More than 20 years after Maryland opened its energy marketplace to competition, about one in six customers is getting electricity from a company other than their default provider.
But the savings that policymakers hoped for when they adopted a deregulation plan have not materialized. In fact, studies show that Marylanders who switched paid about $621 million more to turn on lights, run microwave ovens and charge their cell phones between 2014 and 2021 than those who stayed with Baltimore Gas and Electric (BGE) and Potomac Electric Power (Pepco).
And many of those who switched providers did so because of deceptive marketing practices, consumer advocates say, which have targeted poor and minority neighborhoods.
Continuous efforts are underway to improve the system and make sure promised benefits materialize. Many want to make sure Maryland doesn’t become a state like Texas – a place where the full embrace of deregulation contributed to massive power outages and even deaths during extreme weather events.
Some of those involved with Maryland’s deregulation efforts express deep regrets.
“I am rather embarrassed that my signature was on that bill,” said former Gov. Parris Glendening, who was in office when the state restructured its energy market. He called the move “a mistake.”
After a slow start, an explosion
Amid a wave of deregulation pushes nationwide, the Maryland General Assembly enacted the Electric Customer’s Choice and Competition Act in 1999, opening the state’s electric supply market to competition. Similar changes for gas supply followed soon after.
In a deregulated market, Maryland’s major utility companies, such as BGE in the Baltimore area, would continue to manage the infrastructure used to deliver electricity and gas to customers – running the electric grid and maintaining the pipes.
But customers could decide whether to receive their energy – the electricity that runs across cables or the gas that’s in the pipes — from a third-party supplier.
Those arguing for the change said the state would be at a competitive disadvantage if it didn’t follow its neighbors who were also deregulating, and that deregulation would speed the adoption of renewable sources of energy.
At first, not many picked an alternative.
After a decade, 5% of Maryland households had opted for an electricity supplier other than their regular utility by the end of 2009, data from the Maryland Public Service Commission (PSC) showed.
But then the alternate market exploded, after the PSC adopted two regulatory changes that made it easier for the alternative providers.
One was a move to put all charges – both from the supplier and the delivery company – onto one bill, called utility consolidated billing.
The second was around debt collection practices, allowing the third-party suppliers to sell their debts to utility companies. It ensured that suppliers, who were unable to send shutoff notices, would get the money owed to them, and turn over the responsibility of collecting customers’ debts to the utility company.
Before the implementation of purchase of receivables, “the utility portion of the bill was given priority of payment over the supplier portion and past due amounts were prioritized over current amounts,” according to a 2010 PSC report.
After those regulations went into effect in 2010, the percentage of residential retail electricity supply customers in Maryland jumped to nearly 13.5% by the end of 2010, PSC’s enrollment data show.
Laurel Peltier, an author and consumer advocate who has studied Maryland’s energy market, said suppliers “flooded” the marketplace after 2010 because the debt collection regulation protected them from credit risk and costs related to billing and collection.
By December 2013, the percentage of Maryland households on third-party-supplied electricity had climbed to about 26%, representing nearly 530,000 Maryland families.
It has dipped slightly each year since then, according to PSC enrollment data, and now hovers around 17%.
The difference between the number of accounts that switched to a third-party electric supplier from one of the “Big 4” utility companies — Potomac Edison, BGE, Delmarva Power & Light, and Pepco — versus the number of accounts that switched from a third-party supplier to one of those utilities has narrowed over the past few years.
The net amount fell to 1,732 in 2020. Currently, the net for January 2021 through November 2021 sits at 4,017, however the PSC’s electric choice enrollment report for December 2021 is not yet available at the time of this article’s publication.
Where are the savings?
Supporters of electric choice argued that suppliers would compete with one another to offer the best products and prices for customers.
But consumer advocates and researchers have questioned how effective the law has been with saving Marylanders money on their energy bills.
In 2010, the smaller third-party suppliers saved customers about $20 million, compared to the major utility companies’ supply prices, according to a major study by the Abell Foundation, which examined data on suppliers’ revenues and customers from the U.S. Department of Energy’s Energy Information Administration.
