From 2013 to 2015, Maryland homeowners have spent at least an extra $137 million for their home’s electricity because they switched to an alternate supplier. In 2015, this premium cost about $140 per year per customer, an 11 percent rate increase. Ironically, consumers often switch to electricity suppliers to pay lower rates as compared to their utility’s kilowatt rate.
In Maryland, like other states, a deregulated energy market has created a perfect consumer storm for savvy energy suppliers to blow in and sell their products to a consumer base that knows little about their electricity bills and rates. The good news? This is fixable, yet recent Maryland Public Service Commission (PSC) updated regulations will most likely not safeguard Maryland homeowners; many of the ongoing electric choice practices described below are still legal.
Why can Marylanders choose electricity suppliers?
Maryland deregulated energy suppliers in 1999. Let’s say you live in Baltimore: this means that while BGE still owns and services the power lines that bring electricity into homes, competing firms can buy electricity from different power suppliers, and sell it directly to consumers and businesses. When you switch suppliers, nothing changes. You still get the same BGE bill, but you will see an additional line item calculating your kilowatt usage multiplied by the supplier’s rate.
I’m a huge fan of switching your home to a climate-friendly fixed rate product. I’ve always suggested consumers choose a fixed rate product because if electricty prices go wacky, as they did during the January 2014 polar vortex, consumers can be walloped with sky-high rates if they’re on a variable, month-to-month, rate product.
If consumers lock-in a fixed rate that’s lower than their utility’s rate, they can save money compared to the utility’s standard kilowatt price. This standard price is called the Standard Offer Service, or S.O.S. rate. Maryland’s S.O.S. rate is regulated by the PSC and is a two-part fixed rate; a “summer” rate (June through September), and a “winter” rate (October through May). Who knew?
It was a friend’s BGE bill that I had scanned at the Church of the Redeemer in Baltimore, that tipped me off that this electricity switching idea isn’t working for everyone.
Because our church had switched the campus’ electricity supplier to a renewable option, it seemed an optimal time to take what we had done at church into our homes. I gave an “educational chat” at Redeemer about Maryland’s electricity choice, deregulation and climate-friendly options. Parishioners brought in their bills so that together, we could find their electric choice I.D. number (sort of like your utility social security number) on their bill. I also wanted to ensure that parishioners hadn’t already switched suppliers because there can be termination fees.
Switching suppliers can be tricky (as you will see). Often sold as a simple switch, it’s really a legal contract with a business just like a cell phone or credit card contract. And remember, this is a deregulated market.
After checking out my friend’s BGE bill, I realized that she had already switched to a green electricity supplier to “do the right thing” and support renewable energy. What concerned me is that my friend paid $0.1359 cents per kilowatt, or 55 percent more, than I had paid for green electricity in August 2016. I’m contracted with a different supplier and over the past decade, I’ve always paid less than BGE.
Knowing that this firm was marketing an $0.11 rate for green energy, my guess was that my friend was on a variable rate plan where the kilowatt rates change month-to-month. Mi amiga had no idea that her account’s pricing was variable, and didn’t recall the salesperson mentioning a variable rate.
Not just in Maryland
Twenty-six states have deregulated their energy markets. Many report that energy deregulation is costing their residents big money.
Connecticut’s Office of Consumer Counsel reported that at least seven out of ten residential supplier customers paid over their standard utility rate in September 2016. From September 2015 to September 2016, Connecticut’s electric choice customers paid $60 million over the standard utility rate. The chart lists by supplier the percentage of their residential customers that pay more than the standard 9.915 cent rate. Could the same be happening in Maryland?
The Bangor Daily News reported that Maine households paid $50 million above standard utility rates. Syracuse Media Group reported similar overpayments for New Yorkers. The majority – 92 percent- of residential customers who switched to an alternate supplier, paid more than standard rates. What’s the point of deregulation if consumers are spending more?
Maryland’s electricity choice overpayment
A quick call to the green energy company revealed that my friend had really bought a three-month teaser rate. On day 91, the account converted to a variable rate plan. Many suppliers selling electricity in Maryland use this pricing strategy. Plans can be fixed rate plans for a term, variable rate plans, and/or short term promotional rates that then convert to variable rates after a few months. Many suppliers convert their clients to variable pricing when their contract ends, and the client missed their renewal offer letter and didn’t opt-in to a new plan. Though this pricing switch to variable is buried in the terms and conditions, clearly many consumers miss this pricing switch, like mi amiga.
