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Allowing consumers to choose their electricity supply companies has failed to lower rates for home customers, according to recommendations given to the Legislature on Wednesday.
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Maine’s 23-year-old market that lets consumers shop for electricity suppliers has failed to lower prices, doesn’t advance the state’s climate goals, and should be phased out, according to a report submitted to the Legislature on Wednesday.
The recommendations, independently prepared for Maine’s Office of the Public Advocate, sharply criticized the system that allows Mainers to choose who generates their electricity – or to choose the default “standard offer” service – and said the phaseout should begin next year.
Rates charged by competitive electric providers were on average 70% higher in 2021 than the state-run standard offer, the report found. An analysis showed that between 2018 and 2021, Maine households getting their supply from competitive providers paid between $78.1 million and $90.6 million more than standard offer rates, translating to an average overpayment of $280 a year.
It found low-income customers were particularly vulnerable to promotional offers that over time resulted in higher prices. These residents living in Central Maine Power’s service area, for instance, were nearly 50% more likely to purchase competitive energy contracts than other consumers, according to the report.
“After more than 20 years, the hoped-for innovation and lower prices in the residential retail electric supply market have yet to materialize,” the report’s summary states.
Since 2000, Maine’s electric service has been split in two. Regulated distribution utilities dominated by CMP and Versant Power deliver electricity. Private, unregulated generation companies supply it. Consumers can choose their power supplier, but if they do nothing, they receive standard offer service from an annual bid process at the Public Utilities Commission.
But with standard offer supply rates rising sharply over the past two years and becoming more of a financial burden, people and small-business owners are searching for options. That’s likely to add urgency to the report and its recommendations to lawmakers.
The market for competitive electric providers in Maine is well established for larger companies that have the resources and sophistication to compare and manage energy contracts. Nearly half of Maine’s midsize businesses sign electricity supply agreements; more than eight in 10 large companies and manufacturers do the same.
It’s a different picture on the residential level, however. Market penetration there is low and declining, with only 11% of households and small businesses participating in 2022.
The report was written by Susan Baldwin and Timothy Howington of Susan M. Baldwin Consulting of Watertown, Massachusetts. It’s part of work done by a stakeholder group convened to comply with a recent state law aimed at improving Maine’s retail electricity supply system.
A second report, done by Exeter Associates of Columbia, Maryland, made recommendations for reforming the existing standard offer supply program. One idea to come out of this analysis is a recommendation from the public advocate to create a new entity to be the statewide supplier of standard offer service. It would diversify energy purchases with the aim of achieving rates that are more stable over time, dampening the steep price swings recently seen in wholesale markets.
Taken together, the studies indicate that Maine households would be better off without consumer choice, and that the state should concentrate on improving the standard offer program, said William Harwood, the state’s public advocate.
“Although there are (competitive electric providers) that do provide a benefit to a limited number of Maine consumers,” Harwood said, “overall, this service does not benefit Maine consumers.”
Harwood said that view is reflected in the fact that fewer than 10% of Maine residential consumers purchase their electricity from competitive providers. The few who do, he added, especially low-income consumers, “collectively have paid substantially more than the standard offer price.”
Competitive providers could continue to serve commercial and industrial customers, he said.
Not all stakeholders agree that the competitive market for households should be eliminated. Those differences of opinion were highlighted during the group’s last meeting, on Jan. 17.
During the discussion, a representative from CMP expressed some misgivings about taking choice away from consumers, concerned that some would conclude that they weren’t smart enough to make a good decision. Baldwin said she appreciated those concerns. But in 10 years of working on the issue nationally, she said she’d seen numerous examples of aggressive and deceptive sales marketing, making it hard for customers to make informed choices. Ultimately, CMP concluded that while it supports customers’ rights to make their own financial decisions, retail choice wasn’t providing value for the majority of home customers.
A longtime consumer advocate working with AARP Maine, Barbara Alexander, said the utilities shouldn’t feel any responsibility if the residential market is phased out.
“That’s a social policy decision that would be adapted by the Legislature,” she said.
Alexander said there’s no benefit to spending millions of additional dollars for an essential service that’s no different from the standard offer. States such as Pennsylvania, she noted, have made competitive providers sign agreements not to enroll low-income residents. But enforcing rules like that takes money and resources to enforce.
“We’ve had 20 years,” she said. ” We have nothing that would justify the continuation of this market.”
That idea got pushback from Marc Hanks, director of regulatory affairs at Houston-based NRG Energy. He said the company has one residential supplier affiliate in Maine but would like to be more active here. That expansion, he said, could be done within the framework of some of the consumer protection steps outlined in the consultant’s recommendations, such as eliminating door-to-door sales or doing away with fees for terminating a contract early. But an outright ban is unjustified and the company will oppose it in the Legislature.
“I’m not convinced that’s an appropriate recommendation for this group,” he said.
Hanks made an analogy to home heating oil, which warms 60% of Maine homes. Customers make decisions about shopping for oil suppliers and whether to sign long-term agreements. Retail electric supply choice is similar, he said. One step to help educate customers would be to improve the competitive provider comparison chart now offered on the public advocate’s website.
Opposition also came from Lori Hemmerdinger, sales manager for Maine-based C.N. Brown’s electricity division. She said the residential market had been harmed by a few bad players. Hemmerdinger noted that she had received calls from customers of Electricity Maine who, for instance, signed up for supply service 10 years ago and hadn’t reviewed rate changes since then.
In 2020, Electricity Maine settled a class-action lawsuit for $14 million that alleged deceptive marketing practices. The company is owned by Spark Energy of Houston, which denied wrongdoing. Electricity Maine is the state’s largest competitive electric provider, with roughly 29,000 of the 65,000 or so households participating in supply programs.
Attempts to reach Spark Energy to discuss the competitive provider recommendations were not successful Wednesday.
The report concluded that phasing out the residential competitive provider market in January 2024 would be the most cost-effective policy. Short of that, policymakers should consider capping comparable competitive provider rates at the standard offer level; prohibit variable rates; scrutinize or eliminate door-to-door marketing and make the competitive providers pay to help the state fund better education, auditing and enforcement.
The group also weighed in on the second report, with recommendations on improving the standard offer. A key focus is on reducing price volatility and bringing some stability to a wholesale market that has seen dramatic swings tied to high natural gas and oil prices following Russia’s invasion of Ukraine. Harwood, the public advocate, noted that average residential standard offer rates have soared from roughly 6 cents per kilowatt hour to 18 cents per kwh over the past two years, creating a financial burden for many households.
One strategy recommended in the Exeter report is for the PUC to solicit standard offer bids for varying durations, rather than annually, with the goal of making rates more stable over time. The agency used that approach years ago. Mitch Tannenbaum, the PUC’s senior counsel, said if the goal is to have more stable residential rates, it’s harder to do if the competitive provider market remains active. The two are interconnected, he said.
Harwood agreed with that point, calling the continued existence of competitive electric providers “a real complication.” He noted that most states didn’t embrace retail electric market restructuring, as Maine did in 2000, and that 90% of Maine homes aren’t interested in competitive power purchasing. There’s no successful model to build on, he said.
“But I understand there are other perspectives,” he said.
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