August 17, 2018
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How electricity providers siphoned more than $20M from Maine customers

By Darren Fishell, BDN Staff
Updated:

Melissa Peirce and her husband circled their rural Charleston home, hunting for evidence of an electricity thief. Their power bill had more than tripled, and they suspected a cheat was tapping into their power lines.

But they found no suspicious wires, and no signs of a filcher.

“We live in the middle of nowhere,” Peirce said.

So they considered how they could be using so much more electricity. They bought a new water heater. They asked around.

Neighbors and friends weren’t seeing the same bill hikes. The Peirces’ bill had jumped to about $360 per month from about $100.

“We thought we were doing something wrong with our electricity, because we don’t keep things running all the time,” Peirce said. “Nobody’s home half the time.”

She called her power company, Bangor Hydro. Her beef wasn’t with the power company, she learned. Bangor Hydro delivered the power through their lines, but another company actually supplied it. Peirce had forgotten she’d signed up to get that supply from FairPoint Energy, one of 16 “competitive electricity providers” operating in Maine in 2014.

After a heated conversation, she found out the reason that her power bill was skyrocketing. The contract she’d signed with FairPoint at a fixed monthly rate had rolled over to a rate that changed monthly. It’s one of the various types of contracts such providers can offer.

Filings in a state regulatory inquiry show how that played out. In April 2014, FairPoint offered new customers in Emera Maine’s Bangor Hydro service area low introductory rates, about 6.4 cents per kilowatt-hour. Most customers in the state paid 7.6 cents at that time.

When that fixed introductory rate ended, the competitive supplier, or CEP, rolled customers such as Peirce’s family into monthly variable rates that rose as high as 23.5 cents per kilowatt-hour.

That’s why her electricity bill jumped.

Plans with rates shifting every month are not typical, but Peirce was hardly alone in losing money to middlemen who began selling electricity supply to residential customers in 2012.

A Bangor Daily News investigation found hundreds of thousands of Maine CEP customers would have paid $20 million less if they had stuck with the default price in 2013 and 2014. While losses on variable rate plans such as Peirce’s were steep, the bulk actually came from fixed-rate contracts.

That’s despite a claim by the largest provider, Electricity Maine, that it ” has saved residents millions of dollars.”

Electricity Maine made good on those promises at first, but soon the deals evaporated. Many customers who signed contracts with competitive providers didn’t fully understand the terms, prompting regulators to issue a warning about unexpected price spikes and require stricter notification practices.

Consumers eventually got wise to the higher prices, dropping competitive suppliers in large numbers. But those who are left are still paying a hefty premium for power.

Early savings

Customers in Maine basically have two avenues for buying electricity.

If you do nothing, you get the standard offer, a fixed rate approved by state utilities regulators each year as a default option. The vast majority of Maine households pay for electricity this way.

Or, like Peirce, you can sign a contract with a competitive supplier, which can offer plans with varying terms and add-ons.

Those suppliers got their first shot at competing for power customers in 2000, when Maine broke up electric utility monopolies. But the market for selling electricity supply directly to residential customers remained largely untouched until 2011, when two Auburn entrepreneurs saw an opportunity to compete with the standard offer.

“We will always beat the standard offer,” Electricity Maine co-founder Emile Clavet told the Sun Journal in 2011. “You’ll never, ever pay more than the standard offer, or we won’t be back.”

On that promise, Electricity Maine basically created the residential CEP business in Maine. The company grew to about 150,000 customers, or 90 percent of the competitive supply market, through August 2012.

The BDN’s analysis found CEP customers saved about $2.8 million in 2012, compared with the standard offer. Electricity Maine accounted for almost all of those savings, according to the BDN’s analysis of federal data.

But then the savings began to dwindle.

A new pitch

Electricity Maine’s radio ads in early 2013 encouraged customers who didn’t know they had options for their electricity supply to review their bills.

“If on Page 2 it says ‘standard offer,’ you’re paying too much,” the radio talking points stated.

The company claimed that customers would save a combined $6.8 million that year.

The BDN’s analysis of federal data, however, indicates the company’s nearly 145,000 residential customers ended up paying a collective $5 million more in 2013.

The standard offer price dropped in March, and competitive suppliers found it tough to beat. Suppliers said demand for natural gas, used as fuel to generate electricity, during the frigid 2013-14 winter caused their costs to spike. Changes to how regulators solicit the standard offer also made it harder to undercut.

As more companies entered the market in 2013, none that reported sales to the U.S. Energy Information Administration beat the standard offer across their entire customer base for the year.

Electricity Maine pivoted from its key selling point of savings.

In a Feb. 13, 2013, email, the media strategist for Electricity Maine’s parent company, Provider Power, attached a list of updated talking points, including highlighting the company’s donations to charity through its “Power to Help” plan.