Thanks to the Bangor Daily News, I found the Energy Information Administration form 861. The “Customer_Ult_Sales” report lists by state, by electricity supplier, the yearly revenues, megawatts sold, and average customer counts. (I know, it’s a lot of numbers, but we’re talking about a lot of electrons and dollars here.)
Mirroring other states, Maryland’s residential electric choice customers have indeed paid more by switching to an alternate supplier than if they had stuck with their utility’s electricity standard offer. (see chart below)
It’s important to note that the calculations below are conservative. The over/under to SOS values below for 2015 sales data compare Maryland’s switched customer counts to BGE’s standard rate. BGE’s S.O.S is the highest in the state (see second chart).
If you’ve hung in with me through these 1,000+ words, it’s obvious that this story has serious implications for Marylanders. Also, there are many unknowns. But there are some smart agencies tasked with helping consumers and they recently released Title 20 Competitive Electricity Supply consumer protections that should help customers.
Who helps Maryland consumers?
There is a little-known group of lawyers and advocates helping consumers at the Office of People’s Counsel (OPC). A state agency, this advocacy office represents Maryland’s residential consumers regarding electric, natural gas, telecommunications, private water and certain transportation matters before the PSC, federal regulatory agencies and the courts.
Paula M. Carmody, the People’s Counsel, and her team have been deeply involved in electricity supplier issues; they represent the many consumers who have lodged complaints against suppliers.
“Electricity is an essential service for our households – we rely on it for everything. However, Maryland retail energy consumers experienced a double hit – from extreme cold and exorbitant electricity rates from some energy suppliers – during the polar vortex winter. The Office of People’s Counsel advocated for stronger regulation of the suppliers’ activities, especially around variable rates. The Maryland Public Service Commission (PSC) adopted many of our proposals, and the revised regulations do provide better protections,” Carmody said.
“However, the Public Service Commission did not accept our recommendations on variable rates, and the new regulations do not go far enough, in my mind, to make sure that consumers clearly understand what variable rates are, and agree to them before they go into effect. Reports from Connecticut and New York make clear that residential customers with energy supplier contracts are paying more overall than if they stayed with their regulated utility. I expect it is the same in Maryland. The variable rate surprise is a big part of this pattern.” said Carmody.
Maryland’s Public Service Commission is our state agency that regulates and enforces electricity in the public’s interest and ensures that public service companies comply with established regulations.
Obi Linton, Director at the Public Service Commission’s Office of External Relations, weighed in about Maryland’s recent Title 20 updated supplier rules, “Maryland has adopted a wide range of protections. Given that this is a deregulated market, we have tried not to demonize product or the industry and want to collaborate to find solutions. The new ‘Maryland Contract Summary’ one-pager that all retail electricity consumers will receive is an easier-to-read summary of the product, rates and terms that consumers are buying. Another important change is that suppliers must notify their customers if their next month’s rates will increase more than 30 percent. Maryland is the best regulated electricity supplier market.”
Two issues popped out to me that need further analysis:
1.How many consumers are on variable rate plans versus longer term fixed rate plans? To my knowledge, this data is not public. A quick analysis of 1,000 bills across the state would verify this number. Though variable rates may be reasonable for business accounts, I see no logical reason variable pricing makes sense for consumer accounts. Day trading with electricity is not working out. A recent Title 20 ruling is that suppliers must now make next month’s rate available 12 days before it changes. Before this ruling, consumers only knew their rates could be sky-high, after they received their bill.
2. Some of the suppliers charging the highest rates appear to have clients with low electricity usage. Is it possible that these firms focus on higher density, possibly low income, areas and knowingly sell variable rates?
As the graph below illustrates, low income households spend a higher percent of income on electricity. Exactly the income segment that should not be paying higher rates. Also, this segment may be more likely to be on state-funded energy assistance.
With hope, this data helps shine a spotlight on a consumer reality that most likely was not what then-Governor Glendening envisioned when he signed the Electric Customer Choice and Competition Act of 1999. The deregulated electricity market should be able to be a win-win for both consumers and suppliers. I would argue, the playing field is not level today.
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