S3E15: Former Massachusetts regulator Paul Hibbard of the Analysis Group talks about his study of retail electricity competition that aims to inform the policy debate over ending retail choice for residential customers

Massachusetts is actively considering Gov. Maura Healey's longstanding demand to end competitive retail energy sales to residential customers. As part of this debate in Massachusetts and elsewhere, the Retail Energy Advancement League commissioned the Analysis Group's Paul Hibbard, a former Massachusetts utility regulator,  to provide a comprehensive examination of retail energy choice. We talk with the report's author as well as Chris Ercoli, REAL's president and CEO.

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EMP S3E15: Paul Hibbard, Analysis Group, and Chris Ercoli, Retail Energy Advancement League
(Transcript edited for clarity)

EMP: Welcome to the Energy Markets Podcast. I’m Bryan Lee, your host for this discussion of how to accomplish a clean-transition at least cost to consumers. Today, in that continuing conversation, we’re going to talk about a new report out from the Analysis Group, a well-respected consulting firm in Boston. It’s called, “At the Crossroads: Improving Customer Choice for Products in the U.S. Electricity Sector: An analysis of competition in energy, what we’ve experienced and what the future could hold.” So first we’re going to talk with the report’s author, former Massachusetts utility regulator Paul Hibbard, and after that we’ll talk with Christopher Ercoli, president and CEO of the Retail Energy Advancement League, which sponsored the analysis. Paul, welcome to the podcast.

PH: Thank you. Nice to meet you, Bryan.

EMP: Yeah, likewise. And so let's just jump right in here. What prompted this new analysis?

PH: So at Analysis Group, REAL contacted me, and they were interested in getting sort of a fairly comprehensive look at retail choice to this point, looking backwards to the point where it started and the experience we've had with retail choice up until now. But also thinking about it in the context of what is likely to be a fairly rapid transition in the energy industry in the coming years. And to try to think of it at that inflection point from both perspectives, sort of what has happened historically, but probably more importantly, what can the role be going forward? Obviously, there has been a lot of discussion recently in the industry around retail choice and around there being some fairly predatory practices and challenging marketing activities of some retail suppliers. There have been a number of states and consumer advocate organizations that have called for ending retail choice, for residential consumers at least. And so I think that all of this kind of comes together at a time where it's really important to evaluate what has gone well, what hasn't gone well, what can be improved going forward, and what role can retail choice play in this transition? And so I think all those things came together. And that's ultimately what prompted the analysis in the report.

EMP: What were your key takeaways from this report? Give us an overview. 

PH: Sure. I, you know, I think first and foremost, one of the things we did in the report is we looked at the literature around, you know, there have been a number of studies about what has been the price impact of retail choice. And some of them are these direct comparisons between default service in one period of time and retail choice over potentially a different period of time. Other ones have been more national or regional in scope. But the first thing we wanted to do was take a look at the literature see what the literature is saying. And then think about it in terms of whether or not there has been a good comprehensive evaluation of retail choice considering everything it is supposed to be and was thought it could be. So we, in addition to doing the literature review of price impacts, which is fairly unsatisfying, because in most cases analyses of the price impacts of retail choice are like comparing apples and oranges. They're just comparing one product of one term of one type with different products and there’s just a lot of analysis that's been done that doesn't really give a good comprehensive review of different retail products. So we took a step back and said, well, what is the right way to think about retail choice? If I'm sitting in a regulator’s position, and I'm being asked, should we end retail choice or not, I think what we tried to develop are a number of metrics that we think are important to that question. So that was the first step, what are the relevant metrics to evaluate retail choice? And then we went through an analysis of the experience to date based upon those metrics and came up with some observations. The key metrics that I think are so important to keep in mind – all of them – when trying to think about what the prospects are, and what the progress has been with retail choice include, first and foremost, competition. I was on the Massachusetts commission when we initiated retail choice back in the 1990s. And the real focus then wasn't so much on the role that retail choice could play in any sort of transition. It was really how can competition help consumers? And so specifically, the first question is, obviously, does retail choice expand consumer options for meeting electricity needs? You know, will it actually provide consumers, large and small, the opportunity to think about different ways of supplying their electricity? A second one is customer control and engagement and preferences. You know, it's very – one distinguishing characteristic of retail choice relative to traditional utility energy delivery has been that there are actually just a lot more different kinds of options available so that consumers can express their preferences by selecting suppliers and selecting retail products of different types. Another one is education and transparency. One of the things that we found looking at retail choice to this point is, I think, there are some states that have done a great job at educating consumers and having those consumers become knowledgeable purchasers of electricity. And Texas comes to mind first and foremost there. But in most other states we just haven’t really done a very good job and so there hasn’t been – whether it’s utility educational efforts, state educational efforts or even retail suppliers themselves – there just isn’t after this amount of time where retail choice has existed there has not been enough of a growth in everyone’s understanding of what options are available to them. And I’ll just mention two more. One is energy market evolution and climate goals. It’s a key question now whether or not retail energy markets can empower companies to evolve and generate different kinds of products that really look a lot more like the transition that's underway in the industry, something that retail suppliers can obviously do much more quickly than investor-owned utilities that have to go through long adjudicatory processes to create products and change pricing. So that's going to be, I think, going forward a huge important thing. And then the last one I'll mention is consumer protection in customer service. This is where I think certainly in Massachusetts at the time we initiated retail choice, and I think based upon our review in this report, many other states just went a little bit too light on consumer protection. And you know, this is a vital critical product for consumers. People can't live without electricity, or at least most do not want to live without electricity. And so making sure there's very strong consumer protection in place is, I think, a foundation of a healthy competitive market. And that's kind of where I think a lot of states, you know, have an opportunity to really beef up their consumer protection rules so that we can have retail choice but have it in a way that there's very little or no risk of retail suppliers taking advantage of consumers of any type. So that's kind of the range of metrics that we really thought are important to evaluate retail choice, and we lay that out in one of the sections of the report.