“You will notice, less about savings — more about choice and why we are the best choice including: The Power to Help and working with a Maine company focused on community,” wrote Will Fessenden, the company’s former director of media strategy.

In 2014, the situation grew worse for CEP customers. They paid a $14.6 million premium on electricity. Spread equally across all customers signed up in July, it amounted to $76 more each for the year, or $6.33 per month.

If the total premium on competitive supply in 2015 mirrors 2014 — and preliminary reports indicate it will — Maine households will have spent about $35 million more than they needed to on electricity since 2012.

Peirce said her family was able to absorb the unexpected costs, deferring money that otherwise would have gone to savings. She dropped FairPoint, paying a $5 fee to Bangor Hydro to switch from the variable rate back to the default price.

But she worries about people who are unable to pay falling into the same trap.

“I don’t want that to happen to people who can’t get through that — where it could hurt them buying groceries and stuff,” Peirce said, “because that’s not OK.”

Electricity Maine reported that it sold 25 percent less electricity last year than in 2014. But it still made just as much money — the company’s residential electricity sales held steady at $81.2 million.

A promise of innovation

The BDN’s findings align with reports compiled by the electric ratepayer advocate in Connecticut, where the region’s most stringent disclosure rules require suppliers to report what they charged and to how many customers.

In Maine, CEPs must file annual reports with their terms of service and separately reveal revenues to ensure they have at least 10 percent, or $1 million, set aside to pay any customer claims. Public versions of those annual reports redact the units of electricity sold and information about customers in each service area, under protective orders deeming those numbers sensitive business information.

Victoria Hackett, a staff attorney at Connecticut’s Office of Consumer Counsel, said the revenue and pricing data required in that state “is crucial to demonstrating whether the market is benefitting customers.”

In 2015, the Office of Consumer Counsel reported CEP customers paid about $58 million more than if they had taken the state’s standard service price.

Neither that analysis nor the BDN’s review of federal electricity reports factor in any additional value that CEPs might provide, such as all-renewable electricity sources or donations to charity.

The Canadian firm Crius Energy Trust, whose U.S. operation Crius Energy Corp. owns FairPoint Energy, referred the BDN’s inquiries to a trade group, the Retail Energy Supply Association.

The association’s spokesman, Bryan Lee, declined comment on the BDN’s specific findings, but he called the similar reports by Connecticut regulators “comparing apples and oranges.”

“There are many customers who are purchasing a green energy product which can not be obtained from the distribution electric utility,” Lee said. “These are the sorts of value-added products that competitive suppliers offer that just aren’t available from the utility.”

That includes plans supplying only renewable electricity and plans that offer customers’ savings for shifting their power use to times when demand is lowest.

CEPs in Maine have not offered time-of-day pricing, but FairPoint Energy has offered a variable-rate renewable energy plan, supplied by regional wind power. The rate hit double the standard offer, at 12 cents per kilowatt-hour, in June.

Electricity Maine has offered a plan that included donations to local charities and said it has a time-of-day offering in the works.

Lee, with the suppliers group, said he did not have information on how many CEP customers select plans for reasons other than savings.

“The real promise of the competitive market lies in real-time pricing which an informed consumer can use to shift their usage from peak times to off-peak times,” Lee said. “The consumer can not only get savings, but there are system-wide benefits of shifting that power usage. It’s a direction that the industry is headed in nationally.”

Maine Public Advocate Tim Schneider said he sees that potential for CEPs. They’re worth keeping around, he said, though the innovations so far have focused on enrolling customers.

“The innovation that we’ve seen has been around customer acquisition, and not in the products that they’re offering,” said Schneider, whose office represents customers of utilities in cases before the Maine Public Utilities Commission.

FairPoint Energy’s owners demonstrated that focus in a May investor presentation. Parent company Crius Energy touted its ” ability to acquire high-value customers at a lower cost” through partnerships with companies such as Comcast and FairPoint.

It also is clear in the sale of Electricity Maine to a Houston-based electricity company. Electricity Maine’s founders sold the Auburn firm for at least $28 million to Spark Energy, in a deal that closed Aug. 1.

Spark has set aside at least $2 million for customer acquisition at Electricity Maine during the next year, with incentives for bringing the average rate across the company’s entire customer base to at least 40 percent higher than the current standard offer.

The company’s Maine-based founders stand to profit further if that marketing works. Spark Energy will pay up to $4 million more for the company if Electricity Maine attracts enough new customers or increases its rates sufficiently by May 2017.

It remains the biggest player in Maine’s residential CEP market.

Spark Energy declined to comment on the BDN’s analysis. The founders of Electricity Maine did not return a phone message or respond to multiple emails requesting comment.

Confusion persists

Peirce wasn’t even looking for a new electricity supplier when she signed up. She didn’t know that was an option.

