Why a plan to drive down electric prices in Mass. led to higher bills
Like most people, Noemy Rodriguez never gave much thought to various charges on her electric bill. All she knew was that the $80 a month she was paying Eversource felt like too much.
So when some salespeople knocked on the door of her East Boston apartment a few years ago and said they could sign her up for “a state plan” that would lower her bill, she was intrigued. The two men — one of whom spoke Spanish — also said they were working with the city, so she felt like she could trust them.
“I thought this was going to benefit me,” she said through an interpreter. “I was so ignorant.”
Massachusetts is one of about a dozen states where residents can choose to buy electricity from a supplier other than their default utility. When lawmakers set up this system in the late 1990s, the assumption was that a competitive marketplace would result in lower power prices for customers. But for the most part, the opposite has happened.
In Rodriguez's case, her bills were lower at first. The problems didn't start until after someone from the company called her about renewing her plan.
She decided not to sign a new contract because she’d recently seen something in the news about people being overcharged for electricity. According to Rodriguez, the man on the phone said he’d cancel her plan and she’d go back to having Eversource as her supplier. But that’s not what happened.
“That’s when I started noticing that the bills were too much,” she said.
It's not entirely clear what happened, but Rodriguez ended up on a plan with really high and variable rates. Some months, her bill totaled more than $200, and she struggled to pay what she owed.
Rodriguez had no idea she was buying power from a so-called competitive supplier because her monthly electric bills were still coming from Eversource.
“I see this problem all the time because energy bills are, frankly, really hard to decipher,” said Devin MacGoy, a community organizer with the nonprofit GreenRoots.
Your utility typically charges you for two services: The power it buys on your behalf in the wholesale market and the cost of maintaining the wires that bring electricity to your home. Each of these things represents about half of your monthly bill.
If you enroll with a competitive supplier, the only thing that changes is that a third-party company buys power for you. Your utility still delivers your power, and you still write it one check every month for the total amount on your bill — your utility then pays your supplier what it’s owed.
This system of “consolidated billing” was intended to make things simple for ratepayers, but it also makes it easy to miss that you have a competitive supplier, MacGoy said.
“Many residents are surprised when I tell them that they are receiving their electricity from another company, because the bill comes from Eversource and the name of the [competitive] supplier is written on their bill in very small letters,” he said. It can be especially confusing for residents with limited English proficiency, he added.
This is what happened with Rodriguez. She and MacGoy work together at GreenRoots, and last fall, she brought him a stack of her utility bills, hoping he’d help her find a way to save money. He picked one up and immediately saw that she had a competitive supplier.
He also saw that some months, she was paying three times more for electricity than she needed to. Unlike utilities, which need to get their rates approved by the state, competitive suppliers can charge whatever they want.
"What these companies do is, even if they offer a lower price to start with, they jack up their price later down the line," he said. "And so folks end up paying way more than they should be."
MacGoy was able to help Rodriguez switch suppliers, and she now pays a much lower flat rate for electricity every month. But across the state, more than 516,000 households are currently enrolled in plans with competitive suppliers. And for most people, it’s not a good deal.
Talk to critics of the competitive supply industry, and you start to hear a lot of similar stories. Older adults with dementia who don’t remember a salesperson coming to their door. Recent immigrants or other residents who don’t speak English fluently given contracts in English to sign. People with intellectual disabilities who were duped into signing contracts they didn’t understand. Salespeople who claim they’re working with your utility or your city.
About a decade ago, the Massachusetts Attorney General’s Office started getting a flood of complaints about competitive electric suppliers. When Nathan Forster, chief of the energy and telecommunications division, and his team started looking into the matter, they assumed the problem was limited to a handful of predatory companies.
Turns out, it isn’t “a few bad apples.” Forster said the office has not found a single case of a company that has been able to charge customers less than a utility over a multi-year period.
“Less than 10% of suppliers in a given year provide savings,” he said. “And when it happens, those savings are often very small.”
If people save money, it’s usually a couple dollars a month — and it's often because of temporary introductory rates. By contrast, the average consumer loses about $200 annually.
And those losses add up.
New data from the Attorney General’s Office shows that between 2015 and 2021, ratepayers in Massachusetts spent $525 million more than they needed to on electric supply charges.
“The more and more you look at it, the more and more you realize that the business model just doesn't work,” Forster said.
While utilities are not allowed to make money on the power they supply you — they make money elsewhere — competitive supply companies need to profit on the sale of electricity.
"And unfortunately, what happens is when you have [an industry] where the businesses can't make money honestly, they start making money dishonestly," he said.
This problem isn’t unique to Massachusetts. Eleven other states, plus Washington, D.C., have similar retail electric markets for residential customers, and investigations in several of those jurisdictions have found similar problems.
“Every study says the same thing; this industry, this market leads to large customer losses," Forster said.
Those losses don’t affect everyone equally.
“I think the biggest thing that makes me frustrated about the competitive electric suppliers is that traditionally they have gone after the people who can least afford the predatory product that they're offering,” said Rev. Mariama White-Hammond, chief of environment, energy and open space in Boston.
From what she’s seen as the city’s top energy official, suppliers seem to target people of color, lower-income residents, older adults, non-native English speakers and, increasingly, college students, many of whom are paying utility bills for the first time.
