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Author: Aman Azhar    Published: 3/20/2023   Inside Climate News

Caught between poverty and third-party energy suppliers, low-income communities across the state are under increasing pressure from high utility rates despite the promise that a deregulated energy market would lower prices.

Turbines from the Roth Rock wind farm spin on the spine of Backbone Mountain on Aug. 23, 2022 near Oakland, Maryland. Credit: Chip Somodevilla/Getty Images

The Maryland Public Service Commission is investigating a number of retail energy suppliers following a record-high number of consumer complaints about questionable supplier practices, forcing the commission to take action.

Tori Leonard, communications director of the Maryland Public Service Commission, the agency that regulates electric and gas utilities and looks after ratepayers’ interests, confirmed that the commission officially launched the enforcement action on Feb. 1 “to investigate and, if necessary, prosecute retail energy suppliers who are failing to abide by the state’s laws and regulations” and, if necessary, “revoke supplier licenses.”

“More potential enforcement actions are in the pipeline as Consumer Affairs Division continues to issue ‘cease and desist’ letters to suppliers on, for example, misleading marketing materials,”  Leonard said, adding that “some retail suppliers target their marketing to low-income, elderly customers, etc., particularly with variable rate offers.”

Maryland enacted the Electric Customer Choice and Competition Act in 1999 and moved to fully deregulate its energy market. Also known as “retail choice,” the arrangement allowed third-party suppliers to purchase energy from the wholesale market and sell it to businesses and residents at a different rate for profit.

Proponents said deregulation would save consumers money by creating competition and driving down prices, and it did—for the commercial and industrial sectors. But residential customers usually end up paying more, according to the Energy Information Administration. And those that benefited least were the poor, who were often unaware those variable rate offers would soon expire and then rise sharply.

Leonard, citing enforcement and legal actions currently underway against various energy suppliers, said the commission has enhanced its scrutiny of suppliers seeking to be licensed in Maryland, and in some cases, held up approvals until these companies could demonstrate compliance with the PSC’s rules, particularly around consumer protections.

“Too many of the state’s most vulnerable utility customers—especially those in Baltimore City—are experiencing the double whammy of increasing rates for the utility’s delivery service while being charged exorbitant rates as a result of highly questionable and often unlawful marketing practices of retail suppliers,” said David Lapp, Maryland’s People’s Counsel, in a statement.

He said that the OPC has brought cases and successfully proven that retail suppliers have deceived customers in numerous ways and reaped extraordinary profits. “Unfortunately, even though the commission has agreed that the suppliers have violated the law, they have not provided customers relief and allowed suppliers to continue profiting from their unscrupulous practices,” Lapp said.

He urged the commission to adopt protections and impose penalties that make deceiving customers unprofitable and deter suppliers from scamming customers, who remain vulnerable to supplier abuses.

In January, the Maryland Energy Advocate Coalition—a group of regional and national nonprofits—submitted a research brief to Maryland Gov. Wes Moore’s transition team, illustrating that since 2014 Maryland families have overpaid $1 billion on their utility bills.

“In 2021, 403,000 families paid $290 more each for electricity, up from $190 in 2014,” the coalition’s brief said.

The advocates pointed out that the regulation known as “purchase of receivables,” which the PSC approved in 2009, has allowed the energy suppliers to charge any rate and get paid, even if customers defaulted. This “revenue risk-free market” created the conditions for abuse and opened the door for retailers to prey on vulnerable groups, the advocates said.

The nonprofits urged Moore to study the situation and safeguard energy burdened Marylanders. Previous legislative efforts between 2019 and 2021 that attempted to compel the retail energy suppliers to report their billing data to regulators failed.

A Never-Ending Ordeal

Yamese Diggs, a Black resident of Baltimore, said she was tired of sales people knocking on her door four to five times a day trying to get her to switch to a different energy supplier.

“They just keep coming at you. At some point, it became so overwhelming that I just tuned out,” she said. Then came unsolicited phone calls, marketing materials pushed under the front door and a stuffed mailbox that had to be emptied every other day.

Turned out, the sales pitches from marketing reps and seemingly sweet deals promising lowered electricity rates were just a preview to her later ordeal.

