have an even greater impact on low-income households. OPC released another report in 2018 that analyzed detailed characteristics of low-income households in Baltimore City and each county. In Maryland, the average annual energy burden (percentage of income spent on energy) for low-income households is 13 percent; the burden is 2 percent for non-low-income customers. Even with energy assistance benefits, low-income households on average still spend 9 percent (11 percent in Baltimore City). Higher energy supply prices only exacerbate the difficulties in paying energy bills.

The two reports, and the data, are very strong indications of a problem here in Maryland and in other retail competition states. So the question is: What do we do about it? OPC’s report offers several recommendations: (1) collection of actual price data by the Public Service Commission, so that there is no argument about the price comparisons; (2) greater price transparency for customers; (3) proactive investigations and enforcement of existing consumer protection rules by the Public Service Commission, the agency that oversees the retail suppliers; and (4) a reassessment of the rules governing variable rates.

The General Assembly passed the electric restructuring law to introduce retail choice, but more importantly, to provide “economic benefits to all customer classes.” After 18 years, I believe that it is time to assess whether Maryland households are receiving those benefits — not in concept, but in reality.

Paula M. Carmody is the people's counsel for the state of Maryland; her email is paula.carmody@maryland.gov.

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