By Gerard Neely
The restructuring of
energy markets in over twenty states since the 1990s has offered
consumers with choices for their electricity generation services. The
introduction of consumer choice should create an environment that is
conducive for accountability and transparency in retail rates.
However,
in many states across the country, energy markets have not developed in
ways that best serve the interests of consumers. In order to foster a
truly competitive and transparent market, state regulators must play a
more active role in protecting consumers’ best interests, and pushing
markets in the right direction.
Dubious Contract Terms: Putting an End to Auto-Renewal Contracts
Since
the introduction of electric choice, competitive suppliers have
developed a wide array of contracted rates to market to perspective
customers. For example in the District of Columbia, many suppliers have
marketed fixed rate contracts as a way to lock in a better rate for an
extended period of time, while protecting against the risk of rising
rates in the future. However, what many of these suppliers bury in the
fine print is an auto-renewal contract: after a customer’s contract with
a supplier expires, there is high likelihood that it will automatically
renew with their supplier.
In order to foster the growth of a
truly competitive market, state regulators must crack down on this
common practice. Auto-renewal contracts create a bait and switch
scenario to customers who may not always be paying attention to
energy-related issues. Additionally, auto-renewal rates that are higher
than standard offer service rates skew the marketplace, and take away
from the competition that is supposed to occur in deregulated markets.
Moreover, auto-renewal contracts severely take away from the
accountability that is one of the aims of deregulation.
Post-Contract Confusion: Monitoring variable or floating rate pricing
In
addition to auto-renewal contracts, some suppliers have adopted other
dubious practices once a customer finishes a fixed rate contract. In
some cases, suppliers will switch customers to a month-to-month variable
rate after their contract expires. In addition to switching from a
fixed rate to a volatile variable rate, in many instances the new
variables rates are significantly higher than the rate customers
originally agreed to. In some instances, when customers roll off onto
variable rates with competitive suppliers, these customers may end up
paying 5%-10% more versus utility default rates.
As with
auto-renewal contracts, these supplier behaviors and practices prey on
customers’ unfamiliarity with the industry, and muddy the waters for
those operating in an honest and transparent manner in deregulated
markets. In order to develop a consumer friendly marketplace, state
regulators should curb this practice. In particular, regulators should
look at Connecticut’s recent legislation aimed at tackling variable rate
contracts (Connecticut's new approach to Variable Rate Contracts).
Maintaining Market Competition
Finally,
state regulators need to better ensure that competitive suppliers are
living up to their names as “competitive entities”. Although one cannot
always expect suppliers to beat standard offer rates in a given utility
area, suppliers should never offer rates significantly higher than
utilities. The idea behind introducing independent electric suppliers
was to help lower costs for consumers, but this is threatened if
suppliers are always offering rates substantially higher than standard
offer service rates. State regulators should keep a watchful eye on the
rates suppliers offer to customers, and reports these metrics to the
public. Hopefully, by encouraging transparency, state regulators will
help customers avoid uncompetitive rates.
In order to make
deregulation more effective, state regulators should continue to educate
potential consumers about their choices within the market. Although
state regulators and governmental bodies have made attempts to educate
the public, there is still room for improvement. Additionally, practices
of auto-renewal contracts and rate switching should come under tougher
scrutiny. Furthermore, shining a light on uncompetitive suppliers in the
market will improve the health of deregulated markets.
The
combination of increased consumer awareness and strengthening consumer
protection laws, regulators will help develop a healthy and competitive
marketplace. If state regulators are serious about creating competitive
and transparent markets, then it is absolutely necessary to rethink
current consumer protection legislation and the quality of suppliers in
the marketplace.
http://www.theenergycollective.com/cleanenergyleadershipinstitute/2247206/making-deregulation-work-developing-consumer-friendly-energy-