Will Massachusetts Ditch Its Competitive Energy Market?
The energy market has fierce critics and supporters, but new legislation could have a big impact on how much residents pay for power.
- Journalism awards from the Boston Press Photographers Association, the Society of Professional Journalists and Boston University
Electric bills are complicated, especially if you live in a state where you can choose your energy supplier.
There's a debate playing out in Massachusetts that might change the way Bay Staters get their electricity.
You may not have thought about the issue, because most people don't think about their electric utility beyond paying a bill every month. But Massachusetts has a "deregulated" energy market, which allows customers to choose where their power comes from and how much they pay for it. Now political leaders are questioning whether that setup actually serves consumers' best interests.
The movement stems from reports of deceptive marketing practices and bills that end up dramatically higher than they would've been if the customer stayed with the standard offer. Now-Gov. Maura Healey repeatedly documented higher-than-expected bills and other consumer protection concerns when she was the state's attorney general.
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The Massachusetts legislature faces dueling plans to address the issue: One proposal would prohibit energy suppliers from signing up new customers -- essentially ending a decades-long experiment with a competitive energy market in Massachusetts. Another measure would keep the competitive market but add more regulations intended to rein in bad actors.
So what does this all mean for residential energy customers in Massachusetts? Here's what you need to know.
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The problem with energy suppliers in Massachusetts
Critics of the competitive energy market in Massachusetts point to a pattern of problems with energy suppliers scamming or misleading customers into switching suppliers and ultimately paying higher electricity rates.
"Competition in the sale of electricity and gas sounds like it should lead to lower prices and better deals, but in the market for electricity the opposite is commonly true," said a 2018 report by the National Consumer Law Center, which has testified in favor of the bill to end the competitive energy market. NCLC reported the current system led to customers paying more for energy, with unfair and deceptive sales practices specifically targeting low-income communities, older consumers and those who speak English as a second language.
While there certainly are deceptive sales tactics at play in many cases, "scam" isn't always the right term for what's happening here. Sometimes customers simply fail to understand what they're getting into, according to Akshaya Jha, an assistant professor of economics and public policy at Carnegie Mellon University.
The problem is a common one, said John Hanger, owner of an energy consulting firm and former member of the Pennsylvania Public Utility Commission. "In every single competitive market that I know of, there are people that make bad choices … or are subjected to even a criminal scam of some sort or another," Hanger said.
Hanger, who supports competitive energy markets, argues that Massachusetts must do a better job enforcing the rules and shutting down energy suppliers that break them. "Of course, a competitive market needs rules to protect consumers, and then government officials willing and able, even eager, to enforce them," he said.
The problem of customers potentially overpaying in the competitive market has been captured by some eye-popping numbers in the Massachusetts AG's report: "Residential customers who received their electricity from competitive suppliers paid $426 million more on their bills than they would have paid if they had stayed with their utility companies."
But Hanger said not everyone who pays more than the standard rate for electricity is necessarily being "overcharged." Some customers knowingly choose a rate slightly higher than the current rate in exchange for a multi-year contract that gives them price stability in case the standard rate rises in the future, he said. Or a consumer might opt into a plan that's more expensive but supports renewable energy.
The issue doesn't apply to all Massachusetts customers: Most residents don't switch from the default supplier anyway. Research shows there's a strong bias toward the "incumbent" utility company, leading many to ignore the potential of retail choice in their state altogether.
What Massachusetts is debating
The two dueling pieces of legislation in Massachusetts would reshape the energy market, but in different ways.
One bill would bar competitive energy suppliers from signing up new customers in Massachusetts, essentially banning the competitive market.
"This has been a 25-year experiment. It's fair now to conclude on the basis of the evidence that [the market has] failed to produce value for large numbers of consumers," state Sen. Michael Barrett told WBUR.
The other bill would impose new regulations on the industry, rather than eliminate it. These changes would, among other things, prohibit cancellation fees when customers leave a plan and bar suppliers from "signing up low-income customers who are on the state's discount electric rate," according to WBUR.
Hanger, during his time leading Pennsylvania's Public Utility Commission, came to see competitive markets as better than monopolistic utilities, and he supports a (properly regulated) competitive market in Massachusetts.
"Competitive markets, where possible, are better than the alternative," Hanger said.
The result of this debate is still far from certain, and will continue to play out at the Massachusetts state house this spring.
How to avoid getting ripped off on electricity
If you're living in Massachusetts and trying to navigate the existing competitive market in the meantime, there are some things you can do to protect yourself.
- Be wary of flashy sales offers: As the old adage goes, if it sounds too good to be true, it probably is. Make sure you look into the fine print of any offer to lower electricity prices; sometimes there's a hidden clause that will cause the rate to balloon down the line.
- Try to lock in an electricity rate. "I recommend fixed price contracts, not variable price contracts," Hanger said. Some competitive suppliers offer rates that are slightly higher than the default utility, but have the benefit of price stability over a one-year or multi-year period. This can also lead to rate savings if the variable rate goes up after your lock in yours.
- Look into a municipal aggregation program. Many Massachusetts towns and cities have an option like this, also called "community choice aggregation," where "city officials buy power from competitive electric suppliers on behalf of their customers," according to WBUR, and then pass on the lowest possible rate to residents. This collective of customers also has more negotiating power with energy suppliers, giving the city more leverage on behalf of residents.
- Always read your electricity facts label carefully: Also known as a "fact sheet" or "EFL," it's a critical step before making a choice in any retail energy plan. The EFL is your nutrition label to each electricity plan. At the very top of each EFL, look at your most closely aligned consumption profile to see exactly how much your average price per kilowatt hour will end up costing. This section of an EFL will outline your final average of price per kWh after all additional fees are factored in.