Competing to Overcharge Consumers: The Competitive Electric Supplier Market in Massachusetts
April 2018 By Jenifer Bosco National Consumer Law Center®
In 1997, Massachusetts passed the Electric Restructuring Act and deregulated its electric utility companies. Prior to that change in the law, electric utilities (local distribution companies or LDCs) owned the power plants that generate electricity and the local utility poles and lines seen on virtually every street that connect homes and businesses to the electricity customers need. The utility companies also sent the bill, handled customer calls, and maintained the local distribution poles and lines. After the 1997 law was enacted, the electric industry was restructured. The electric utilities were required to sell off their power plants and thus became just distribution companies. They still deliver electricity to customers over local poles and lines, send out bills, and make repairs. But customers now can get the actual electricity they need in one of two ways. First, they can rely on the LDC to buy electricity on behalf of those who do not want to shop elsewhere for their electricity. Second, they can choose a so-called competitive energy supply company (CES company) that sells electricity, which would still be delivered by the LDC. For customers who buy their electricity from a CES company, the LDC acts somewhat like UPS or FedEx does when delivering packages. The LDCs deliver electricity that the consumer has bought elsewhere.
Competition in the sale of electricity and gas sounds like it should lead to lower prices and better deals, but in the market for electricity the opposite is commonly true. Customers often end up worse off, paying the CES company more for the same electricity service that their LDC would have provided for a lower price. Equally troubling is the documented extent to which competitive energy suppliers engage in unfair and deceptive sales practices, particularly in low-income communities as well as among older consumers and those who speak English as a second language.
While LDCs are closely regulated, and must seek permission from state government to raise their prices, CES companies can charge any prices at all. CES companies usually attract customers by claiming to offer lower rates. Some advertise benefits like special thermostats or more green energy generated from solar power or wind. But consumers who switch to CES companies often find that they are paying more for the same electricity. Seemingly small overcharges for each customer can add up to millions of dollars, as demonstrated by data collected in Connecticut, Illinois, New York, and, recently in Massachusetts. For the period of June 2016 through May 2017, Connecticut residential customers who purchased electricity through competitive supply companies paid $66,736,598.41 more that they would have paid their regulated public utility companies for the same electric service. In Illinois, residential customers who purchased electricity from competitive supply companies spent an additional $152,108,081 from June 2016 through May 2017 over the prices charged by regulated public utility companies. In New York, residential and some small commercial customers overpaid by $817 million between January 2014 and June 2016, and low-income customers overpaid by almost $96,000,000 during the same period, compared to the prices charged by regulated public utility companies. Massachusetts customers paid $176,800,000 more than what they would have paid for electricity from their utility, during the period of July 2015 through June 2017.
Read the full report here.