EMP: I wish I had a dollar for every time I heard, well, competition was supposed to lower electricity costs. So a lot of what your report focused on was this whole issue of price, particularly prices in states with competition versus prices in states without competition. Do you want to elaborate on that?

PH: One of the problems with the literature of price comparisons is they tend to do exactly what you just discussed. In other words, a lot of the studies make comparisons that are not particularly valid. And that’s the challenge, right? Because if you compare a retail product from 2007, when gas prices were really high, with another retail product or a utility product from 2009, you're not getting an answer that's a function of what the impact of competition has been. You're getting an answer that's a function of what happened to natural gas prices in that period. And similarly, when you compare the experience with retail competition in states that have it in prices, I'm sorry, prices in states that have retail competition with states that don't, you're really mixing up geographies and fuel sources and industry structures in a way that you can't get to a meaningful, comparative result. And so that's the type of thing that's been very frustrating in trying to look at the literature. One of the reasons we focused on competition is because ultimately, in the end, what you want is you want competition to drive prices to be lower in the long run than they otherwise would be. There's always going to be a case where you can select a utility product today and you'll end up having one price. And if you select a retail supply product three months from now, you can end up with a very different price. But again, it has nothing to do with whether or not it's a utility or a retail supply product. And so one of the things that, you know, we looked in aggregate at the prices for consumers. And we should just mention right off the top that certainly for large consumers – for industrial and commercial consumers and even a large number of residential consumers – the data are very clear that competition has driven down prices for energy. And that's what you want, you want to see that over time, and you want competition to actually drive prices down over time in the long run. And I believe that is the promise that has been the experience for many customers with retail choice, and that is the promise for retail choice going forward. The other thing that has happened in the literature a fair amount is comparing, when talking about competition driving down price, it's really, really important to make sure you're comparing states or products where the structure is the same, where you're not mixing up competition at the wholesale level with competition at the retail level. And so those are two very different questions. There are a number of studies that have shown that competition has rung out a lot of efficiency out of wholesale power generation. But again, you will kind of when you're talking about retail choice, you want to set that part aside and just focus on the delivery of retail energy products. So I mean, those are some of the different ways in which these studies have mixed things up in a way that it's sometimes is painful. But it really makes it difficult for regulators and stakeholders to try to get a sense of what really has been the impact of competition at retail.

EMP: I think the one study that you cite that does the most to cut through this sort of clutter is the Phil O'Connor study for the Retail Energy Supply Association. And the reason I like it so much is because it uses a methodology that we developed when I was at Exelon. We were confronting those high gas prices that you were talking about just a minute ago. That was driving electricity prices in the wholesale markets up. And those high prices generated a lot of backlash against the wholesale markets. And one of the problems we confronted was the APPA, American Public Power Association, would put out these very simple, condemning statements of competition saying, well, you know, prices in states with retail competition are higher than in states that maintained the 19th century monopoly regulation regime, which is a very simplistic way of putting things without putting it into context that prices were higher in those states to begin with. And that's why they restructured. And the other thing that that sort of snapshot in time doesn't capture is the effect over time. So what we sought to do was to take a look – and this was around 2010, 2011, something like that. We wanted to look at how prices changed over time from 1999, which was when most states adopted retail competition, over the past decade, you know, because we're talking about 2010. And the one factor that I thought was crucial was to adjust those prices for inflation. That report that we commissioned actually came back and showed that over time prices in the states with retail competition either declined or stayed somewhat stable, while prices in the regulated monopoly states increased. And when I was at RESA, I spent some time as their media consultant, and so I was pleased that Phil O'Connor picked up that and, and, you know, it was five years later came out with the same result. And since Phil has passed, RESA has put out one or two more, again, the same, the same phenomenon held that over time, adjusting for inflation, consumers were better off in the retail states versus states with monopoly regulation. Do you see any merit to that?

