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July 23, 2018
Study by Brattle Economists Outlines Recommendations for Improving Retail Electric Choice

Brattle economists have released a study that reviews the current state of markets for Retail Electric Choice in the United States, noting that it is under criticism in some regions while up for reconsideration in others that had previously put it aside. The study provides recommendations on what could be improved to make Retail Choice more desirable for customers and retail service providers across markets.

The initial goal of Retail Choice was to reduce consumers’ electricity bills and to substitute competition for regulation, ideally bringing service innovations as a benefit. While there is generally agreement that Retail Choice is working for commercial and industrial (C&I) customers, there is controversy around the success of mass market services. Retail Choice has faced recent increased scrutiny from a few state regulators, who have taken the position that cost-reduction or innovation benefits are few or non-existent and that some providers are harming residential customers. As a result, some have recommended ending or strongly controlling Retail Electric Provider (REP) services to those customers. Several state Attorneys General have taken enforcement action against specific REPs for deceptive marketing practices and misleading customers, and two have recommended that Retail Choice be eliminated for mass residential customers.

At the same time, there has been a resurgence of interest in Retail Choice, driven primarily by low wholesale power costs and increasingly economical renewable generation, as well as the shift in focus toward customer-centric energy choices through distributed energy resources (DERs). The Brattle study argues that much of the controversy surrounding Retail Choice has been based on political orientation towards regulation versus markets, which is too polarized to identify a beneficial middle ground. In that regard, there needs to be new empirical studies to thoroughly evaluate the performance of mass market Retail Choice that account for differences in design of programs and market conditions.

Retail choice may become increasingly important for the fullest realization of DER adoption and efficient use. The Brattle study also points out several design elements of Retail Choice to reconsider and improve, including the design of Default Service, the holding of the customer relation, customer protections via service standards, Community Choice Aggregation (CCA) protocols, and whether to implement Retail Choice in non-RTO regions.

The study, “Retail Choice: Ripe for Reform?” is authored by Brattle Principals Frank Graves, Agustin J. Ros, and Sanem Sergici, Associate Rebecca Carroll, and Research Analyst Kathryn Haderlein.