Resources for the Future
DC residents can buy electricity from the local electric utility or from one of many alternative electricity supply companies, referred to as third-party suppliers. In recent years, about 10% of residential customers –over 30,000 people annually– purchased electricity from third-party suppliers. Suppliers may charge different customers different prices, and many customers end up paying more than they need to. The Department of Energy and Environment (DOEE) designed personalized messaging about electricity service options and randomly contacted low- to moderate-income electricity customers who were receiving utility assistance from one of DOEE’s assistance programs. DOEE tested whether the customers they contacted ended up paying less by switching suppliers or negotiating lower rates. The Lab helped DOEE design the study and DOEE and its partners independently led study implementation and analysis.
Why is this issue important in DC?
If customers who receive help paying their electric bills from DOEE pay higher prices, they are more likely to fall behind on their electric bills. Customers who fall behind on their bills can have their electricity disconnected. They may also need more utility assistance funds from DOEE, which means that DOEE can help fewer people with the resources available.
In recent years, around a quarter of approximately 20,000 DC residents receiving utility assistance annually had a third-party supplier for most of the year. These customers’ electric bills were over 1.5 times higher, on average, and they had over 2 times more in late, unpaid bills than customers not using a third-party supplier.1 The price of electricity provided by DC’s local electric utility is often lower and more stable. Research suggests that many people don’t realize they could be paying a lower price for electricity.2
What did we do?
We worked with DOEE and an external research partner, Resources for the Future, to design an experiment that randomly sent some customers of third-party suppliers a letter or text message to let them know what price they pay, how it differs from the local utility’s price, and what steps they can take if they want to switch suppliers or negotiate their current rates. DOEE and Resources for the Future then compared the difference in the price paid between customers who received the information and those who did not receive the information. This helped determine if the outreach encouraged people to negotiate or switch to a lower electricity rate. The Lab helped by testing message options with customers to see if they were easy to understand and act on. We also helped with the experimental design. We did not help implement the experiments because of legal barriers that made it hard for our team to access the necessary data and because DOEE and Resources for the Future had the analytical expertise needed to run the study.
What have we learned?
Findings from the experiment suggest that certain types of outreach can be effective at helping consumers save on their electric bills. But for most customers, the effects are small and don’t last over time. We found that mailed letters were more effective than text messages at helping customers save money in the short-run, and older customers were more likely to save on electric bills over time.
What comes next?
Given the study results, DOEE has proposed consumer protection legislation to the DC Council as a better way to improve consumer welfare.
What is happening behind the scenes?
We tested messages with volunteers recruited at a DC recreation center event. We also tested messages through an online user testing platform where we could recruit testers with demographic information like the group of people who eventually received the study messages. This feedback helped us design shorter, clearer messages.
“DOEE strives to keep residents’ utility bills affordable, especially among low-income residents. Finding cost-effective tools to help customers choose the right electricity suppliers for their needs and budgets is an important part of how we serve the District’s electricity customers.”