PH: I do, Bryan, but with some with some important asterisks. And we talked a little bit about that. Of course, you need to do studies like that to try to, at a macro scale, get a sense of what the overall impact is of various things in the industry. In those studies, the O’Connor study and what it sounds like you're describing are useful to say, well, here's the world where competition was introduced and in many of those states, it was introduced both at the wholesale and the retail level, but in some states only at the wholesale level. And then trend that over time with states that did not have competition introduced, and just see at that a macro level what the results are, and then see if that points you in any way to other types of analyses. What the asterisks are that I'm referring to, though, is that there is a lot that those studies cannot tell you by their design. And you mentioned one of them, which is the states that restructured were states that are heavily dependent upon imported fuels and were expensive to begin with. So there was a lot of opportunity for efficiency to generate price reductions. And that wouldn't necessarily be the case in all of the other states. In the other states, their prices may have gone from fairly low levels to levels that were higher than low, but possibly even still less than the restructured states, which had achieved a great deal of price reductions. So the reason we wanted to take a step back is in looking at that, like the O'Connor report and other reports, we just think there are too many descriptive variables that have not been accounted for in many of the studies. And they tend to tell a good story, but they tell a good story only with respect to price. Whereas I think there are some fundamental differences between retail supply and utility supply. At least now, with respect to things that go beyond price in terms of being able to combine products, have innovative programs that, for example, will allow you to charge your vehicle for free if you purchase supply, or really creative ways to allow for building electrification, the integration of demand-side management and efficiency in retail supply products, there's a lot that goes on potentially in the future with retail supply that I don't think we can really expect to happen very quickly on the distribution utility side of the equation. And so I think it's helpful. In our report, we tried to kind of factually summarize the literature that we saw that was out there – a bunch of it that we saw that was out there that seemed relevant. And give just a description of what those results held, but then not to focus on it primarily because there just are so many differences across these, and it leaves a really important part of the puzzle out that will be really important for states moving forward that want to decarbonize their energy systems. So yes, I see a lot of value in that looking at that inflation-adjusted trend in different in different states can actually be an excellent starting point to say, okay, we actually see some real long-run price benefits from competition. But now let's drill down and figure out, really, what are the differences going on here? Is it being driven by efficiency in generation? Is it being driven by creative retail supply products? Or is it really being driven by exogenous factors that may not be related to competition? So with those asterisks, I think it's, you know, it's helpful to start at that point. 

EMP: Well, yeah, no doubt, taking a single look at it through price is not the way to evaluate it. But again, everybody assumes that competition, restructuring, happened to lower prices. It’s much more complicated than that. And I think before you can cut through the clutter and talk about all of the innovation that you referred to just now, you need to address that price question. 

PH: Yeah. Well, and there's another important one, right? I mean, what is funny when when we were restructuring the industry in New England, when I was on staff at the DPU, there was a lot of talk about the price benefits from making generation competitive. From my point of view, the real benefit was taking the risk of investment off of ratepayers. I mean, it's an incredibly important but often underdiscussed focus of competition. You look at the wave of bankruptcies that have happened since competition started that barely affected ratepayers at all. But if you had utilities making those investments, and ratepayers were responsible to make them whole for their investments, then it could have been a much worse result for consumers. So the combination of driving efficiency through efficiency in generation and de-risking major utility power generation investments from ratepayers, both of those have huge consumer benefits – I think, have had huge consumer benefits. But again, that's not talking about the retail side of the picture as much as it is about the wholesale side. 

EMP: Well, I mean, it's kind of hard to talk about one without talking about the other. 

PH: True.

EMP: I think most of the price effects that we've seen in in terms of whether or not that model for analysis is correct or not – what that identified were positive price impacts from the wholesale market, not necessarily the retail market. You, you talked about 17 states having adopted competitive restructuring of some sort or another. And one of the things that we thought important in doing this sort of price comparison is to look at the states that actually have workable competition versus California, which rolled back to load all the costs of the California energy crisis on consumers for many years, or Virginia, which slammed the door on it before it ever had a chance to have any impact. When you compare the states that have actual retail competition, this dozen or so plus DC that you mentioned in your report. I mean, Texas stands out, right? They did it differently than all the other states. Do you want to elaborate on that? It’s something we talk about on this podcast constantly.

PH: Yeah, Texas, of course did it way differently than other states? And that, you know, I don't want to give the impression that I think that was the right way to do it or not. 

EMP: Oh, go ahead.

