By Rich Heidorn Jr.

BOSTON — Municipal aggregation is becoming a potent tool for cutting electric prices and greenhouse gas emissions, while some believe retail choice has failed to live up to its promise for residential customers, speakers told Raab Associates’ New England Electricity Restructuring Roundtable on Friday.

The roundtable featured a panel of state regulators on grid modernization and a second on the future of residential retail choice, where Rebecca Tepper, chief of the Massachusetts attorney general’s Energy and Telecommunications Division, reiterated the AG’s call for a ban on competitive suppliers signing up new individual residential customers. The AG’s office initially made the proposal in March, when it released a report concluding that electric retailers were overcharging residential customers and preying on the poor.

Tepper said the AG estimates retailers overcharged Massachusetts residential consumers $253 million in the three years ending June 2018. The study found that low-income customers were twice as likely as others to choose a competitive supplier and that they paid a half-cent more per kilowatt-hour on average than other competitive shoppers.

This is not a case of a “few bad apples,” Tepper said, citing findings that 10 retailers, who held 63% of residential accounts, were responsible for 75% of the overcharges.

About 55% of households in the state receive basic (default) service from their electric distribution company, while 20% purchase from a competitive supplier and 24% via municipal aggregation — up from 19% a year earlier. The aggregation numbers are likely to grow further as the state’s two largest cities, Boston and Worcester, consider joining in.

Credibility Problem

Tepper said residential customers are being exploited because of their lack of knowledge and inability to negotiate contract terms. The state does not believe it can fix the problem through less severe rule changes, she said. Connecticut consumers overpaid by $46 million even after banning variable rates, she said, and efforts in Pennsylvania and New York to tighten rules resulted in three years of litigation.

“Restructuring has worked for lots of entities. It’s worked for commercial and industrial customers; it’s worked for municipal aggregation. It’s working to lower wholesale prices. But after 20 years of restructuring, now is the time to look back and say where is it working and where is it not working. And this — that 20% [purchasing direct from competitive suppliers] — is where it’s not working.

Chris Kallaher, senior director of government and regulatory affairs for retailer Direct Energy, acknowledged, “We admit that [competitive suppliers] have a credibility problem.”

But Kallaher said the AG’s office is using the wrong yardstick in measuring what residential customers are paying competitive suppliers against default service, which he said is below market because of cross subsidies. Kallaher said default service has no customer acquisition costs because new and moving customers are assigned to it automatically unless they opt for a competitor. Direct Energy said the AG’s pricing comparison did not account “for all of the types of products offered by the competitive supplier” versus the plain-vanilla standard offer.

“There’s a ton of retail costs that are not in the default service rate,” he said. “Costs which should be subject to competitive pressures: billing, customer service, collections, facilities. Everything else — everything we have to pay for — remains embedded in distribution rates and not subject to competitive pressures.”

Direct Energy was one of 12 suppliers identified by the Connecticut Office of Consumer Counsel (OCC) as charging at least 20% of their customers 50% or more than the standard offer. The OCC said the company overcharged almost 38% of its Eversource Energy customers and 42% of its United Illuminating customers.

Kallaher said he was unable to explain why the AG’s office found low-income customers paying more than others for competitive service. “We need to find out what’s going on. If suppliers are discriminating on the basis of low-income status, that clearly needs to stop,” he said. “All these other things are easily addressed.”

He said the state should remove remaining barriers to customers switching and get the distribution utilities out of electricity sales altogether.

Janet Gail Besser, executive vice president of the Northeast Clean Energy Council (NECEC), suggested low-income customers are more likely to be lured by competitive suppliers’ promised savings because the electric bill is a larger share of their household budget.

She also opposed the AG’s call for eliminating residential choice. “Yank the licenses of these suppliers [preying on the poor]. Make the penalty really drastic if they are doing this kind of thing. But don’t throw the baby out with the bathwater,” she said.

