Researchers at Ohio State University crunched a decade’s worth of offers from retail electricity suppliers in the state for a recent study.
They found the deregulated energy retail market isn’t behaving the way healthy markets do, leading many consumers to buy kilowatts at inflated prices.
The study's lead researcher Noah Dormady said the state could fix it. But for the past decade, most of the offers available on the market were bad deals for consumers.
Many electric customers are completely unaware of the retail energy market until they’re approached by a marketer from a retail energy supplier. They often ask to look at a consumer's energy bill, and then try to convince them to sign a contract with them, instead.
Dozens of companies post a hundred or more different offers for electricity every day. Each offer has different terms, with variations in the actual cost of the electricity, contract length and monthly fees.
So, to stand out, retail suppliers hire people to knock on doors, approach people in the grocery store and send letters, trying to get the attention of consumer.
"Your energy supplier is not a decision to be made on your front doorstep or in a big box store," said JP Blackwood at the Ohio Consumers' Counsel.
He said it's a decision that will cost hundreds of dollars a year.
Consumers that don’t pick their own supplier don’t have to do anything to use the standard default rate their utility offers, or, often, the government aggregation program where they live.
So, the options are, stick with the default rate, switch to a new offer because someone from the company knocked on your door or shop for your own deal on the state's retail energy market -- known as Energy Choice Ohio.
"I looked at the prices today and there's a couple offers that are beating the standard offer right now, but there's also more than 100 who are not better than the standard offer," Blackwood said.
The study
But, the new research from OSU shows that more likely than not, consumers are better off ignoring those retail supply marketers because the offer isn't any better than that default rate.
The study revealed that more than 70% of the two million, 12-month offers for electricity posted on the state's marketplace between 2014 and 2024, were more expensive than the default rate people are enrolled in by their utility distributor.
"Every day we see prices that are three, four, in some cases 500% away from the wholesale price, there’s just huge dispersion in these markets,” Dormady said.
Dormady found evidence suppliers are using state auctions, instead of wholesale market prices, to calculate their offers. He said that inflates rates.
And, he said it reveals a “fundamental market failure,” and is evidence that the state's marketplace isn't healthy – that it's missing something crucial.
Consumer education
"Imagine if Honda tried to sell a Honda Civics for $300,000,” Dormady said.
The offer wouldn’t last long, he said.
“It would not persist because consumers would say, wait a minute, I can buy that car for a lot less. Consumers are fully informed about the price of what a Honda Civic should cost,” Dormady said.
Educated consumers keep retailers in check. But some consumers are committing to the $300,000-Honda-Civic of electric rates, because they don't know any better.
A good deal might lock in a low or mid-level price that holds steady even if energy prices go up regionally. But a bad deal might cost more than that cost to compare, and come with extra fees.
And, according to OSU's research, most are more expensive.
The study found retail suppliers made offers that averaged 25 to 30% above the standard offer. But when the deal did offer cost savings, it was only 5 to 10% under the default rate.
"There are cost-saving rates out there, but they shouldn't be so rare, and they shouldn't be so difficult to find," Dormady said.
He said it doesn't cost the companies to post a variety of rates, and target low-information consumers in door-to-door, telemarketing operations and other mass marketing operations.
"What we as economists call price discrimination, where they can charge customers of varying knowledge levels, different prices. And if they can post a price at 400% above the default service price, if they can find a fish that will bite on that hook, that's just pure profit for them,” Dormady said.
The Public Utilities Commission of Ohio licenses the retailers and oversees the marketplace.
“There are regulations to ensure that the retail supplier's marketing, solicitation and enrollment practices, that there are consumer safeguards there. So we expect retail suppliers to be truthful, honest and upfront with all information ahead of time. So we really encourage consumers to do a little homework about that,” said Matt Schilling, PUCO spokesman.
But it's not illegal to post a bad deal.
The PUCO warned consumers in a 2024 video comparing the retail energy marketplace to Facebook’s marketplace.
“It's great being able to pick and choose from different sellers selling at different prices, different locations. It's great. With so many options, you get to pick the best deal and the best option,” the video states. "Sometimes, though, sellers may want to take advantage of customers. So you need to stay on the lookout for potential warning signs of scams and other kinds of bad deals. This is similar to how Ohio's energy retail market works."
Schilling said the PUCO does monitor the market to make sure none of the suppliers obtain too much "market power." He said regulators ensure competition and require marketers to tell the truth or lose their license to operate.
"We do make sure that the market is healthy and that there's sufficient competition,” Schilling said.
The video states that “competition” is how the PUCO "polices prices."
Calling for intervention
Dormady said the study shows it's time for the state to do something.
"The appropriate role of government is to step in and to provide a correction for that asymmetric information, to give consumers the information that they need to make an efficient decision,” Dormady said.
Schilling said the PUCO uses its Energy Choice Ohio website to share information with consumers.
“We do try to communicate to Ohioans and encourage our utilities and electric suppliers to as well. We do at the PUCO,” Schilling said.
Schilling said the study was insightful, but that it's up to consumers to learn from it.
"To me, it essentially says, you know, a consumer really needs to do some due diligence and homework and just beware of what they're agreeing to before they do so,” he said.
Improving the market
Dormady said the study shouldn't be interpreted as calling for the state to do away with the marketplace, or to laden it with onerous new regulation. But, he said it reveals that it needs improvement to make it a better place for consumers.
Blackwood agrees.
He said deregulation — which led to the Energy Choice marketplace — has been good for Ohioans, because of the ability to sign on to the default rate through a utility, and to form aggregations, some of which offer energy from green sources.
He said the Ohio Consumer’s Counsel would like to see the state adopt an independent market monitor. He also wants to make the process easier for consumers.
He said Dormady's study shows, "there's danger" in engaging with marketplace without being informed.
"That's not to say there aren't marketers that offer good prices. It just takes a lot of energy and a lot of effort and a lot of following to save money with the marketer," Blackwood said.
He's talked to people who are paying two or three times the standard, default rate.
"We have good resources to help people make good decisions,” Blackwood said. “We have a fact sheet called How to Make Wise Energy Choices on our website at occ.ohio.gov. We even have a short video that helps people make wise energy choices."
Dormady, Blackwood and Schilling all said shoppers should do their own research, read the entire terms of the offer and check the cost against the "price to compare.”
Dormady said he has more data that may be used in future studies. One may take a look at natural gas offers made on the marketplace. Blackwood said OCC shadow billing data shows consumers typically overpay when they shop for those offers, too.
"That shows that consumers who have chosen a marketer have spent more than $2 billion more than consumers who chose the standard offer," Blackwood said.