PH: No, but I, you know, it's, I'll tell you what I focused on in doing this report with respect to Texas, a lot, which was, as I mentioned earlier, I think where we fell down, there's two places where I think we've really kind of could have done better in the original design of retail choice, and where I think a lot of states now are fixing these problems. And hopefully will continue to fix them going forward. But, you know, one is, as I mentioned, consumer protection. I think, if I recall correctly, at the beginning of retail choice, if you want to sell electricity to something, but you had to fill out a one-page form and send it to the Public Utility Commission and show that you had some resources. I mean, it really wasn't a heavy lift; there wasn't a lot of oversight. And that's kind of the wrong way to approach this. I think that the states really need to recognize that this is a critical, fundamental thing that humans need. And so it needs to have that level of care and administration. And that's an important thing, and that's a very fixable challenge. The other piece is that, to some extent, it's difficult for retail suppliers in many states to compete against default supply because the starting point is the utility you're very familiar with, you still get the bills from no matter what, they're constantly in touch with you, they're the point of contact with your electricity supply, you've been buying electricity from them for decades. And so there's an immediate barrier to wanting to move and select an alternative competitive supplier. Now Texas approached it by saying everyone has to do that from the get-go. And whereas the other states said, you can choose a supplier if you want, but then you have to figure out – it made it very difficult to get the information you needed to understand your choices, to actually – it didn't force anyone into a position of having to choose so that you could sort of safely stay with default supply and not feel like you're taking the risk of choosing competitive supply. And the final thing, so that's a lack of education, and sort of a lack of a driver for consumers to become educated about retail choice. And then the third piece is an important one going forward – although I wouldn't say it's been a critical one historically – is just giving retail suppliers full access to customer information. It's been important, but I think it's going to be really important going forward. So those are three areas where I think the original jump out of the gate for retail supply in most states was very different than what happened in Texas. And when I look at it, the end result is you have a consuming population in Texas that is fully comfortable with choosing a supplier that is knowledgeable about it, you know, you can go to parties and talk about it with your friends, and everyone has an opinion on what supplier you should choose. So it's just a really different rollout of the program which means we ended up with in a very different place in terms of consumer education, and choice and consumer knowledge about energy. So going forward, I think these are all fixable things and states can do a lot more – states and utilities and suppliers from to one want to educate consumers and allow them to become comfortable with retail choice. And then backing that with strong consumer protection will mean we won't have these stories of people going door-to-door and taking advantage of consumers or doing things that are questionable from a marketing standpoint. And I think that's, you know, we kind of tiptoed out of the gate in lot of states. And this is the result of that. We've kind of had a stagnated retail competition market. But now is the point in time where retail supplier access to data can actually allow them to create incredibly creative products as consumers electrify their heating and their transportation. And actually giving people more information about what's available out there while protecting their backs will sort of opened the door to having a very sort of well-educated public when it comes to making energy decisions.

EMP: I agree with you. Education is important and oversight is equally if not more important. And I view the calls of officials in your state and other states that we should protect the residential customer by not allowing competition for residential customers is an abdication of their responsibility, in my opinion. This is a conversation I had with Jason Stanek, the recent chairman of the Maryland Public Service Commission, he undertook a high profile – as high a profile as you could get with an agency like the PSC – oversight and enforcement to try and weed out some of these bad actors. And in terms of education, you talked about from the state and the utilities. From the state, I would hope you would get education. From the utility, I would hope you would get education but I think you're more likely to get misinformation, particularly from the dark money groups that they're fond of establishing, particularly outside of the competitive states. So but in terms of this, the states with retail competition other than Texas. What Texas did that they didn't do – and you talked about the stagnant market for retail – is they quarantined the utility from the retail market. If you're a wires company, you're a wires company. You don't sell electricity. This is something that antitrust regulators have advocated for decades. And I don't know if you want to opine on that or not. But certainly it would be not so heavy a lift for the members of REAL to have a real experience in these markets if we actually quarantine the utility and didn't have all of these market distortions that having the utility with one foot in the market and one foot in the wires business creates.

EMP: Yeah, I have a couple of responses to that, Bryan. First I want to go back. I want to be careful because I don't look at the states that are concerned with retail competition for, particularly, lower-income customers as I don't see them as abdicating their responsibility. I just want to be really clear about that. I think their responsibility is to protect consumers. And if a market is not going well and people really are being scammed, then their responsibility, one step to that and as part of their responsibility, it's not an abdication is to say, this is not working. We can't this is too critical of a thing for consumers. We can't let it continue. That's one approach. I do think, though, consistent with your comment, I look at what states can do to prevent that from happening. And I think it's not that heavy of a lift. That it's relatively easy for the public utility commissions to step in with laws and regulations and be really strong enforcers of consumer protections across all retail suppliers. And that's kind of the right way to look at it now, because I do think that retail supply will play such an important role in the transition that states will be making a mistake if they roll it back now rather than doubling down in figuring out how do we make sure this works. So I just don't want to represent it as any abdication of responsibility. I think either way states are carrying out their responsibilities to protect consumers. I just think when you think about the long-run transition, it's so important to continue with it at this point. And then your other . . .

EMP: Quarantining the utility.

PH: Quarantining, right. And then you know that and again, I'll having been a state employee for about half of my professional career, I'll double down on defending them again. At the time we restructured the industry that was a really big step to take, you know, what Texas did. And I would say, at that point in time, it wasn't imprudent for the commissions to be cautious in in retail choice. Where at the same time, divesting the utilities of generation, opening up fully conformed to competitive wholesale markets and opening up retail competition, at that point in time, it seems sensible to be cautious on that going forward. Now, I think we've had the benefit of time to this point to think about it and say, okay, we've looked at what happened in Texas and we've looked at what happened in other states, and we now understand the nature of the risks to consumers. Let's go ahead and kind of unbridle retail supply but do it in a way that's highly protective of consumers so that the market can flourish and it can provide the sort of creative products that the industry will need going forward.