Then, from 2011 to 2013, customers who received their energy from third-party suppliers paid about the same as they would have with their regular utility, according to the report, which was produced by Peltier (who is also the author of the GreenLaurel column for Baltimore Fishbowl) and Arjun Makhijani, a nuclear engineer.
But after that, things changed fast.
From 2014 to 2017, Maryland residential energy customers supplied by a third-party retail provider paid $255 million more on their electricity bills than if they had with their default provider, the Abell report found.
Peltier has since updated those calculations and found that from 2014 to 2021, including the period covered in the Abell report, Marylanders overpaid about $621 million on their electricity bills.
The problem is not confined to Maryland.
Nationwide, households who received their energy supply from third-party providers paid $19.2 billion more between 2010 and 2019 than if they had stayed with their regular utility company, an analysis by the Wall Street Journal found.
Energy choice became “an open door for a great deal of abuse,” said Glendening, the former governor.
The Retail Energy Suppliers Association (RESA) has dismissed the 2018 Abell report’s findings, arguing that weighing the utility companies’ Standard Offer Service price against third-party suppliers’ price is an “apples to oranges” comparison. Suppliers offer different contract terms, products and incentives for signing up, such as smart thermostats, which can affect the supplier’s price, RESA said, and they must recover those costs.
“This accusation is particularly baffling since all entities including private businesses, utilities, government agencies and even the Abell Foundation must recover the cost of their operations. That doesn’t mean, however, that their product offerings are worth nothing,” said the association.
RESA said the Abell report downplays the value that customers see in suppliers’ plans.
Sarah Battisti, director of government relations at energy company NRG, one of the suppliers operating in the state, said her company and others provide better products, prices and customer service than the utility providers, which she said are treated as a “government-sanctioned monopoly.”
“It is utility [Standard Offer Service] that has created the conditions in Maryland for retail energy competition to be characterized by fly-by-night operations and companies that are not interested in creating real value for their customers,” she said. “The heavy reliance on utility billing (to which suppliers add their charges) has allowed ‘bad actors’ to exist to take advantage of vulnerable families.”
Aggressive tactics in poor neighborhoods
More than a hundred third-party suppliers operate in Maryland, with names like Titan Gas, XOOM Energy and Spark Energy. To attract customers to buy from them, some use tactics like sending representatives door-to-door, and offering enticements like Visa cards loaded with cash.
Advocates are troubled that those tactics are aimed heavily at poor neighborhoods in Baltimore.
Ava Hawkinson, a case manager at Health Care for the Homeless, said she has seen her clients’ energy bills climb after being lured by suppliers’ promises of cost-saving energy plans and other incentives.
One client, and elderly woman, had her electricity supplier switched 23 times since April 2019.
“After she pays all of her bills, at the end of the month she might just have $200,” Hawkinson said. “Somebody who comes to her and says ‘Hey, we're going to help you save money,’ it looks very appealing, especially if they say ‘We're going to give you a Visa card with $20 or $50 on it.’ She thinks ‘Well, I'm at the end of the month. I only have a little bit of money. I can go buy soap. I can go buy some more food,’ and she'll be much more likely to say yes in that situation.”
That same client receives as many as five mailers per week from suppliers.
Whether in person, over the phone or in mailed materials, many suppliers use unclear language to convince customers they are from the utility company and instill a false sense of urgency to persuade them to provide the information needed to switch.
“It’ll say ‘60 days to respond’ in bright red font and ‘this is about your electricity,’” Hawkinson said. “Clients will sometimes just put their BGE account number down on these mailers or tell the people in person because they really think that BGE is trying to contact them….They’re inundated on a daily or weekly basis.”
Another one of Hawkinson’s clients in Health Care for the Homeless’s supportive housing program believed she had talked to a BGE representative who was offering her three free months off her BGE bill.
Instead, the salesperson was from a third-party supplier, persuading Hawkinson’s client to sign up with the supplier and that she would not have to pay some of the supplier’s charges during those three months.
Believing she did not have to pay her BGE bill, the client let the bills rack up. By the time she met Hawkinson, the client had accrued $1,000 in unpaid BGE bills that she was unknowingly still on the hook for.
Hawkinson was able to help the client qualify for energy assistance to pay off the debt and avert a shutoff notice – a requirement for the housing voucher the client received.
