With Rising Electric Prices, Consumer Caution Urged

Marilyn Murphy, Energy Director at Community Action Programs Inter-City (CAPIC) in Chelsea, has managed low income energy programs for decades. In late September, when National Grid announced rate hikes of 37% for the upcoming winter, she was not surprised to learn that competitive electricity providers were going door to door, promoting their products as a way to beat rising electric prices.

Then, an elderly Spanish-speaking client visited her office and asked her staff about the CAPIC representative who had come to his door three days earlier. Speaking in Spanish, the representative said he was from CAPIC, offered the client free lightbulbs, and asked him to sign a piece of paper. The paper was a contract, authorizing the transfer of his electric service to Palmco, a competitive electric supplier based in Brooklyn. The problem is, nobody from CAPIC had ever gone out to knock on this man’s door—or anybody else’s.

Across Massachusetts, residential electricity customers will be paying more for electricity this winter. On September 25, 2014, National Grid announced that, from November 1-April 30, National Grid’s supply rates will increase to .1627/kwh, almost double the current rate of .0827/kwh. In November 7, NStar announced that its rates would also increase, from January to June, to an average of .1495/kwh. On November 20, 2014, Cape Light Compact announced a winter rate of .15371/kwh. This means that Massachusetts customers will be paying between $25 and $35 more per month on their electric bills this winter.

Competitive suppliers are marketing their products as an alternative. Can residential consumers actually beat the increasing cost of electricity by switching to a competitive supplier? While some competitive suppliers may offer short-term price advantages, energy specialists and consumer advocates caution that some price claims may be misleading or even fraudulent.

According to Katy Kidwell at the nonprofit Massachusetts Energy Consumers Alliance, “Aggressive marketing–and some deceptive marketing–tends to happen around this time of year.” She explains that many alternative suppliers peg their prices just below the winter prices set by the utilities but lock customers into 2-3 year contracts. National Grid and NStar almost always increase their prices in the winter and drop them in the spring. According to Kidwell, “When National Grid fixes its prices on May 1, the alternative supplier’s price will not adjust and you might be stuck. People who switch to competitive suppliers rarely end up with net savings.”

Since electric deregulation in 1998, Massachusetts residents and businesses have had the option of purchasing the supply portion of their electric bill from a competitive supplier while continuing to pay the utility company for delivery of electricity. This fall, Massachusetts residents in Greater Boston and Cape Cod have reported getting mailings and phone calls, sometimes daily phone calls, from companies advertising lower rates on electricity.

Reached on November 7, 2014, Baltimore-based Constellation Energy offered a .1269/kwh rate with a 24 month fixed rate contract for National Grid customers in Massachusetts. Online, Just Energy offers .1389/kwh for a fixed rate contract and XOOM Energy offers a .1349/kwh fixed rate for a 12 month contract or a .1299/kwh rate for a 24 month contract. These rates are lower

than the utility rate for the next six months but likely to be higher than the spring rate, which will be set in May or June.

Customers who purchase a variable rate plan may face other risks. According to Jake Navarro, spokesperson for National Grid, competitive suppliers do not have to follow all of the regulatory conditions imposed on the investor-owned utilities, and, as a result, “It is possible for competitive suppliers to purchase less expensively, but there can be more volatility,” resulting in higher prices on the competitive suppliers’ variable rates.

Palmco, the company that was allegedly going door to door in Chelsea, did not respond to email or phone requests for comment in a news article. However, when I contacted Palmco without identifying myself as a reporter, a manager told me that Palmco offered an introductory 2-month rate of .0728/kwh for National Grid customers and .07115/kwh for NSTAR customers. The manager explained that, after the initial two month period, the Palmco rate fluctuates daily based on “zonal marginal pricing’ which can go up or down based on market conditions. He would not say what the current rates were for customers who had finished their initial two-month trial, but he stressed that customers can cancel at any time because Palmco has no long-term contracts and no cancellation fees. He said these practices provide an incentive to keep rates low and customers happy.

In June of this year, New Jersey’s Attorney General filed a suit, alleging that Palmco’s variable rate was more than double the utility rate in New Jersey—and that rates were not set to any wholesale price index. The suit also alleges that Palmco engages in deceptive marketing practices, including salespeople going door to door claiming to be representatives of the utility company and “slamming,” a practice in which a company changes a customer’s utility provider without the customer’s consent. Several other companies actively marketing offerings in

Massachusetts have similarly run afoul of authorities in other states. The Illinois Attorney General brought a case against Just Energy for fraudulent business practices. Connecticut issued a consumer advisory last January, letting residents know that ten alternative suppliers, including Palmco, were charging customers double the rate charged by Connecticut utilities. In 2012, Maryland fined Viridian Energy for fraudulent practices.

Still, analysts expect the aggressive marketing and high electricity prices will cause an increasing number of Massachusetts customers to seek alternatives. Stephan Wollenburg, Senior Power Supply Planner at Cape Light Compact, believes that it is “reasonable to expect pretty significant migration over next year.” Both Wollenburg and Charlie Harak, Senior Attorney for Energy and Utilities at the nonprofit National Consumer Law Center, says that the increased prices this winter reflect actual increases in the wholesale market for electricity. Harak says, “The regulated utilities have hundreds of thousands of customers and are prohibited from making a profit on the wholesale electricity they buy for their customers. The competitive suppliers have a small number of customers. Who do you think is going to get a better deal in the market?”

Cape Light Compact’s Wollenburg adds “People should do their homework and be careful. There are a lot of pitfalls out there.”

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