EMP: I’ve kind of worked through my notes here, Paul. I don't know if there's something else you want to bring up here for the good of the order.

PH: No I think you've, I mean, it's funny you've touched on everything – everything that was in the report and things that we thought about. You’ve really covered it all.

EMP: Well, how do you cut through the clutter? All right, there's so much misinformation out there. I mean, there's misinformation everywhere, not just in electric utilities, but how do you cut through the clutter, especially in today's media environment?

PH: Yeah. And, and again, this is where I mean I view products like natural gas and electricity very differently than I view products like vacuum cleaners. And, of course, there's a lot of misinformation and questionable marketing tactics used by the sellers of any kind of a commodity. I think in this case, electricity is just too important for society and for consumers and for people, for public health and safety, that that sort of clutter should not be tolerated. I mean, there needs to be strong consumer protection rules and strong consumer protection advocates – both in the consumer advocacy space but also in the state regulatory space – to make sure that we can actually take advantage of competition but fully protect consumers and really not allow inappropriate marketing and selling activities to do things that are inappropriate, particularly for the lower-income customers. So I think the answer is strong regulatory action to support something that could be hugely beneficial to states going forward.

EMP: Yeah, well, that touches on my point in terms of abdicating responsibility. I think it's the state's responsibility to police the markets and make sure that these bad actors aren't creating problems for the ones who are actually trying to help.

PH: I agree with that. 

EMP: We're in the middle of a transition to a clean energy economy. And it's happening organically, not necessarily through mandates, except maybe at the state level. And, but what's really driving the clean-energy transition today, I think, are the large customers who want to address their carbon footprint. They want to have control over their energy supply, and they want a clean energy supply. They don't want to just take the electrons that the utility offers them. But there's a whole suite of technologies, I think, waiting in the wings right now that are behind-the-meter technologies or in situ generation technologies. By in situ, I mean, at the customer's site. Can we really get to a state where you have a retail market responding to price signals in the wholesale market as long as we have a bifurcation of regulatory authority between the federal government for the wholesale market and the state government for the retail market? I think part of the reason you have a much better market in Texas is that you have one regulator for both the wholesale market and the retail market. And you don't have that outside of Texas. And I don't know how, if you're a consumer that's on a state-regulated rate, how are you going to respond to the wholesale market? There's a bifurcation there. There’s a regulatory bifurcation, that, you know, allows NARUC to have eternal discussions about federalism. But it seems to me that it's an inherent problem if we're going to get to a market where consumers are responding to price signals and curbing their demand in response to price signals.

PH: Yeah, in I guess the, the part that I'm not positive about is that you require it, it needs to be a one-state RTO in order for that to be the case of one state regulation, because I think if . . .

EMP: No, no. You're looking at it through the wrong end of the telescope. I want FERC to have regulation right down to the outlet.

PH: Hmm. Well, that that will be challenging. (laughter) That would be a challenging piece of legislation. Put it that way. But I don't, you know, I in this is maybe the too optimistic side of the way I think about this. But ultimately, the cost of wholesale electricity, if you have a fully vibrant retail competitive supply market, the cost of wholesale electricity would translate into different for different product offerings to consumers. And those retail suppliers that are able to arbitrage the difference between a wholesale generation price and what consumers are willing to pay for a set of goods and services, which might not just be electricity, it might be electricity and energy efficiency measures and installation of certain technologies. And oh, we're going to give you an EV charger as well. And we'll show you how it will affect your total energy costs. That's where I think the retail supply entity can be the arbiter of the difference between wholesale costs, electricity costs, and retail energy costs. And that's kind of the promise that's out there. Something that I find very, very difficult as a former regulator to imagine ever happening quickly enough in the regulated utility setting, because of all the issues that come into an adjudication of a rate design, and transfers of costs amongst customers or classes. So I just sort of think that as these technologies, these distributed technologies and strategies become less costly, more ubiquitous, that the retail supply market is the one that has the ability to quickly incorporate them into creative products that will give them a market advantage. And that's the kind of thing that can end up being the arbitrage between wholesale electricity prices and retail energy costs. So that's sort of focused on the report I just did. That's kind of the approach I would take the thinking about that. Certainly a far more likely outcome than a piece of federal legislation that takes jurisdiction over distribution utilities away from the states. That would be challenging,

EMP: Not necessarily over the distribution utilities, that would be very different. But that creates RTOs with the largest footprint possible – in other words, eastern interconnect and the western interconnect – and keeps the utilities that own wires and own distribution systems, own transmission systems, separate from the market. You know, even in states like Massachusetts that ordered divestiture of generation, a lot of times the independent generation company became just an affiliate of the distribution utility. And I don't think that comported with what the antitrust regulators at DOJ and FTC recommended. But again, you know, you emphasize the incremental change that regulators looked at 20 years ago, and, you know, it was it was a big deal for FERC to order that that sort of not-hard divestiture that they did.