“But if her electricity had been turned off – she has Section 8 – that would have put her voucher in jeopardy and she could have been homeless,” Hawkinson said.
Another Health Care for the Homeless client mistakenly signed up with a third-party supplier for a three-year contract. When she tried to cancel, she discovered the contract required a $345 termination fee.
“That client is not someone who just has $345 in their bank account that they can spare, so instead they're going to be locked into paying [an extra] $50 a month for three years,” Hawkinson said.
Still another client, after switching to a third-party supplier and paying higher monthly bills, resorted to boiling pots of water on the stove for warmth instead of turning on the household heater, Hawkinson said.
In December 2020, the PSC issued a report on energy supplier pricing and marketing, including data on the number of suppliers selling door-to-door in each Maryland ZIP code.
The PSC report showed that door-to-door activity is much higher in some parts of the state and seems to be particularly concentrated in lower income neighborhoods in Baltimore.
Peltier said the activity follows the city’s “Black Butterfly,” a concept coined by Lawrence Brown, a faculty instructor at Johns Hopkins Urban Health Institute’s Bunting Neighborhood Leadership Program.
Roland Park, one of Baltimore’s most affluent and predominantly white neighborhoods, had 11 suppliers engaging in door-to-door sales, according to the PSC.
Other predominantly white ZIP codes, including parts of Downtown Baltimore, the Inner Harbor and Fells Point had 15 or 16 suppliers selling door to door.
But ZIP codes with some of the highest numbers of door-to-door sales by third-party suppliers were located in some of Baltimore’s predominantly Black neighborhoods.
The 21205, 21206, and 21224 ZIP codes, all in East Baltimore, had 21 suppliers engaging in door-to-door sales, the highest amount reported by the PSC.
Industry officials said the differing concentrations of door-to-door sales are not racially or economically motivated, but are likely related to neighborhood density.
“It's often just a matter of geography,” RESA spokesperson Dan Allegretti said. “A lot of folks who live in more dense neighborhoods are more appealing to door-to-door marketing, just as a candidate running for office and knocking on doors looking for votes would be able to knock on a lot more doors when the houses are closer together than in neighborhoods where they're more spread out.”
Tony Cusati, the director of regulatory experience for Interstate Gas Supply (IGS) and the chair of RESA’s natural gas and lobbying caucuses in Maryland, said IGS uses employees, not contractors, for its sales to ensure that they are well-trained and do not participate in targeting tactics.
“We do not target low-income customers,” he said. “We do not target high-income customers. We do it based on who our salespeople are available in that point in time and where they are geographically located within the state.”
But Cusati acknowledged that some suppliers do target low-income customers.
“There are certain organizations out there that do take advantage of the marketplace in terms of figuring out where low-income customers are and they target them,” he said.
Those “bad actors,” Cusati said, damage the reputation of suppliers as a whole, and RESA is working with state officials to correct their behavior.
“Unfortunately, that doesn't give the industry a good name,” he said. “All we get is bad publicity from those efforts, and it's something that we are constantly battling against and trying to work with the regulators and the legislators in terms of how they can fix the rules and regulations in the statute to prohibit that from happening.”
Some protections in place
The practice of customers being switched to a new supplier without their consent is known as “slamming” – and it was the second-most-common utility complaint received by the PSC in FY2020.
In the early months of the pandemic, Maryland prohibited door-to-door solicitations between March and June 2020. The PSC has since recorded a reduction in door-to-door sales activity during the pandemic, and the number of slamming complaints dropped to the fifth-most-common complaint in FY2021.
In February 2020, the PSC launched its Compliance and Enforcement Unit under the Consumer Affairs Division, tasked with monitoring complaints activity more proactively.
“We are always monitoring for patterns of violations,” said Stephanie Bolton, director of the consumer affairs division of the Maryland Public Service Commission (PSC). “One issue, it just may be a one-off. Two, it may be a coincidence. But if we see three of them, at that point it looks a little bit more like a pattern, so we start digging in a little bit.”
When a customer has an issue with their utility or supplier, the first step should be for them to try to contact the company whom the complaint is against, Bolton said.
If they are unable to reach the company or are dissatisfied with the answer they receive, the customer can file a complaint with the PSC online or by phone, she said.
