Communities of Color, Low-Income Residents Face High Electricity Prices From Third-Party Suppliers

Salespeople might stop people outside of grocery stores or call on the phone or knock on a front door. They’ll say they’re working with the utility company and want to make sure a customer is paying the right rate. When they determine the customer isn’t, they offer to sign them up for the right one, where they’ll pay less.

But, a signature later, instead of changing to a new rate with their utility, the customer is instead signed up with a competitive third-party electric supplier.

Under the new contract, costs might start out low but then spike within months as an “introductory rate” expires, leaving consumers paying more than the basic utility rate.

“Over the past 10 years consumers have seen more and more problems with these companies — and the main problems are that deceptive sales and marketing practices are very common in this industry,” said Jenifer Bosco, a senior attorney at the National Consumer Law Center.

The system that allows for those third-party suppliers in Massachusetts was created by a 1997 state law that allowed the sale of electricity by companies other than the publicly-regulated utility in an effort to encourage companies to improve efficiency and technology in order to lower prices for customers.

The third-party suppliers work as sort of a middleman, buying electricity from the utility that produces the energy and reselling it to the consumer. Under the set-up, the electricity is still ultimately provided by the utility company, like National Grid or Eversource, but can be offered at a different price — and in theory, a cheaper one —by the third-party supplier.

But those savings often don’t pan out for consumers.

Joseph Curtatone, president of the Northeast Clean Energy Council, said there are some third-party suppliers who approach the set-up ethically, and he cautioned against grouping all the companies together, but Bosco said she’s rarely seen the deals go well for households.

“Somebody might be able to lock in a [lower] rate for maybe a year, but generally, the price is going to go up over the long term,” Bosco said.

That rise stems from an industry that she said is rife with deceptive sale practices, as well as an electricity system in New England that makes it tough for smaller companies to keep up with the utility companies’ prices.

Limited savings

Data gathered by the state attorney general’s office found that overall, residents in the state who sign up with competitive third-party electric suppliers face losses.

A report released in May 2023, the third follow-up to an initial 2018 report, found that between July 2015 and June 2021, consumers who contracted with third-party suppliers paid $525 million more than they would have if they paid for electricity through their utility.

The system was designed to generate savings for consumers and it did so in some instances, but they were limited. The attorney general’s office found that fewer than 1 in 5 bills for Massachusetts households served by an individual residential supplier beat the basic service rates charged by the utility.

From July 2020 to June 2021, suppliers provided just under $9 million in savings to some consumers. That is compared to over $108 million in losses for other consumers with the third-party suppliers.

What’s more, low-income households tend to sign up for the third-party suppliers more frequently. According to the report from 2020 to 2021, 29% of low-income households got electricity through a third-party supplier, compared to 16% of non-low-income households. Of low-income households, 46% got their electricity at the utility provider’s basic rate and the other 25% participated in municipal programs.

Low-income households also tend to be hit harder by pricing. According to the 2023 report, the average premium paid by low-income consumers for electricity through third-party suppliers was 14% higher than the average premium that non-low-income houses paid. Add to that monthly customer fees, and the average annual loss in the 2020-2021 research period for a low-income household was about $254, $30 dollars more than for non-low-income households.

According to the report, communities of color and those with lower English proficiency also tend to show higher rates of participation with the third-party suppliers. Often, that is targeted, Bosco said, with salespeople for the suppliers focusing attention on those neighborhoods as well as on older residents.

The Retail Energy Advancement League, a coalition of retail energy companies, allege the attorney general’s report is misleading. They say it is comparing basic rates from the utility with contracts from third-party suppliers that might offer 100% renewable energy, which generally comes at a higher cost, or failing to factor in discounts for low-income consumers.

Abby Foster, the coalition’s vice president of policy and advocacy, said the coalition has requested to see the methodology of the report, but that the attorney general’s office has not provided it.

A proposed state law would ban the third-party suppliers. Under legislation filed last year by state Rep. Frank Moran and state Sen. Brendan Crighton, third-party suppliers would be prohibited from executing new contracts with residential customers.

The bill, if passed, could provide important protections for communities vulnerable to the suppliers, Bosco said.

“This legislation could really provide a lot of relief to low-income consumers who already are struggling with their energy bills,” Bosco said. “When they’re signed up with a competitive supplier, that struggle is just multiplied for them.”