PH: Yeah. A lot of difficult decisions back then.

EMP: I've enjoyed our conversation, Paul, very much.

PH: Same here. 

EMP: And thank you for your time. 

EMP: So now we're going to turn the conversation over to Chris Ercoli, the president and CEO of the Retail Energy Advancement League. Chris, your organization sponsored this study that we're talking about. Welcome to the podcast.

CE: Hey, Bryan, thanks for having me. Appreciate it.

EMP: I guess I want to ask you, why did REAL commission this study? What do you want to accomplish with it?

CE: Yeah, so there are a couple things that I think are really important for us to – that we attempted to accomplish in the report. I think, you know, first and foremost in the age of misinformation we felt it was important for us to work with, with a subject matter expert that can properly evaluate retail markets. We felt a Paul was the suitable person to do that. One of the things that I really enjoyed with our first conversation with Paul was he was he was very blunt and upfront about the point that he said, look, this isn't going to be a puff piece. I'm going to tell you what I think about restructured markets. And it's going to be intellectually honest. So he wasn't going to, you know, change anything that created a favorable opinion about retail markets. And that's what we wanted the report to be was an honest interpretation of where restructured markets are currently. The second thing that I think was really important was to look at some of the reports and analyses that are currently out in in the marketplace and help assess whether or not those were conducted correctly. And if they were not conducted correctly, make sure that there is a proper evaluation criteria set that you know that Paul could put out to say if you are going to properly evaluate markets moving forward, or if you're going to conduct an independent analysis for some of the states that are that are currently restructured, here's what you should be looking at. It's no surprise that there are reports in New England, specifically, that have taken a pretty unfavorable opinion of, specifically, residential retail markets. And those analyses, many of them we do not agree with. And I think Paul specifically pointed at those and and pointed out the fallacies in those reports. And now he's you know, he's kind of taken it a step further and said, okay, if you want to appropriately conduct an analysis on those, here's what you need to look at.

EMP: Is this going to be a tool for you as you continue to engage in Massachusetts, in particular, where this seems to be an ongoing issue right here at the moment?

CE: It's important for us to look at this study and properly evaluate markets and help those that are evaluating markets to understand where improvement is needed in their reporting. One of the most obvious points that Paul made and I think many have made when you look at some of the reports that are coming out of Massachusetts, specifically, is that you are you are actually comparing two very different products. You're comparing a six-month commodity price product with many, many different offers that that are out there from retail suppliers. I you know, there's I can probably rant off five different offers that provide five different benefits to customers that are not anywhere near close to a standard six-month commodity price. So it's important for us to recognize what those differences are, make sure that they are appropriately being captured in any new reporting on a go-forward basis. And I think Paul, you know, intelligently articulates that in his report. So, yes, we definitely want this report to stand out and say, if you are going to be looking at appropriately evaluating restructured markets, here's how you should be doing it.

EMP: You referenced misinformation. We talked a little bit about that with Paul and my question to him, I'll throw it to you as well: How do you cut through the clutter here? I mean, it's not just the electric industry where we have misinformation as an issue. It's throughout our society and we've got a disaggregated media environment. How do we cut through the clutter?

CE: I think everyone's still trying to figure that out. One of the ways in which we're doing it is – and I think this is the most important thing – is to listen to the customer. It is something that REAL has prioritized. We have actually conducted polling, and we could talk about that polling. We have also engaged customers that are shopping and asked them what's important. And I feel like it's important for us to get the customer and the regulator and the lawmaker and the attorney general in the same room so that they are hearing directly from customers that are benefiting from choice. I'll give you an example. So we've heard from countless number of people that have decided that they want to purchase 100% renewable energy, an option that is not available to them if they're just choosing something that that utility is offering them. And oftentimes, even if you have municipal aggregation, municipal aggregation is not available to every customer throughout the state. So in the case of Massachusetts, that option might only be available to 30% or 40% of the market. So the other 60% if municipal aggregation was your only choice option would not be available to you. The other thing, beyond renewable energy, there are customers that have the option to choose free electric vehicle charging. There are customers that that choose free nights and weekends. Those are products that are very, very different from just a standard vanilla six-month commodity price. The other one that I thought was very interesting when we talked to a customer in Massachusetts was a fixed billing option. So it doesn't matter how much electricity they use in a 30-day period, their bill will always be, in this case, it was $80 or $90 fixed. So they didn't have to think about the fact you know that they were you know that they were on a 12-cent product versus a 16-cent product they knew every month it was going to be 80 or $90. And that specific customer had an electric vehicle had at a at a much larger house and so that was important to them to know that their that their price was fixed every month. Those are benefits in a choice marketplace that you otherwise wouldn't have if you were in a monopoly utility service territory, or if your options were significantly restricted because there were consumer protections in place that prevented those options being available to you.

EMP: All too often we hear, well, restructuring was meant to make electricity cheaper. It was meant to lower prices. And as we discussed with Paul that's a very simplistic view of things and doesn't really quite capture what was intended with restructuring. And we talked about the other benefits being the de-risking of investment. And we talked about innovation. So how do we move the conversation from, oh, it's all about price. Let's, you know, and it's more expensive in the competitive states than it is in the regulated states, which we already covered why that's not a fair observation. How do we move the conversation from price to innovation and investment discipline – things that will really benefit the customer?