The PSC has ordered some suppliers, many of whom were found to be repeat offenders, to pay hundreds of thousands of dollars in civil penalties and refund customers, and some suppliers have even had their licenses revoked.
Customers need to bear responsibility for researching their energy suppliers and deciding which is best for their needs, said Allegretti.
“For any customer who is dissatisfied, they’re able to let the company they’re with go and take their business somewhere else,” he said.
A customer being dissatisfied with their energy bill is not evidence that energy choice is ineffective, Allegretti said. Instead, he said, the opportunity to shop for a new supplier demonstrates the system works.
“I think sometimes people don't shop effectively,” he said. “Sometimes they get a little complacent. Just like you might pay a little too much for your auto insurance, versus what you could be paying if you shopped around, you can always do an analysis.”
But overall, advocates who look at the supplier market say that consumer protections aren’t strong enough, and that agencies like the Public Service Commission should be capping prices, restricting variable rates, and preventing the targeting of poor and minority communities.
The PSC “really hasn't been doing very much” in the way of consumer protection, said Glendening, and needs to take a more proactive stance.
“To the extent that there is corruption and feeding on those who are the least powerful in our society,” he said, “we should have, through the Public Service Commission or elsewhere, a very strong enforcement process that holds people accountable and protects consumers.”
Bolton said the PSC is not able to regulate suppliers’ rates but it does monitor their activity to ensure they adhere to Maryland’s rules and regulations, such as those related to door-to-door, telephone and mail solicitations. For example, suppliers are required to notify the PSC where and when they will be selling door to door.
Reforming energy choice
Improvements and protections to the state’s energy choice market are underway, but are coming incrementally.
Earlier this year, the General Assembly adopted a new law that prevents third-party suppliers from charging more than the standard rates by the large utilities – but only for customers receiving state energy assistance. The legislation was sponsored by two Baltimore Democrats: state Sen. Mary Washington and Del. Brooke Lierman.
Money from the Office of Home Energy Assistance (OHEP) is supposed to help low-income residents keep their power on, but Washington said instead it has subsidized rate hikes by third-party suppliers.
“We were just seeing the overcharging and just the targeting of specifically low-income communities of color…. People who are desperately trying to lower their energy costs are the ones that are most vulnerable to these,” she said.
Under the new law, by 2023, the PSC must establish a process to approve electricity and gas supply offers for households that receive energy assistance through OHEP.
Washington acknowledged, however, that it leaves out customers who do not qualify for that assistance, or who would qualify but have not yet applied and enrolled.
In the last fiscal year, a total of 88,639 Maryland households were served by the state’s Low Income Energy Assistance Program (LIHEAP).
But those households represented about 24% of the 365,133 households that were eligible for the program based on their income. That means nearly 76% of income-eligible households did not receive LIHEAP assistance on their home energy bills.
Glendening applauded the new legislation as a “good step forward,” but he added that “we need some bigger and stronger measures.” He would also like to see more protections implemented for middle-class families.
“If you're making [$50-70,000] a year you're not eligible for assistance programs,” Glendening said. “But, and especially if you have a child or two, you'll struggle to maintain things. Most families are one paycheck away from financial disaster.”
Del. Kathleen Dumais (D-Montgomery) sponsored another bill last legislative session which would have prohibited door-to-door solicitations by energy suppliers.
The bill, which stalled in committee, would have also required the PSC to establish a competitive selection process for electricity suppliers serving as default service providers, rather than utility companies filling that default role.
The bill gained the support of energy suppliers, including NRG, and the opposition of the “Big 4 utilities” – BGE, Pepco, Delmarva Power and Potomac Edison, Maryland Matters reported.
“Service providers in a truly competitive marketplace will be properly incentivized to offer better services at the best possible prices to their customers,” Battisti said.
Battisti also argued that a more competitive model would be better for utility companies, which could focus on energy delivery rather than supply.
“This model would allow Maryland’s traditional regulated utilities to focus exclusively upon the maintenance and repair of physical infrastructure,” she said. “At a time when we have witnessed the catastrophic impacts of aging transmission equipment, we must do everything that is necessary to ensure that our regulated utilities have the technology, resources and personnel to keep our system assets in optimal condition.”
