Maryland's Residential Electric and Gas Supply Markets: Where Do We
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Maryland’s Residential Electric and Gas Supply Markets: Where Do We Go from Here? Prepared by Susan M. Baldwin and Sarah M. Bosley On behalf of the Maryland Office of People’s Counsel November 2018 Maryland’s Residential Electric and Gas Supply Markets: Where Do We Go from Here? TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................... vi INTRODUCTION .......................................................................................................................... 1 I. EXISTING STATUTORY AND REGULATORY FRAMEWORK FOR RESIDENTIAL ELECTRIC AND GAS SUPPLY MARKETS IN MARYLAND ................................................. 3 Approximately twenty years ago, state legislation opened up residential electric and gas supply markets to competition. ................................................................................................... 3 Consumer complaints led to an investigation of one supplier’s practices, which, in turn, led to comprehensive investigations. .................................................................................................... 4 The Public Service Commission has taken preliminary and important steps to improve the way that residential electric and gas markets function. ...................................................................... 5 Energy assistance funds for low-income customers may be inefficiently used if benefits are paid to cover higher-priced supply costs .................................................................................... 6 Supplier prices have spiked significantly above electric standard offer service and gas commodity rates. ......................................................................................................................... 7 II. PRELIMINARY ANALYSIS OF RESIDENTIAL ELECTRIC AND GAS MARKETS: CONSUMER PARTICIPATION RATES AND SUPPLIER PRESENCE ................................... 9 Residential Energy Supply Markets............................................................................................ 9 Electric Market............................................................................................................................ 9 Supplier Presence in the Electric Market .................................................................................... 9 Participation in the Residential Electric Market ..................................................................... 9 Seasonal Variation in Participation Rates in the Residential Electric Supply Market ......... 13 Churn in the Residential Electric Market.............................................................................. 14 Gas Market ................................................................................................................................ 14 Supplier Presence in the Gas Market ........................................................................................ 14 Participation in the Residential Gas Supply Market ............................................................. 15 Seasonal variation in participation rates in the residential gas supply market ..................... 16 The number of electric and gas suppliers listed on the PSC website that are purportedly “actively seeking new customers” greatly exceeds the number of suppliers actually serving customers. ................................................................................................................................. 17 Conclusion ................................................................................................................................ 18 III. PRELIMINARY ANALYSIS OF SUPPLIERS’ PRICES ................................................ 19 Overview of rate structures in the residential competitive supply market (rates, terms, and conditions)................................................................................................................................. 19 i Maryland’s Residential Electric and Gas Supply Markets: Where Do We Go from Here? Prices for electric and gas supply in the residential market provide valuable information about whether customers are benefiting from competitive choice ..................................................... 20 Some customers may voluntarily choose to pay higher rates to support renewable energy. .... 21 Information and transparency are key to a well-functioning market ........................................ 21 Methodology for selection of gas and electricity suppliers and supplier prices ....................... 22 Analysis of prices posted on suppliers’ websites ...................................................................... 24 Suppliers’ electric rates greatly exceed those of the standard offer. ..................................... 24 Suppliers’ gas rates greatly exceed those of the standard offer. ........................................... 29 Significant caveats about the rates posted on suppliers’ websites. ........................................... 32 IV. OTHER STATES’ EXPERIENCES WITH RESIDENTIAL ENERGY SUPPLY MARKETS ARE INSTRUCTIVE ............................................................................................... 33 Consumer harm in residential retail energy supply markets, as evidenced by state investigations and class action lawsuits as well as by high prices, is occurring throughout the country. ..................................................................................................................................... 33 Although states have expended significant legislative, regulatory, and advocacy resources to improve the way that residential electric supply markets function, some of these same states have determined that public policy challenges relating to these markets persist and merit yet further investigation. ................................................................................................................. 35 Observations about other states’ policy and proceedings ......................................................... 38 Transparency of suppliers’ rates, terms, and conditions improves efficient decision-making and inform policy making. ........................................................................................................ 38 Existing requirements in Maryland provide a foundation for transparency but are insufficient. ........................................................................................................................... 39 Examples from other states of ways to enhance transparency in Maryland’s supplier markets: ................................................................................................................................. 40 Variable rates contribute to rate shock and high bills. .............................................................. 42 Examples from other states regarding variable rates ............................................................ 42 To be truly effective, statutory and regulatory requirements need to be actively enforced and state agencies require sufficient resources to undertake those enforcement actions. ............... 43 Conclusion regarding other states’ experiences. ....................................................................... 44 V. POLICY GUIDELINES ....................................................................................................... 46 Principal policy guidelines for residential energy markets ....................................................... 46 Discussion of policy guidelines ................................................................................................ 46 Conclusion ................................................................................................................................ 47 VI. CONCLUSION AND NEXT STEPS ................................................................................ 48 Additional consumer protection measures are essential because energy supply markets are not, on balance, benefiting Maryland’s residential customers. ........................................................ 48 ii Maryland’s Residential Electric and Gas Supply Markets: Where Do We Go from Here? Transparency is vital to increasing opportunities for residential customers to benefit from retail competition. .............................................................................................................................. 49 Consumer protection against variable rates is essential. ........................................................... 51 Effective oversight and enforcement procedures and tools are needed to protect consumers. 51 iii Maryland’s Residential Electric and Gas Supply Markets: Where Do We Go from Here? List of Tables Table 1 Number of Competitive Electric Suppliers by Distribution Utility Service Territory Serving Customers as of August 2018 Table 2 Total Households Participating in Electric Competitive Supply Market Table 3 Participation Rates by Distribution Utility Service Territory (Electric) Table 4 Churn in the Residential Electric Market Table 5 All Utilities Where Gas Choice Is Available in Maryland Table 6 Total Eligible Households Participating in Gas Competitive Supply Market Table 7 Electric Supplier Published Rates – BGE Territory (October 2018 – 12-Month Contract) Table 8 Electric Supplier Published Rates - Potomac Electric Power Service Territory (October 2018 – 12-Month Contract) Table 9 Electric Supplier Published Rates - Potomac Edison Service