State data bears some of this out. Using demographic information about which households qualify for subsidized electricity rates, the Attorney General’s Office has found that lower-income residents and communities of color are disproportionately harmed by this market.
Customers who buy power from competitive suppliers often end up paying more for their electricity each month.
State data show that low-income residents are more likely to be enrolled with a competitive supplier.
In its recent report, the office found that 29% of all low-income ratepayers were enrolled in a competitive supply plan, while only 15% of higher-income ratepayers were enrolled.
“Our report found that even if you're not a low-income customer, if you live in an area with lots of low-income customers, you are more likely to be signed up for competitive electric supply, which suggests to us that a lot of suppliers are targeting those areas,” Forster said.
What’s more, among all residents with competitive suppliers, low-income customers were charged 14% more for electricity than higher-income customers.
In 2021, the Department of Public Utilities conducted its own investigation into the market and found that low-income customers with competitive suppliers are more likely to have utility debt than low-income residents who buy their power from a utility. They also owe nearly twice as much money.
“I’ve had clients [who] had their utility shut off, or faced utility shutoffs, because of arrearages due in large part to paying more for a competitive supplier,” said Alexa Rosenbloom, an attorney in the Consumer Protection Clinic at Harvard Law School.
She’s also had clients who couldn’t afford to cancel their plan because they would have to pay a few hundred dollars in termination fees. Instead, they ended up further in debt.
One reason this market is so problematic is that these companies can charge ratepayers whatever they want, said Jenifer Bosco, a senior staff attorney with the National Consumer Law Center.
While utilities like Eversource and National Grid need to get their electric rates approved by the state, competitive suppliers do not.
“They can sign up customers for a variable rate contract and keep raising that variable rate higher and higher,” she said.
State law also says that utilities must pay competitive suppliers what they’re owed every month, regardless of whether ratepayers can afford their bills.
“The [supplier] is not responsible for any of that credit and collections work,” Bosco said. “They just literally can collect their money from the utility company at whatever rate they set.”
This ultimately raises everyone’s bills.
All ratepayers in the state help subsidize the discounted electricity rates low-income customers pay. And if those customers pay higher rates, the subsidy is also higher. According to the Department of Public Utilities, ratepayers throughout the state paid an extra $6 million in 2020 alone because of competitive supply rates for low-income customers.
Experts also say this market is problematic because of the dishonest sales tactics many sellers use. Legally, competitive suppliers need a person’s informed consent before they switch an account to a new plan. In practice, that doesn’t always happen.
Mary Knittle of the Worcester Community Actions Council described in a 2021 legislative hearing how a salesperson stood outside of a social services office and enrolled people in a competitive electric plan by telling them they were applying for the Low Income Home Energy Assistance Program. She and her colleagues only learned about this scam when people started calling their office to check on the status of their applications.
Knittle also described working with a non-English speaking client who had been “slammed,” or signed up for a plan without their permission. When she tried to help him cancel the contract, the company refused because he couldn’t provide the pin number that was used during the sign up. It took Knittle threatening to call a lawyer to get the company to back down.
Because all a salesperson technically needs is a person’s name, utility account number and a signature to make the switch to a new plan, Massachusetts has a third-party verification system to help protect residents from fraud. Anytime someone enrolls in a competitive plan, an independent company will call them to make sure they understand what they’re signing up for.
Problem is, the system doesn’t work very well.
“Unfortunately, there have been multiple reports of fraud,” said Bosco of the National Consumer Law Center.
The Department of Public Utilities investigated some of these complaints a few years ago and found cases where salespeople pretended to be customers or coached residents about what to say when a third-party verifier called. The department also found instances where the recordings from third-party verifiers had been doctored and didn't match the call records kept by customers.
To Frank Caliva, a spokesperson for the Retail Energy Supply Association, an industry group representing many competitive suppliers, there's a clear solution to these problems: The state needs to step up and do more to police the market.
“There's no question that there are actors in the market — just like there are in any market — who are interested in short-term gain and are not particularly interested in following the rules,” he said. But “we believe that the regulators have a critical role to play.”
Caliva argues that the competitive market can be a net benefit to consumers because competitive suppliers can be more flexible and innovative in how they procure power.
“We think customers should have the ability to shop,” Caliva said. “We just think additional safeguards and additional oversight and additional education are vital for a properly functioning market.”
Many consumer advocates and some lawmakers disagree. They say it’s not worth the time and money to monitor these companies, and then take them to court when they get caught misbehaving.
"My thing would be just to eliminate it all completely because it's really not working," said Rep. Frank Moran of Lawrence.
Moran said he's been concerned about this industry since his elderly, Spanish-speaking father ended up on one of these plans several years ago. For the last few legislative sessions, he’s filed a bill that would bar competitive suppliers from signing up new residential customers, effectively phasing out the industry. The bill would not prevent industrial or commercial consumers from using competitive suppliers, nor would it affect municipal aggregation programs.
Moran’s bill got close to passing last year, but didn’t quite make it over the finish line. He filed it again this year and is holding out hope that it becomes law.
“I believe in free enterprise,” he said. “But in this case, it’s hurting customers.”