Traditionally, both gas and electric utilities have been monopolies subject to government regulation. This is to ensure that all customers in the service area receive reliable service under fair terms, conditions, and prices. Since the mid-1990s, one-third of states have opened up these markets to competition. Consumers in these states can now purchase electricity or natural gas, or both, from competing providers. Except in the deregulated part of Texas, residential customers in all these states are also offered utility default service. This service is sometimes known as standard offer service. It is intended to provide service at stable rates that have been approved by regulators (see also this chapter’s section on Standard Offer Service).
Some argue that retail energy prices are lower in restructured markets. However, other factors can drive up the total cost of service for consumers above the base rate. This can be because of price volatility, market manipulation, and regulator-approved fees and charges. Additional consumer challenges in restructured markets include:
- misleading marketing practices,
- variable-rate contracts that can result in exceptionally high bills during periods of price volatility,
- threats to eliminate standard offer service, and
- bailouts to maintain high-cost nuclear and coal generation plants that cannot compete in deregulated wholesale markets.
Regulators play a key oversight role in all states, regardless of the regulatory approach. Vigorous oversight is essential to ensure fair treatment of consumers (see also Ethics, Transparency, and Public Participation in Regulatory Proceedings section of this chapter).
Aggregation occurs when an entity brings together retail electric or natural gas customers into buying groups. The purpose is to increase each consumer’s purchasing power. Local governments may be best suited to implement aggregation by allowing individual low-consumption customers to band together for more purchasing power.
RETAIL ELECTRICITY AND GAS RESTRUCTURING: Policy
Consumer protections in retail energy markets
Policymakers in states that have not introduced retail competition should refrain from doing so. Strong regulatory oversight is essential to ensure consumer protections.
Policymakers in states that have restructured or deregulated their electric or retail natural gas utility should:
- adopt consumer protections, including providing standard offer service (see also Standard Offer Service section of this chapter);
- provide vigorous oversight to protect against unfair, deceptive, or abusive practices, including deceptive marketing materials;
- prohibit variable rate contracts; and
- exclude subsidies or bailouts of generation facilities.
Policymakers should examine marketing and service provision practices, including disclosures, contracts, codes of conduct, service quality, and marketing materials.
Policymakers should regularly report on the experience of residential consumers in the restructured market with respect to prices, fees, the level of competition, and other relevant factors.
Pricing evaluation should include apples-to-apples comparisons of the total paid by consumers for the energy service. For example, if the energy provider is able to add new fees under a restructured market, those fees should be added to the total price paid by consumers.
The evaluation should also consider changes in unfair terms and conditions, for example, misleading marketing practices.
Planning, participation, and protection
Federal and state policymakers should permit local entities to participate in planning for appropriate energy supply arrangements, including aggregation. Federal and state policymakers should ensure that all aggregators abide by state consumer protection statutes.
Where local entities have implemented such plans, consumers must still have the ability to opt out and choose their own supplier.