Mainers spent $50 million they didn’t need to on electricity

Maine households have unnecessarily spent about $50 million on electricity over the past four years, through a controversial competitive market that purported to offer savings.

Published Nov. 16, 2016, at 8:37 a.m.     |    

Mainers spent $50 million they didn’t need to on electricity

Posted Nov. 16, 2016, at 8:37 a.m.
Last modified Dec. 19, 2016, at 1:05 p.m.

PORTLAND, Maine — Maine households have unnecessarily spent about $50 million on electricity over the past four years, through a controversial competitive market that purported to offer savings.

In 2015 alone, Maine customers of “competitive electricity providers” paid a premium of $32.4 million for their power, over and above a default price set by state regulators on behalf of consumers.

That’s in addition to a total $20 million such customers could have avoided from 2012 to 2014 if they had stuck with the default price, as reported in an August investigation by the Bangor Daily News. Our investigation used federal data to compare default electric rates to prices in the competitive market.

The data give a sense of how the prices compare in aggregate but don’t necessarily show that all customers of competitive suppliers would have been better off getting the default price during these years.

Our updated analysis of federal electricity data shows that the premium on power from these electricity middlemen — the largest is Electricity Maine — increased dramatically in 2015. As a group, they have charged their customers more than the default rate.

Through telemarketing, advertising campaigns and relationships with other service companies, CEPs have still consistently maintained more than 100,000 customers in Maine since entering the residential market in a big way in 2012.

CEP customers are shelling out more than they need to, but they’re catching on.

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

Customers appear to be catching on to the higher prices charged by CEPs, with more and more returning to the the default price.

As of April, the latest figures published by regulators, there were 130,546 residential CEP customers in Maine, down from a peak of around 221,000 in mid-2013.

If you spread the $32.4 million premium that CEP customers paid in 2015 equally across all of those customers signed up in April, they paid an extra $248 each for the year, or $20.70 per month. For the average home, using 550 kilowatt-hours per month, the difference would amount to $229 more per year.

Ending an unfavorable contract early is not an easy choice, however. Many competitive providers, such as Electricity Maine, charged a $100 early cancellation fee.

The industry has managed to maintain sales by charging those fewer customers higher prices. Since 2012, CEP sales rose 19 percent while the average annual number of customers dropped by nearly one-third.

That means a rising share of the industry’s sales are attributable to above-market prices.

Electricity Maine is still the biggest player, but some others charged more for power.

Industry officials reject the comparison to the standard offer price, saying competitive providers offer more than just electricity. But the competitive providers either don’t offer or have declined to say what other perks are included in those plans and how to quantify that value.

Competitive electricity suppliers have a lot of flexibility in the products they can offer, but the basic commodity remains electricity and the basic competition remains the standard offer.

Customers who lost money to competitive providers told the Bangor Daily News earlier this year that they weren’t even shopping for plans when they signed up. CEPs often came to them, marketing savings and not any special perks that came with the contract.

Electricity Maine, for example, began by offering savings over the standard offer, with big television and radio advertising campaigns.

Last year alone, Electricity Maine’s customers would have saved an estimated $25.8 million if they’d instead taken the standard offer. After saving customers about $2.8 million in their first year and amassing hundreds of thousands of savings seekers, Electricity Maine has taken in an estimated $36.6 million premium on its sales since 2012.

The company, for its sheer success at accumulating customers, has also cost them the most. But it doesn’t have the highest prices. North American Power and Gas and FairPoint Energy both had average prices above Electricity Maine’s in 2015, as did Clearview Electric Inc.

Only one competitive provider offered customers a lower price in 2015.

Ambit Energy was the sole CEP with an average price that beat 2015’s average standard offer, which was about 7.3 cents for customers of the state’s major utilities.

Ambit’s average price was half a cent per kilowatt-hour cheaper, to be exact. While that may not sound like much, across about 3,600 customers, it amounted to savings of roughly $104,000.

The company, a newcomer in Maine, is unique in the way it markets, too, turning its customers into its sales staff. It’s a strategy used by retailers such as Mary Kay called multilevel marketing, where sales staff ascend the ranks and collect bigger commissions as they recruit other sellers.

The company has faced lawsuits in other states over a “budget billing” program that calculated bills based on a historical average rather than actual monthly use, a system some customers argued created a hidden balance against which they incurred fees.

Ambit caught the attention of Maine regulators one year ago, after allegations that one consultant was signing up customers without the proper consent. Ambit said it showed that consultant the door.

 

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