State commission investigating retail energy suppliers following record-high complaints

The Maryland Public Service Commission is investigating a number of retail energy suppliers following a record-high number of consumer complaints about questionable practices.

Tori Leonard, communications director of the 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 [the] 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 affected the most are the poorest residents, who were often unaware those variable rate offers would soon expire and then rise sharply.

Leonard 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 Public Service Commission’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 Office of People’s Counsel 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.

In January, the Maryland Energy Advocate Coalition — a group of regional and national nonprofits — submitted a research brief to 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 Public Service Commission 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.

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.

It turned out that the sales pitches from marketing reps and seemingly sweet deals promising lower electricity rates were just a preview to her later ordeal.

Diggs, 45, is a financial manager at the Johns Hopkins Bloomberg School of Public Health, where she has worked for nearly two decades, and a mother to a school-age girl. 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, Diggs’ 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 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 Public Service Commission, 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.

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 deregulated their electricity and gas markets — some wholly and some partly.

Around 90 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 General Assembly over the past 20 years have questioned whether 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.

Lower-income areas targeted by suppliers

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 she found evidence that suppliers charged customers different prices based on their search behavior and how closely they’re paying attention.

The study found that areas with a household income below $10,000 paid particularly high prices as well as neighborhoods with a large share of non-citizens, people 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,” Kahn-Lang said. “And Baltimore is certainly an area where you have a lot of underlying residential segregation.”

She said one of the key reasons 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.”

Other studies she consulted in her research have shown that the low-income households often will forgo other expenses like food and medical or health costs to pay their electricity bill. “And they may keep their house at unsafe temperatures to avoid using more electricity,” she said.

Kahn-Lang’s 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.

Maryland regulator caught in the crosshairs, again

Laurel Peltier, a local energy advocate who volunteers at a Baltimore-based charity, has a voluminous file on her desk, containing hundreds of cases involving Baltimore residents like Diggs who struggled with high utility bills and how to pay them 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 Public Service Commission, and some even got their money back.

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

A 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% of their annual income. The average statewide gross energy burden is 12% for all low-income households, the report found.

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

In her testimony before the House Economic Matters Committee and Senate Finance Committee in 2020, Peltier estimated that about $15 million annually from the state program was 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,” she 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 Public Service Commission 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 commission, criticized the group for dragging its feet on rule-making necessary for its implementation.

The latest clash between the Democratic lawmakers seeking progress on implementing the law and the commission came at a state Senate hearing in January.

Sen. Mary Washington, a Baltimore Democrat, 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.

In an interview, Washington said Moore’s decision to appoint an Office of People’s Counsel 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 Public Service Commission last May, which said that the board 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.

This story is published in partnership with Inside Climate News, a nonprofit, independent news organization that covers climate, energy and the environment. Sign up for the ICN newsletter here.

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