She disagreed with Tepper’s contention that residential retail competition had produced no innovation, citing community solar and residential solar leases for those unable to purchase solar panels. “That access to residential customers is absolutely critical to providing these services and to continue to have companies thinking of new ways to deliver services.”

Municipal Aggregation

Paul Gromer, CEO of Peregrine Energy Group, also supported a more targeted response, calling abuses of low-income customers “a discrete problem that can probably be addressed on its own.”

But he also touted municipal aggregation, which he said provides the benefits of competition while avoiding many of the risks because the municipality vets retailers’ savings and environmental claims. About 125 communities are participating in municipal aggregation in the state, some of them using it to provide funding for local renewable energy projects.

“It’s probably the most powerful tool a community has to meet its climate goals,” Gromer said. “A lot of communities in the state have very ambitious goals. As communities, they want to do more than the federal government is doing. They want to do more than the state is doing. But they’ve got limited tools with which to accomplish those goals. They don’t regulate the power plants. They don’t regulate the utilities. They don’t run the [Massachusetts Bay Transportation Authority]. They can’t tell people what kind of a car to drive. They can put solar on municipal rooftops and they can run programs like Solarize — all of which are great but have a small impact. Aggregation, on the other hand, can have a very big impact.”

Lexington, Mass., for example, is reducing community-wide GHG emissions from electricity by 20%. “Communities have no other tool that has that kind of impact,” he said. “Lexington decides to launch a program; 10,000 households and businesses are on a green-power product overnight. Cambridge launches its program: Another 40,000 are on green power.”

Tepper said if the Massachusetts legislature doesn’t ban residential retail choice, her office would like to see smaller fixes addressing low-income residents, auto-renewal practices and fixed teaser rates followed by higher variable rates.

Kallaher disagreed with all but the need for protections for low-income customers. Banning variable prices and auto-renewals and subsidizing default service “are things we think are just killing the market without actually addressing the underlying problems,” he said.

New Technologies

Besser said it is “tremendously ironic that we’re having this discussion about ending residential retail choice just as new technologies are becoming available to make it work better.”

She cited Sense, a monitor that can be connected to a home’s electrical panel to track energy use by individual devices.

“If Massachusetts and the New England states don’t figure out how to have the utilities deploying advanced metering, then we may see the utilities jumped over, because the competitive market will figure out ways to provide a shadow service or virtually the same service,” Besser said.

Advanced metering and other aspects of grid modernization were the subjects of the first panel of Friday’s roundtable, where Connecticut Public Utilities Regulatory Authority Chair Katie Dykes also endorsed Sense. “It’s great data for marital disputes,” she joked.

The session also featured Angela M. O’Connor, chair of the Massachusetts Department of Public Utilities; Martin Honigberg, chair of the New Hampshire Public Utilities Commission; and Rhode Island Public Utilities Commissioner Abigail Anthony.

O’Connor explained Massachusetts regulators’ approval of $220 million in spending for three electric distribution companies’ grid modernization investments. The investments include distribution management systems with advanced sensing and load flow analytics to improve EDCs’ visibility of the grid; volt-var optimization and distribution automation; and spending to help EDCs integrate distributed energy resources.

The Massachusetts DPU, however, rejected utility proposals for smart meter deployments, saying the customer benefits were uncertain and could result in high stranded costs if existing interval automatic meter reading (AMR) meters are replaced prematurely. Advanced meters will not optimize system demand without time-varying rates, O’Connor said.

Dykes outlined PURA’s initiatives in EDCs’ distribution system planning, distributed generation tariffs and pilot programs for grid-side system enhancements.

Honigberg said the New Hampshire commission’s staff will be issuing a report soon with recommendations for future actions, based on stakeholder suggestions and its research of other states’ efforts.

Anthony said the Rhode Island commission’s August approval of a modified settlement with National Grid included funding for a system data portal, upgrades to the company’s geographic information system and a program to separate distribution remote terminal units (RTUs) from transmission RTUs for the first year of the three-year rate plan. It also directed the utility and stakeholders to develop a long-term grid modernization plan and a business case for advanced metering functionality.