Mother to a school-aged girl, Diggs, 45, is financial manager at the Johns Hopkins Bloomberg School of Public Health, where she has worked for nearly two decades. She said she didn’t know something was off until her utility bill ballooned to $800 a month last July.

“I was like, why is my bill so high? I live in a two-bedroom apartment and even if I left my air conditioner on at 65 degrees all day, my TV and all the lights it shouldn’t be $800 a month,” Diggs said, sounding exasperated. Between calls to the utility helpline and digging around for answers, Digg’s outstanding balance ran into thousands of dollars.

“I was getting cut off notices and even when you make good money, you don’t have $6,000 to give out,” Diggs said, adding that she was also supporting her nephew and going through a divorce at the time. “You never know what people are going through in their life.”

Finally, the utility sent a technician to detect the fault and concluded that her contract had been switched to a different electricity provider charging a significantly higher rate without her knowing it.

Shocked and dismayed by the revelation, Diggs said she checked her bank statement and realized that her electricity rate had been climbing for months without her knowledge because she signed up for automatic deduction. “I called the company the same day to cancel the contract,” she said. But she was put on long holds, and attendants would tiptoe around her questions about excessive billing.

And when she got the answer, it was not what she had expected. “They told me I was paying a higher rate because the company provided clean energy, which was good for the environment,” Diggs said. “I told them I just cannot afford $800 a month to save the environment. This is real life and everything’s already expensive, and this bill is extremely high even for a household where two people are making good money.”

It took months to get the contract terminated and then she reported the matter to the Maryland Public Service Commission —the state agency responsible for safeguarding ratepayers— asking for a refund for being scammed by a third-party energy supplier.

“I think there should be some sort of restriction on such fraudulent practices,” Diggs said, adding that her best friend’s elderly mother was also “threatened” with electricity and gas shut-off recently. Her utility contract was also switched to a different energy supplier without her knowledge, Diggs said, resulting in inflated bills and missed payments.

Nudged by the federal government to embrace market-based rates, a trend that started in the late 1990s, 29 states and the District of Columbia have to this day deregulated their electricity and gas markets—some wholly and some partly.

More than 120 companies are currently operating across Maryland since the state opened its energy market to third-party energy suppliers in 1999, selling gas, electricity or both to commercial and residential customers.

But various studies and numerous debates in the state’s General Assembly over the past 20 years have questioned if deregulation has worked. Some legislators and energy advocates said that the unsupervised energy market opened the door to deceitful practices and price discrimination by retail suppliers. Proponents of retail choice argue that the state has not done enough to unlock the full potential of a deregulated marketplace.

Highway Robbery in Broad Daylight?

A recent Berkeley Energy Institute report found that third-party suppliers target Baltimore’s lowest income neighborhoods through direct marketing, and the highest rates are paid by Hispanic, Black and immigrant families.

Jenya Kahn-Lang, the author of the study, said that she found evidence that suppliers charged customers different prices based on their attention and search behavior. “Firms can raise prices on existing customers that aren’t paying attention, they can offer low prices to consumers who search more, and charge higher prices through in-person marketing,” she said.

The study found that those areas with household income below $10,000 paid particularly high prices as well as the neighborhoods with a large share of non-citizens, residents without high school diplomas, and Black, mixed race, and Latino and Hispanic residents. “One of my big findings is that underlying residential segregation plays a big role in leading to this result. And Baltimore is certainly an area where you have a lot of underlying residential segregation.”

Kahn-Lang said that one of the key reasons that low-income communities end up paying more is because it’s cheaper for companies to market in areas that are densely populated. “More households in those areas are signing up through direct marketing and they sign up at relatively high prices when they do,” she said.

She said that other studies she consulted in her research have shown that the low-income households or households in poverty often will forego other expenses like food and medical or health costs in order to pay their electricity bill. “And they may keep their house at unsafe temperatures to avoid using more electricity,” she said, adding that it’s clear that “people feel very burdened by their electricity bills and that it impacted their lives in meaningful ways.”

The study found similar patterns in Massachusetts, Rhode Island and New York, suggesting that low-income households faced higher prices, on average, than high-income households in these retail choice markets.

