This story was updated at 5 p.m.
ATTORNEY GENERAL MAURA HEALEY on Thursday called for a ban on companies selling electricity to residential customers in Massachusetts, saying the 50 firms currently in the business deceptively claim to offer savings when their rates actually are higher than the prices charged by the state’s utilities.
A report commissioned by Healey indicated the firms supply electricity to 20 percent of the residential customers in Massachusetts. The report also said those customers ended up paying nearly $177 million more for electricity over a two-year period than if they had purchased the basic service offered by their local utility.
At a press conference in her office, Healey accused the companies of engaging in deceptive sales practices and targeting low-income, minority, and elderly residents.
“They go door to door, send letters in the mail, and call over and over again with promises of cheaper electricity or a locked-in lower rate that will save you money,” she said. “But hundreds of thousands of residential customers aren’t paying less. They’re paying more, a lot more.”
Healey and her aides said she decided to push for elimination of the residential market rather than remedial regulatory steps because the market can’t be fixed. Nathan Forster, one of her deputies, said Connecticut tried to correct the problem with new regulation but it didn’t work.
“We want to stop the bleeding,” Healey said. “Competitive supply has been a really bad deal for individual residential taxpayers.”
If Healey is successful, Massachusetts would be the first state to adopt such an approach. Fourteen states in all have deregulated markets.
Part of the problem is a fine-print issue: the companies take advantage of customers who know little about the retail market for electricity. The market, which was deregulated in 1997, allows customers to choose a company to supply them with electricity (usually that electricity is not produced by the company but purchased on the wholesale market) or they can opt for a product called basic service offered by their local utility. Basic service is electricity that is purchased by the utility for its customers and the cost is passed along with no add-ons. The contract for basic service is put out to bid every six months.
Some competitive suppliers promise savings by offering a rate that is slightly below the price of basic service but locks customers in at a fixed price for two years. But when the price of basic service goes down, as it does every summer, the customers buying from a competitive supplier find themselves paying more. Some suppliers also offer variable pricing, with a low initial teaser rate that balloons higher after six months.
Healey said some of the industry’s marketing practices are even more deceptive. A report prepared by the Susan Baldwin Consulting Firm said the attorney general’s office received 215 complaints about competitive electric suppliers between 2006 and 2013. Since 2014, however, the office received more than 700 complaints, with allegations that sales people falsely represented themselves, used high-pressure sales tactics, switched customers without their permission, and imposed high termination fees.
Healey likened the tactics used by competitive electric suppliers to those used by the subprime mortgage industry. On Wednesday, Healey announced a $5 million settlement with one of the companies, Viridian Energy LLC of Norwalk, Connecticut.
Chris Kallaher, senior director of government and regulatory affairs at Direct Energy, said in a statement that he was disappointed that Healey relied on a single, flawed report in a bid to deny Massachusetts consumers the right to choose an electric supplier. “The report starts with a profoundly misguided premise — that a comparison to the monopoly utility’s basic service rate is an appropriate measure of the health of the retail market — and adds assumptions and faulty analyses to support the view that Massachusetts consumers are not capable of making their own energy choices,” he said. “These flaws include the failure to accurately account for the differences between the products and services offered by competitive suppliers and the one-size-fits-all utility default, and the failure to seek information directly from suppliers about how and where they market to consumers.”
The Baldwin report obtained detailed information on customer purchasing patterns from the state’s utilities, which revealed that 493,349 households purchase their electricity from competitive suppliers and about 20 percent of them are low income. The report compared the bills of competitive supplier and basic service customers and found competitive supplier customers paid $65.4 million more from July 2014 to June 2016 and $111.4 million more from July 2016 to June 2017.
Healey said she would not attempt to restrict the ability of commercial and industrial customers as well as municipalities to negotiate for lower electric rates. She said competition has been good in those areas of the market. “Competitive supply has been a really bad deal for individual residential taxpayers,” she said.
“We’ll be working to change the law to protect our residents,” she said. “I describe it as a common sense move.”