Neither did Yvonne Hayward, a resident of Columbia, near Machias, who enrolled with FairPoint in July.

Both were pitched during a call to FairPoint Communications, the phone and internet company that serves much of Maine. FairPoint Communications doesn’t sell power, but it licensed its trademark to Crius, the Canadian firm, marketing that electricity service under the name FairPoint Energy.

Hayward was calling to restore her internet password after entering the wrong code too many times and getting locked out.

“I have two kids and sometimes the less time I’m on the phone, the better,” Hayward said. “I was quick to say ‘OK, sign me up,’ and get off the phone. When I got off the phone, I said, ‘Crap, I didn’t even do research about whether this was the right thing to do.'”

Hayward said her fixed rate, which will roll over to a variable plan in a year, will be 6.63 cents per kilowatt-hour, about even with the current standard offer.

As CEPs continue to pursue new marketing efforts, customer complaint records and interviews indicate many didn’t understand what they were signing up for.

Rick Rideout, who retired after being laid off from Great Northern Paper in Millinocket in 2011, signed up for a variable rate plan with the now defunct Gulf Electricity in late 2013. He said it was clear to him that the rate could change from one month to another.

What he didn’t know was how much it could change.

“I didn’t know that it was going to go three times higher,” Rideout said.

The jump for that one month more than wiped out any savings he realized during the previous months. He ultimately paid the $5 fee to Emera Maine to get out of the variable rate arrangement.

“I think I got taken advantage of,” Rideout said.

Call logs to the Office of the Public Advocate show Rideout’s not alone.

A caller in October 2015 received a renewal notice from Electricity Maine with a rate about 66 percent higher than the standard offer and did not know how to switch back. Another caller in March 2015 missed a renewal notice and was rolled over into a two-year contract at twice the standard offer.

As recently as July, customers who didn’t realize they already had a contract with Electricity Maine agreed to sign up with another CEP, North American Power.

Despite a raft of rulemaking in 2013 and 2014, consumer advocates remain concerned about how existing law protects customers.

Companies must send two notices to customers before re-enrolling them, but the renewal notices basically say, “If we don’t hear from you then this is what’s going to happen,” said Kiera Finucane, a consumer adviser for the Office of the Public Advocate. She’d prefer if customers had to again say “yes” to renew their contracts, since some might toss the letters as junk mail or miss those emails, she said.

The public advocate’s office took up that fight in 2014, but met with resistance from competitive suppliers.

In Connecticut, AARP advocacy director John Erlingheuser said he questions whether new rules can help at all.

“For everything that we do to rein in a bad practice, they come up with a new one,” Erlingheuser said.

After Connecticut capped termination fees on fixed-term competitive supply contracts, the companies started charging enrollment fees that he said have cost as much as $250.

Schneider, the public advocate, said Maine hasn’t had the same level of consumer protection concerns as states such as Connecticut, which has kept his office from taking a hard line against such suppliers.

“My counterparts in Connecticut and Maryland have really been radicalized on this, but they’ve seen some egregious stuff,” Schneider said. “I don’t know that if we’d had some of the same experiences here if our office would be in a different place — probably.”

To address customer confusion, Schneider’s office has tracked monthly rates, compiled tips on purchasing from competitive suppliers and provided an online tool for customers to compare competitive offers to the standard offer. It took issue with rolling customers into variable rate plans, issuing a warning in 2014 about such plans to North American Power.

Stepped up vigilance

There are signs that competition is at work in the electricity market, Schneider said. As savings with CEPs dwindled in 2013, residential customers slowly began moving back to the standard offer.

In April, the most recent month for which data are available, about 130,500 residential and small business customers got their power supply from competitive providers, according to figures from the Maine Public Utilities Commission. That’s down almost 40 percent from the same month in 2013.

Still, complaints and concerns about competitive providers persist, particularly about marketing and sales strategies still relatively new for electricity supply in Maine, such as door-to-door sales.

Last summer, Central Maine Power Co. asked regulators to investigate door-to-door sales by relative newcomer Clearview Electric Inc.

CMP said customers began to complain about those sales calls. Utilities often receive the complaints because they still handle billing after a customer switches to a competitive provider.

Clearview representatives reportedly presented themselves as employees of CMP and asked customers to present a copy of their bill or account number, “which could be used to enroll a customer without their specific authorization,” CMP’s senior counsel Richard Hevey wrote.

Clearview agreed in February to follow new protocols in marketing their service, including agreeing not to sell to customers who appear not to understand the company’s terms. To get out of its fixed contract, the company charges $150.

Looking back, Peirce said her experience has made her a more vigilant customer.

“I pay very close attention to all that stuff now,” Peirce said. “I don’t just pay the bill, and we know about how much it should be every month for how much we’re using.”

 

Listen to Darren Fishell’s interview with Maine Public Broadcasting Network: 


 


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