In Ritchie Hudson’s ideal world, every single electric customer in Pennsylvania would choose from the dozens of companies that compete to offer separate rates for power supply, an option seized by more than 2 million customers statewide.

But the industry is overcoming some early hiccups, acknowledges Mr. Hudson, state chairman for the Retail Energy Supply Association, a trade organization lobbying for such supply companies. 

Beginning in the 1990s, Pennsylvania and 15 other states deregulated their power generation — requiring regulated electric utilities to sell their power plants to competitive operators. Supply companies emerged as the middlemen to effectively broker sales of power between those power plants and consumers, offering separate rates for power supply that often are lower than what the utility can offer.  

And in the years since, the customer base swelled as the idea of competition proved to be largely true: Supply companies became savvier at offering a greater variety of options beyond the rate, such as the choice to pay a premium for a certain amount of locally sourced renewable energy. Pennsylvania is widely considered to have one of the most advanced markets for electric retailers, with a nationwide retail market study in July ranking the Commonwealth second only to Texas.

But despite growing options, customer confusion, reluctance and bad publicity has stymied overall customer growth, particularly in Western Pennsylvania. During the bursts of historically cold temperatures known as the polar vortex in recent winters, customers who had enrolled in a variable rate plan saw their electric bills skyrocket as wholesale power prices soared. 

Complaints filed when rates spiked

As many as five retail suppliers could be forced to pay millions in refunds after the Attorney General’s Office and Office of the Consumer Advocate filed suits on behalf of thousands of customers who filed formal complaints. On Dec. 3, the Public Utility Commission approved the first two settlements that requires New York-based Hiko Energy Inc. to refund customers $2 million and pay a $1.8 million civil fine.

In the complaint against Hiko, the agencies totaled 14,689 occurrences of over-billing across six utility territories, including 264 violations in Duquesne Light’s territory and 1,422 violations in West Penn Power’s territory.

Cases against four other suppliers — Pa. Gas & Electric; Blue Pilot Energy; IDT Energy; and Respond Power — are at various stages of litigation.  

“Some low-quality suppliers shot themselves — and, more importantly, the entire market — in the foot,” said John Tough, vice president of Business Development & Operations for Choose Energy, Inc., a San Francisco-based online service that facilitates customer shopping across deregulated states. “Through bad variable rates and high renewal rates, the bad suppliers took over headlines and scared the consumers.”

Since April 2014, suppliers marketing in Duquesne Light Co.’s territory lost 87,000 customers, or 34 percent. Those selling into West Penn Power Co. netted a loss 20,000 customers, or 11 percent, over that same time period. 

“I think most of the suppliers learned a very important lesson” about how to hedge against unexpected weather,” said Mr. Hudson, who is based in the Pittsburgh area working in governmental relations for New York-based electric supplier ConEdison Solutions. Suppliers also have increasingly stayed away from offering variable rates, instead focusing on fixed-rate plans that lock in customers for a period of months, he said.

Moving customers to the market

Still, the easiest option for customers is to stay out of the market. In fact, customers who choose not to shop for a competitive supplier automatically receive a supply rate from their utility, a model known as default service.

Going forward, suppliers will push the commission to end default service, thereby moving customers who were receiving power purchased by their utility to a supplier. 

Mr. Hudson said it might have made sense in the early years to gradually introduce the concept of competitive options to customers who were comfortable with paying only their utility for electricity. But utilities’ rates, regulated by the PUC, have a right to recover all costs associated with purchasing power for customers. 

With no risk and with guaranteed revenue, suppliers argue, the utilities’ service is hard to compete with. 

“In any other industry, the notion of a default service option is very foreign,” Mr. Hudson said. For example, no one hands every cell phone customer a wireless plan from a specific carrier until that person chooses to go shop for another one, he said. 

The PUC has considered ending default service as part of its years-long investigation into the effectiveness of retail markets, said spokeswoman Robin Tilley in an email. But during that investigation, “the commission concluded that the time was not right to dramatically alter the current default service structure.”

“The commission did state, however, that it would revisit the issue at an appropriate time,” Ms. Tilley added.

In Texas, the utilities commission decided to abolish default service and transfer customers who hadn’t shopped around for other electric suppliers. At that time, Mr. Tough said, most utilities in Texas had 35 to 45 percent of their customers already shopping, and the elimination of default service rose that share to 65 to 70 percent. 

The rest of the customers were “never going to switch were (then) forced — and likely didn’t even realize or understand what happened,” he said.

“The state realistically has to wait until there is great approval for competitive supply,” he said. A Choose Energy analysis of shopping data shows that since early 2014 the share of shopping customers has fallen from 44 percent to 33 percent in the Duquesne Light territory and 32 to 27 percent in the West Penn Power territory. 

“These are getting weaker, and a combination of rate volatility and flight to perceived safety in the utility area has occurred,” he said. 

Daniel Moore: dmoore@post-gazette.com, 412-263-2743 and Twitter @PGdanielmoore.

First Published: January 2, 2016, 5:00 a.m.