Curtatone said there should be at minimum safeguards that create consequences and accountability for the suppliers.

There has been pushback against the legislation from third-party suppliers, Bosco said, but the bill has backing from across state and local governments. Attorney General Andrea Campbell and Boston Mayor Michelle Wu jointly penned an op-ed in the Boston Globe in January supporting the ban. Governor Maura Healy advocated to prohibit the practice when she served as attorney general.

In April, a set of 90 community, health and environmental groups signed and sent a letter to State House leadership advocating for adoption of the ban.

In contrast, a petition from the Retail Energy Advancement League cites over 3,000 consumers in opposition to the ban.

Separately, other proposed legislation would keep the industry intact but would institute more protections for those who sign up with third-party suppliers. That legislation, filed by state Rep. Tackey Chan, would take steps including enacting guidelines around required identification for salespeople, creating protections around language access and establishing an oversight office within the state government.

The bill follows a process within the state’s Department of Public Utilities from 2019 and 2020 that established some consumer protections, such as creating a contract summary and requiring a notice of renewal to be sent out to households on the third-party supplier’s contract.

Municipal aggregation

Also existing in the space are municipal aggregation programs. Under these programs, which are related to but generally considered distinct from the competitive third-party suppliers, residents in a city or town can sign on to a municipal plan that often offers lower rates as the municipality negotiates for all the participants collectively.

Currently there are 176 municipal aggregation programs statewide, which tend to tout lower rates and often greener energy.

Bosco said she generally has not seen the same problems come up with the community choice municipal electricity programs. They have a better track record of actually bringing in savings for consumers and tend to bring with them greater levels of transparency, she said.

“It’s negotiations being done by a government entity, so if a consumer really wants to know, ‘What is this renewable energy product?’ or ‘What are the details of this contract?’ they would be able to get that from their municipality,” she said.

Though participation in community choice electricity has risen over the past five years, adoption by low-income households has happened at a slower rate, rising just 9 percentage points between 2016 and 2021, compared growth at twice that rate in non-low-income households, according to the attorney general’s report.

Thwarting green energy aims?

The third-party suppliers may also complicate the state’s clean energy transition. While the companies often claim green benefits and cleaner energy, Bosco said they rely on fuzzy knowledge around how clean energy is incorporated into the grid for any one consumer.

Under state law, a certain percentage of electricity provided by a utility must come from renewable sources, and a subset of that must come from green energy generated in New England. These required percentages increase each year as the state works to reach its goals of net-zero carbon emissions by 2050. In 2024, the Massachusetts Renewable Energy Requirement is about 62%.

When a household signs up for an energy provider offering a greener plan, consumers don’t get a different electric supply from more renewable sources. Instead, electricity suppliers will add on renewable energy credits.

Those credits — functionally a tracking system for renewable energy on the grid, where each credit represents one kilowatt-hour of electricity generated by a renewable energy source — indicate the purchase and support of renewable energy generators.

Community choice electricity programs, for example in Boston, might commit to buying Massachusetts Class I credits, which certify support of energy generation from New England facilities using a specific set of eight types of renewable technologies that must have been built since 1997.

Those guidelines are self-imposed, however, and similar restrictions don’t exist for the third-party suppliers. Instead, those suppliers might pull clean energy credits from generators across the country that could use outdated technology and fail to keep the impact local.

“Unfortunately, it seems to be just another way for these companies to turn a profit,” Bosco said, “but it’s particularly nefarious because it’s exploiting customer interests in trying to address the climate crisis.”

Those tactics might also undermine real efforts to increase clean energy in the state as they raises electricity prices without providing a real solution.

The Retail Energy Advancement League’s Foster suggested, however, that there isn’t enough clean energy infrastructure in New England and investments in clean energy elsewhere in the country still mean that money is going toward renewable energy.

Similarly, she said, money going toward older renewable infrastructure is still better than supporting fossil fuels, also called “brown” power.

“Isn’t it better to support those older wind and solar facilities that still have plenty of wind and solar that they can give to the market, rather than to support brown power in New England?” Foster said.

Curtatone said that any damaged trust can be especially harmful, as the state and country needs to gain momentum in a clean energy transition.

“We need everyone to align with us, not just to accept but to really champion and embrace and help on the work to a clean energy transition,” he said. “But it has to benefit everyone — the people, place and planet, not just the private sector.”

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