It is hard to predict what would have happened if energy markets were never deregulated, said Kahn-Lang. “My research focuses on who pays high prices in deregulated markets and why. I show that low-income and other marginalized communities tend to pay higher prices than privileged communities, primarily because marginalized communities receive more marketing.”

She said that the primary beneficiaries of deregulation are informed, attentive households and suppliers who either get lucky or have especially good information about their customers’ behavior. “Not all suppliers benefit from high prices. Competitive pressure may cause suppliers to spend their anticipated profits from high prices on marketing. It is also worth pointing out that households ultimately bear most of these marketing costs,” she added.

Maryland Regulator Caught in the Crosshairs, Again 

Laurel Peltier, a local energy advocate who volunteers at a Baltimore-based charity, has a voluminous file strewn with paperwork sitting on her desk. It contains hundreds of cases involving Baltimore residents like Diggs who struggled with high utility bills and how to pay it off.

“I mostly deal with people who visit our community center to get energy assistance because they’re getting behind and it’s stressful,” Peltier said. “They know something’s up, and they just have no idea what it is.”

In some cases she would help people file complaints with the PSC, and some even got their money back. “That’s just what I see over and over again, especially in Baltimore City,” Pelteir sighed.

An analysis of 110 low-income Baltimore households by Peltier found a 64 percent premium for electricity and an 88 percent premium for gas when bought from energy retailers. On average, those families wound up paying an additional $650 per year on an average yearly income of $16,000, sometimes entirely from social security benefits.

2022 report also found that low-income families in Maryland faced untenable burdens from high energy bills, with households on the Eastern Shore and in Baltimore City having the highest gross energy burden—paying 15 percent of their annual income for their energy needs. The average statewide gross energy burden is 12 percent for all low-income households, the report found.

Nearly 450,000 households in Maryland are estimated to be low-income, or 21 percent of the population, with over 380,000 households eligible for energy assistance benefits—over a $100 million program managed by the state to help reduce energy bills. Peltier said that between 75,000 to 100,000 households in Maryland get state energy assistance to help pay their utility bills.

In her testimony before the House Economic Matters Committee and Senate Finance Committee in 2020, Pelteir estimated that about $15 million annually from the state energy assistance grants were flowing instead to energy suppliers who were charging excessive rates to the assisted households. “The figure is most likely higher because the overpayment per account has increased per year,” Laurel said.

In May 2021, the General Assembly passed the Energy Supply Reform Bill, prohibiting retail suppliers from charging customers on energy assistance rates above the local utility’s rate for gas or electric supply. The bill required the PSC to establish the rules and administrative process necessary to implement the law by July 1, 2023.

But state lawmakers, sensing a lack of urgency on the part of the PSC, criticized the commission for dragging its feet on rulemaking necessary for its implementation.

The latest clash between the Democrat lawmakers seeking progress on implementing the law and a PSC they felt lacked a sense of urgency came at a state Senate hearing in January.

At the hearing, state Sen. Mary Washington (D-Baltimore) grilled PSC Commissioner Odogwu Obi Linton and Lisa Smith, director of legislative affairs, for failing to provide information on the steps taken by the commission to ensure that households receiving assistance grants are not signed up for third party contracts that can inflate bills by hundreds, if not thousands, of dollars.

“This is something that my office and other senators have been trying to get from the commission since the passage of that legislation, and the PSC has not been cooperative,” Washington said. She asked the PSC officials to make sure that her office gets the information she and other lawmakers have sought from the commission.

In an interview, Washington said Moore’s decision to appoint a serving OPC official to head the Public Service Commission and the recent withdrawal of a candidate with ties to the fossil fuel industry are the sort of decisions that would help change the composition of the commission.

“The problem with the PSC is that it’s over-identified with the entities that it’s supposed to regulate. It’s almost like having the fox guarding the henhouse,” she said.

Meanwhile, Washington said that Maryland Attorney General Anthony Brown has introduced legislation asking the General Assembly to empower his office to investigate, among other issues, manipulative market practices, potentially through its consumer protection division.

Separately, the Office of People’s Counsel filed a petition with the PSC last May, which said that the PSC took no formal action to implement the 2021 legislation that intends to shield low-income customers from retail energy suppliers. “Unless the PSC acts soon, neither the customers nor the state will reap the law’s benefits,” the petition said.