CE: The way we have always looked at this problem set is through the lens of affordability and reliability. I feel like those are kind of the two pillars that are that are most important. And in fact if you do poll consumers those are our are constantly of the we'll call it the top five they’re usually one and two. The one that is really nipping at the heels of affordability and reliability is decarbonization. That is always number three. That's the one that is constantly polling in in in the top three. And I find that more and more that isn't an issue that people care about. And when we have done our own independent polling of consumers, we find that customers not only overwhelmingly care about the type of generation that they that they have, but that the majority of them would be willing to pay just a little bit more for that product. That's a really, really important thing to think about. And that is that is independent of their income level. So whether or not they make, you know, the household makes $150,000 or if the household makes $50,000, that number generally remains the same. So we are finding that customers overwhelmingly care about the choices that are being made when electricity is being procured for them. Now when we look at the responsibilities that some of these states have or the mandates that they have around decarbonization, it is becoming abundantly apparent that flexible load flexible demand, and customers being able to be active participants in the decarbonization story, is necessary. And I guess the question I have for the regulators and lawmakers out there, if they want to decarbonize as fast as they would like to, is how do you do that without the customer? And in restructured states it's abundantly clear that customers that have the ability to make their own choices are active participants in in the decarbonization story and are doing it at a much, much faster pace than markets that are not restructured. What are your thoughts on that? Bryan? Do you tend to agree?

EMP: Oh, yeah, no. There's no doubt about it. My concern about retail competition is that we haven't gone far enough. We don't have it in most of the country, even in the form that is prevalent right now, which I think is a 20-year-old model that desperately needs modernization. Anyone who's listened to this podcast will know that we see that the Texas market, which has the utility quarantined from the market, is a is a better model. It's creating more investment in clean energy. It's allowing more innovation. I think clearly, you know, ERCOT has been severely stressed this summer, and it's been battery storage, solar and wind that has saved the day. And you know, when you go to the state capitol, it's, you know, the problem – what has saved the state, it seems, most lawmakers view as the problem. They feel like they need to make more natural gas generation available because of the problem that they perceive renewables is bringing to the table. And you know, and that's all the misinformation, the education problem. 

CE: Is this where you're going to let me talk about supplier consolidated billing?

EMP: You know, Maryland did it.

CE: And if we're stepping outside of ERCOT for a second and when we're talking about some of the Mid-Atlantic and New England markets, I do think that if, if suppliers had a direct relationship with their consumers or with their customers, I think you would see a lot more product innovation in some of those markets. I mean, I so I just switched over – and I'm going to create an analogy on the telecommunication side – so I just switched over from Verizon to AT&T. I had customer support, call me directly helped me transition my phone over, my wife's phone over, our iPads. I have been getting consistent text messages from you know from AT&T, here's what you can expect with your upcoming bill. And here are some of the options that are available to you. And how do you want your bill to look like and all of this direct communication that helps me personally create, you know, the product that I want as well as the plan that is that is most suitable for my family's needs. And that is a direct result of me having communication directly with my provider. Something that I think in most restructured states outside of ERCOT is not available to customers. Imagine the innovation and the ability for suppliers to meet the customer's needs if that direct relationship actually existed.

EMP: Well, yeah, again that positive experience on the telecom side is because we ultimately got restructuring right in telecom. And none of us are tied to a black rotary telephone with a wire into the wall that we rented from the monopoly provider. Yeah, well supplier consolidated billing, you know, that's an example of something that should have been done 10 years ago, at least. You know, Maryland, had it in the statute initially. And they, to Jason Stanek’s credit, they ultimately adopted it. But how much longer is it going to take them to implement it? Are you involved in that in-the-weeds-level kind of thing?

CE: I'm not in the weeds. I'm on the periphery, but I will say it's probably going to take longer than we would like it to.

EMP: We all the time talk about telecom as being an example of what we could have in electricity if we would actually carry through and get restructuring right. And, you know, you took me away from Texas, you know, I'm going to get back on my soapbox there. The utility is quarantined from the market. So there's no need for supplier consolidated billing, you interact directly with your supplier. And I mean, that is what the antitrust regulators have been advocating for for 20 years and it's not happened. Are you guys, REAL, going to work around the status quo, or are you going to ultimately push for more robust reforms in the market? I mean, you know, from my perspective supplier consolidated billing, is, you know, getting one aspect of a flawed model correct. You seem to be suggesting that you get that and you address the bulk of the problems. So clarify that for me.

CE: So I think, specifically elimination of default service – if that were just taken away. In a perfect world, yes. I think that would be the best outcome for consumers.

EMP: Just to clarify: eliminating the utility’s role in default service. You're always going to need that default supplier.

