September 23, 2018
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Electricity company overcharged customers millions, but was still losing money

By Darren Fishell, BDN Staff
Updated:

In the same year power seller Electricity Maine charged Maine customers $30 million over the standard rate, the company was leaking millions.

Kevin Dean, one of the company’s co-founders, said in court documents that, in 2015, Electricity Maine and its smaller operations in other New England states “had losses of over [$14 million] and were in trouble.”

The statement in a sworn affidavit sheds new light on how Dean and co-founder Emile Clavet decided to handle changes in the regional electricity market and their business, compared with other companies, such as Dead River’s short-lived electricity selling subsidiary, DR Power.

DR Power shut down at the end of 2014, telling customers they could no longer guarantee savings due to the wholesale cost of electricity going up.

Meanwhile, Electricity Maine, whose co-founder Clavet promised in 2011 to “always beat the standard offer,” kept on going, losing money and charging customers prices 60 percent higher than the going rate.

Dean’s statements in a court dispute between him and Clavet reflect the first public comments from either partner on the company’s health during that period of time, when its rates began to climb dramatically across its base of more than 100,000 Maine customers.

[Read our full series on Electricity Maine and others’ above market costs: Power Grab]

Both have declined multiple requests from the Bangor Daily News seeking comment about their time at the company, which they sold to the Texas-based Spark Energy in 2016. A BDN investigation first revealed the millions the company charged customers over the standard power rate, which regulators confirmed last year in their own report.

The company and founders face a potential class-action lawsuit that alleges customers were lured by false advertising into electricity contracts for their homes.

Dean’s court testimony shows that, while losing money in 2015, he continued to explore a sale. The numbers made that a challenge, Dean said.

“All prospective purchasers had written intent to purchase the companies subject to due diligence,” Dean said. “All fell through when the numbers were disclosed, and due diligence was completed.”

The company struggled to keep customers on board during that time, too. Reports filed with the federal government show the company lost about 17 percent of customers in 2016, compared with the previous year.

Eventually, the partners inked a deal with Spark, which based part of Dean and Clavet’s compensation on retaining or gaining customers, in what’s called an “earnout” payment. The terms of the agreement required them to keep the average customer paying at least $151 per year more than the going rate at the time, according to a Bangor Daily News analysis.

The standard rate was roughly 6.7 cents per kilowatt hour during that period, according to the Maine Public Utilities Commission. The earnout agreement goals called for a weighted average sale price, across all customers, of at least 9 cents per kilowatt hour.

For an average home, using about 550 kilowatt-hours of electricity a month, that’s a difference of $12.60 a month, or $151 a year.

As part of two lawsuits between Clavet and Dean, Dean testified that he was the only one trying to hit those goals.

“Mr. Clavet never helped during the eighteen month sale of the power companies and never returned to the office for any management of the operational entities after the sale of the power company,” Dean wrote. “From August of 2016 through May of 2017, I renewed all customers and achieved an earn out for Mr. Clavet and I of [$5.5 million].”

Regulators have, at various times in the company’s history, taken issue with how it went about signing up those customers, including during the timeframe Dean outlines. In early 2017, the company said it initiated a door-to-door marketing program, which elicited complaints through Central Maine Power Co.

The utility told regulators that “a number” of its customers complained about those salespeople misrepresenting themselves as employees of a public utility or otherwise failing to state their role as a salesperson with Electricity Maine. The company suspended the campaign in early February 2018 in response to regulatory concerns.

The company also faced scrutiny from regulators while Dean and Clavet owned it. Regulators found a 2013 radio campaign falsely claimed to save customers money at a time when Electricity Maine’s prices exceeded the standard offer, which the company said was in error.

The company agreed in August 2013 to let customers who enrolled or re-enrolled between Jan. 1, 2013 and April 30, 2013, to cancel their contracts with no fee and to provide customers a letter laying out their current rates compared with the standard offer.

From 2012 to 2016, according to an analysis of federal energy data, the company cost residential customers roughly $58 million more than the standard offer rate.


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