NCAT study finds residential consumers can be worse off under restructuring

BUTTE, Mont., Sept. 16, 2002 — A new study makes the case that there can be an adverse impact of electric and natural gas market restructuring on some residential consumers.

The five-state study, conducted by the National Center for Appropriate Technology (NCAT), was released in full Tuesday and is the first product of an on-going project to examine the impacts of restructuring on residential consumers, particularly low- and moderate-income households.

“While these are early findings from a handful of restructured states, the study pinpoints those aspects of state’s programs that are detrimental to consumers, as well as those that serve consumers well,” said Kathleen Hadley, NCAT executive director. The study reviews Georgia’s restructuring of its natural gas market, as well as the restructuring of electricity markets in Massachusetts, Texas, Ohio, and part of New York.

“In the states that have relied on the pass through of short-term market-based rates for default service, residential customers appear to be worse off compared to pre-restructuring rate policies and are certainly worse off compared to customers in those states that have adopted rate caps and rate freezes that insulated customers from price volatility,” said consumer expert Barbara R. Alexander, one of the study authors.

At a minimum, the consumer experiences documented by the project suggest that legislators and regulators should develop policies that rely more on long-term stable rates and avoid short-term price volatility, she added.

The NCAT study also found that, with few exceptions, restructuring laws have not resulted in the lower prices or increased choices that many policymakers had anticipated.

The exceptions noted in the study occurred in selected regions in two states (Ohio and Massachusetts) that have utilized a strategy called opt-out aggregation, a low-cost way to pool the buying power of a large number of customers.

The study found that this strategy has yielded significant electric bill savings for consumers and given them access to competitively-determined electricity prices and green power.

“The experiences in these two states are notable,” said study author Matthew H. Brown, “because they offer lessons about keeping electricity costs low while bringing the benefits of competition to residential and other small customers.

Key highlights of the NCAT study include:

* The five states studied are still in a transition period to fully competitive residential markets, and this transition period will last longer than expected due to a variety of reasons explained in the full study report.

* As states move to the end of the transition period, it is clear that the method of pricing and delivery of Default Service (service for customers who do not have a competitive supplier) will be crucial to residential customers. “No state has yet confronted the long-term policy implications of the failure of a competitive market to develop policies and programs that will govern the provision of Default Service after the end of the transition period,” Alexander said.

* Competitive market abuses, particularly door-to-door marketing, point to the need for additional regulatory oversight.

* With the exception of Georgia at the onset of its market opening, the states have adopted comprehensive consumer protection programs and policies. Texas and Ohio, in particular, are models for well-designed consumer education and protection programs.

The study, titled “The Transition to Retail Competition in Energy Markets: How Have Residential Consumers Fared?” will be available at It is part of NCAT’s continuing effort, through its National Energy Affordability and Accessibility Project, to document how restructuring is affecting residential consumers.

The study was funded by the U.S. Department of Health and Human Services Administration for Children and Families. A forthcoming study will examine how low-income consumers have been impacted by the transition to competition in the five states.

The National Center for Appropriate Technology is a nonprofit based in Butte, Montana. Since 1976, NCAT has operated a variety of programs that serve economically disadvantaged people by providing information and access to appropriate technologies that can help improve their lives.

Source: National Center for Appropriate Technology (NCAT)

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