Choose Who You Use, a campaign launched by NRG and that comprises a coalition of energy suppliers, is pushing to further build out competition in Maryland’s electricity marketplace.
The coalition argues that utility companies have monopolized the energy market, and that customers often settle for the utility as their default supplier rather than shopping around.
Dave Schrader, spokesperson for NRG, said Maryland needs to become a “fully competitive market” without utility companies serving as default suppliers.
"We live in the most consumer-savvy culture in history," Battisti said. "Today’s consumer, with the push of a button, can shop for groceries, buy their car and homeowners insurance, compare wireless plans, and choose a mortgage lender. We think they will have the wherewithal to figure this out – if they’re given the chance to access true choice in a way that puts them in the driver’s seat."
But Washington said retail energy supply has not worked out for Texas.
In Texas, nearly 60% of consumers were required to purchase their electricity from a third-party supplier instead of a local utility. Texans on plans with variable rates saw their bills skyrocket after extreme winter weather conditions, the Wall Street Journal reported.
Washington said she wants the legislature to ensure that Maryland doesn’t follow a similar path.
“This next session, I think the work is making sure that we do not become a full choice state because that's a disaster, as we've seen in Texas and other places,” she said.
In Massachusetts, that state's attorney general released reports in 2018 and 2021, concluding that residential customers, particularly low-income residents, were overpaying on their energy bills with third-party suppliers. Subsequently, Massachusetts lawmakers earlier this year introduced legislation that would prohibit retail electric suppliers from signing up new individual residential customers.
Washington hopes Maryland will consider revising its own energy marketplace to regulate suppliers.
“If the premise of competition is no longer working in practice, isn't it time for us to change that model?” she said. “I don't know what to change that to, but it seems to me something that we need to explore.”
Now that Maryland has had energy choice for 20 years, however, Washington said it would be difficult to undo.
“It’s hard to put the genie back in the bottle,” she said. “So I think we’d have to really figure out what it means.”
An issue raised by both industry officials and consumer advocates is the lack of education and outreach for customers looking for information about energy choice.
“We need to have more consumer education with respect to the products and services and offers that retail suppliers have in those states that are restructured,” Cusati said. “We're asking the commissions in each one of those states to do their part in making sure that they can in fact educate consumers that they have this ability to make a choice.”
Desire for energy choice is strong, Cusati said.
RESA conducted a nationwide survey of 1,000 likely voters, reached by phone, from March 2-5, 2020.
The survey found that 74% of consumers said they want to be able to shop for energy suppliers in the same way as other products, such as cell phone or internet service providers. Also, 58% said they wanted energy to be a competitive marketplace and to let competition drive down costs.
“Competition is an enormous driver of two things: efficiency, and innovation,” Allegretti said. “When firms have to compete with each other, they're always looking for ways to win the business…. It either means providing a product at a better price, better term, or providing a better product.”
But the digital divide has left out some residents who do not have the physical devices or technological experience to navigate the energy choice market.
Customers who do have access to a smartphone, computer or other device can use tools like the Maryland Energy Choice website to research different suppliers and compare rates.
Click here to learn more about how to shop for an energy supplier or file a complaint about your current supplier.
As it stands currently, the process of switching energy suppliers is “fairly cumbersome,” Allegretti said.
“I think it's often discouraging to consumers to shop more frequently, which they should,” he said. “It’s more hassle.”
Allegretti said RESA is pushing for states to adopt policies to make it easier for customers to shop around for energy suppliers.
“It shouldn't be any more difficult to switch your electricity provider than it is to switch your cell phone provider or your gym membership,” Allegretti said.
But Hawkinson worries that such a model would pose a greater risk of her clients and others falling prey to fraudulent activity.
“A BGE utility number is harder to get than an address,” she said. “So I could really see, if they only had an address, [suppliers] could just write down someone's address and sign them up just like that…I think it would really open the doors for just more of what I see as preying on people who already don't have a lot of money.”
Glendening said Maryland needs more regulation, not less.
“Things are often wrapped in the cloak of ‘change for the better,’ and they often do not end up there at all,” he said. “In this case, the boogeyman that everyone was after was regulation…. Yes, you can have some areas of the economy that are too regulated. But over and over we see that in fact, the regulations often protect people.”