CE: Correct. You're always going to need a provider of last resort. Yep, absolutely. I think in a perfect world, you have, you have competition across the board. You don't have an incumbent utility that makes it hard for competition to fully exist. Absent that, I don't think you get to, you know, elimination of the utility out of default service right out of the gate. I think it's an iterative process. And what we are trying to do is, we are constantly trying to look at it from the perspective of the consumer and we want the consumer to have the best experience. The best experience more often than not means that they have many options and that there is competition on the retail side so innovation exists. That is the most important thing. And I think the full version of that includes an environment where the utility prioritizes its fundamental responsibilities of managing the poles and the wires, and not necessarily being the retail provider.

EMP: Yeah, amen. Tell us about the polling you mentioned.

CE: The polling. Yeah, so we have polled customers in Connecticut. I believe, West Virginia, there’s been polling in Virginia, in Massachusetts. The polling asks a series of questions. And the most obvious ones are do you believe that you should have a choice in your electricity provider? Do you believe that the utility should be your only provider? I mean, those questions overwhelmingly 96-plus percent believe that they should have choice. But when you get into the specifics around, you know, would they choose a 100% renewable energy product? Do they want product variety? The majority of them answer yes. Some of them overwhelmingly support 100% renewable energy. So in the case of that question, it's usually, I think, that polling is usually 80% or more say yes. Then when we ask them if they would they'd be willing to pay a little bit more for the added value in those products and services? Over 50% say yes. So there's established value that customers assigned to those added services. I think the other one that was really interesting in the polling that I was, but that I guess I shouldn't be surprised by is, when we talk about long term fixed products, so products that are greater than six months. You know, if we offer you a 12-month fixed product are a 36-month fixed product, would you assign a premium to that product greater than default service? And in fact, yes, people prefer that product, and they would be willing to pay just a bit more for it. These are things that may not be readily apparent to regulators and consumer advocates and folks that are determining whether or not a healthy system is working. And again, we bring that information to them so that they know that customers do assign value to them. So in Massachusetts, I'll talk a little bit about this. We, when we talk about consumer protection and we talk about consumer education, some of the things that we advocate for is an ability for the customer to be able to switch if they're on a supplier product that they're unhappy with or they're on default service and they want to switch over to a competitive supplier, they shouldn't have to wait one or two billing cycles to do that. They should be able to switch immediately. And so we want to eliminate the barriers that exist in the marketplace so customers can make quick informed decisions, especially when they're not happy with the product that they’re on.

EMP: Yeah. I'm thinking, you know, it's so difficult to get these simple, easy fixes done. It is so difficult to do that. How are we ever going to get to a world where we quarantine the utility? Yeah, I can live in that world. I don't have to operate in it like you do. 

CE: Yeah. Well, this is why we have tried very hard for the past year and a half to establish relationships with consumer advocates with regulators. We will continue to do so. We are not the boogeyman. We are not the enemy. We want to work with you to make sure that it's a healthy, safe marketplace that people can shop in. That remains unchanged. Please reach out to us. Let us know how we can be helpful. Because if customers don't feel like they are, they can shop safely, the marketplace is never going to change. So we have to work together to make sure that customers know that they have an ability to shop. That's the biggest problem in and of itself. Full stop. Customers need to know that they can shop. And beyond that they need to be educated. And we need to make sure that there are good actors in the marketplace, not bad actors in the marketplace. And that comes down to increasing enforcement and making sure that we are policing correctly. So all of those things are important. And we want to be we want to be active participants and making sure that that that that that reform happens. When you have a moment, I will send you – we've actually had a bill House Bill 3155 where we work with (Massachusetts state) Representative Jackie Chan on reform measures that we think are necessary for us to eliminate some of the bad actors that exist in the marketplace. And so, absent any regulatory change, we felt this bill was necessary so we can you know, so we can get those appropriate provisions in place. Get some of the bad actors out in the marketplace. Make sure customers are protected and educated. And those reforms in a perfect world would be implemented as soon as possible, so that we can begin to show the attorney general and other consumer advocates in Massachusetts that this marketplace can work. But again, absent these changes, you're still going to have people that are abusing the marketplace. Very simple reform measures. Around bonding requirements around customers, ability to switch quickly, around how you can market to customers – these are these are all things that are necessary and important to get right.

EMP: REAL has been around for about a year and a half now. And I was just wondering, in your experience in that time, how you've encountered the lobbying of utilities. You know, the impression I have is they’re the 800-pound gorillas in each of the states. They've got the deep pockets and if they want something, they often get it because of that relationship. Are you running up against that sort of environment?

CE: I would say, when we look at market expansion opportunities and we look at it opening up new markets, we find them to be a well-funded and resourced adversary. Yes. 

EMP: Chris, I don't know if there's anything else you want to add for the good of the order before we sign off here.

CE: No, Bryan, I appreciate you spending some time with this. For many, I believe it's probably getting too far into the weeds but, but I know that this stuff is important to you. It's certainly important to us and we believe it's important to consumers.

EMP: I appreciate your time very much. Chris Ercoli, CEO with the Retail Energy Advancement League, thank you very much.

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