Alternative retail electric suppliers: A surge in consumer protection standards in Illinois
The Illinois Commerce Commission (ICC) is applying new and stronger consumer protection rules, stakeholder engagement and consumer education tools to evaluate the deregulated electric supply market.
The following is a viewpoint from the Illinois Commerce Commission's Commissioner Sadzi Martha Oliva and legal & policy advisors, Gerardo J. Delgado and Janel Haretoun.
In recent months, the alternative retail electric supply industry has come under scrutiny in Illinois for misleading and deceptive practices. The Illinois Commerce Commission (ICC) is applying new and stronger consumer protection rules, stakeholder engagement and consumer education tools to evaluate the deregulated electric supply market.
Following the Samuel Insull principle that "low rates may mean good business," Illinois became a consumer-choice state in 1997 with the implementation of the Illinois Electric Service Customer Choice and Rate Relief Law, also known as the "Consumer Choice Act." Although the law prescribed a transition to a competitive retail market by phasing-in commercial and industrial customers before residential customers, by 2002, residential customers in most areas of the state could choose a power supplier, known as an alternative retail electric supplier (ARES). As the ICC reports, there are currently over a hundred certified ARES in the state's competitive electric market.
In October of 2017, twenty years after Illinois first became a consumer-choice state, the ICC adopted amendments to 83 Ill. Adm. Code 412 (Rule 412). This was due to the ICC's examination of the sales and marketing practices by ARES that had originated from an influx of consumer complaints regarding electricity prices during the 2013-14 polar vortex. After initiating a Notice of Inquiry and conducting workshops evaluating the sales and marketing practices of ARES, the ICC commenced a rule-making proceeding, in which stakeholders representing ARES, consumer groups and utilities, as well as the ICC's Staff, commented on the proposed rule changes to Rule 412, which were later adopted.
On May 1, 2018, the strengthened consumer protection rules went into effect in Illinois ensuring that adequate disclosure and transparency exist in transactions taking place between consumers and ARES. With nearly 1.8 million Illinois residential customers receiving power from an ARES, the more stringent marketing rules better equip consumers with necessary tools to make informed choices when entering into contracts for electricity with a supplier other than their utility company.
The chart below lists some of Rule 412's amended requirements for all ARES certified by the ICC:
On March 21, 2018, Commissioner Oliva hosted a policy session at the ICC titled "Illinois' Power Meter, Retail Electric Suppliers: Best Practices & Consumer Protections." Presenter Jean Gibson, then ICC's Director of the Office of Retail Market Development (ORMD), shared that as a result of these amendments to Rule 412, ARES and their trade associations are working with ICC, through the ORMD to bring business practices, solicitation methods and employee and agent training into compliance with the new rules.
The Illinois Competitive Energy Association (ICEA) and the Retail Electric Supply Association (RESA) each shared the code of conduct for their members. Moreover, Kevin Wright, president of ICEA and Gerard T. Fox, Illinois counsel to RESA, shared that trade association members are expected to uphold all applicable laws and regulations, ensure prompt and fair investigations of all customer inquiries and complaints, and train employees on the proper principles and practices.
In addition to placing a high value on improved business practices, some suppliers are shifting their business model to enhance the customer's experience and understanding of the services provided by an ARES. One approach, implemented by IGS Energy, is the use of an in-house sales team known as "Home Energy Consultants," according to the company's regulatory counsel, Michael Nugent. Developing the workforce from within the company gives an ARES greater control over business and solicitation practices. This requires proper initial and ongoing training on laws, regulations and products. Educating consumers also prioritizes the customer experience over a sale, and facilitates informed decision-making, which improves customer satisfaction, protects the company's reputation and reduces risk of non-compliance.
"IGS' process is effective and has resulted in one of the lowest customer complaint rates in the State of Illinois."
Regulatory counsel, IGS Energy
"In 2013, IGS internalized its sales force to enhance the customer experience and maintain complete control of its sales and marketing process. IGS' process is effective and has resulted in one of the lowest customer complaint rates in the State of Illinois," said Nugent. Upholding the laws and regulations and making the necessary improvements to the business model helps ensure that the competitive energy market functions as intended.
Rule 412 also functions to get the consumer involved and aware of the services being provided to them. Uniform disclosure statements and advanced notice of rate changes to contracts, as required under Rule 412, are steps in the right direction when it comes to increased customer awareness. Consumers can go a step further by asking the right questions, as well. AARP and the Citizens Utility Board provided the following tips for consumers:
Since the adoption of the new sales and marketing rules, the ICC has called for more prominent disclosure on rates by requesting that ARES include the utility "Price to Compare" on any marketing materials for residential or small commercial customers that mention price per kilowatt-hour in order to better educate consumers about the price they are paying for their electricity supply. Currently, the "Price to Compare" is available on the ICC's Plug-In Illinois website.
The call to action for more prominent disclosure originated from ORMD's annual report to the General Assembly and Governor that evaluates and makes recommendations with respect to Illinois' retail electric choice market. Moreover, the annual report notes that customers are spending more than they would have if they remained with their utility.
Whether the greater spending is directly attributed to this lack of information remains to be seen. Nevertheless, the ICC recommends the disclosure of the "Price to Compare" for greater transparency. ORMD also recommends research on additional methods to better understand value-added incentives offered through the retail choice market, as well as investigating tactics and methodology to analyze market participation by geography.
As former ICC Chairman and noteworthy forefather of deregulation in Illinois, the late Philip O'Connor, stated, "Technology has cultivated an entirely new generation that now expects to have more options, including the ability to compare prices and customize solutions."
The ICC is responsible for promoting the retail market and ensuring the availability of safe, reliable and affordable electric service for all Illinois customers. The amendments to Rule 412 are the culmination of a four-year collaborative effort to achieve just that. The amendments to Rule 412 that became effective May 1, 2018, and the ICC's authority vested by the Consumer Choice Act, gives the ICC better enforcement tools to evaluate the performance of an ARES in the market to ensure compliance with the rules. The ICC is now transitioning from rule-making into a new phase of enforcement — but enforcement is only one piece.
Together, consumer education, ARES compliance and ICC enforcement will be the keys to effectively shaping the electric retail choice market in Illinois, so it functions as intended for the benefit of consumers.
The views, statements and opinions expressed in this article do not necessarily represent the views, official policy or positions of the ICC, any Commissioners or other ICC employees.