Maryland Thought Deregulating Utilities Would Lower Rates. It’s Cost the State’s Residents Hundreds of Millions of Dollars.
Last year, on the day before Memorial Day, Bill Fields received a phone call around half-past noon from a caller who said he represented the verification department of Baltimore Gas & Electric, Maryland’s primary energy utility.
Fields is from Baltimore and a longtime BG&E customer. Because he’d paid his last six bills on time, the caller said, he was eligible for a $50 rebate. Not only that, he’d get shopping credits and monthly savings of $30 to $40, too. And if he gave the ID for his gas account, those benefits would double. But the ID for his electric account wasn’t needed—curiously, the caller already had it.
A second call came 15 minutes later, and the caller walked Fields through a verification process to which he should answer “Yes” on every question.
When some documents arrived in the mail a couple of weeks later, they showed he was being switched from his fixed utility rate to a variable rate plan that would have been twice as costly, since BG&E was set to lower its prices in a few days. Among those documents, there was no contract to be found.
Fields wasn’t surprised. As it turns out, he’s the deputy counsel for Maryland’s Office of People’s Counsel—the agency responsible for prosecuting this exact kind of fraud. His telephone solicitation and the documents he received were all described in a complaint filed by the office last June before the Maryland Public Service Commission against SunSea Energy, a New Jersey-based energy retailer.
SunSea Energy has since been ordered to issue refunds for all of its Maryland customers solicited by phone for the difference between its energy supply price and the default price of BG&E. It also had its license revoked. But despite an ‘F’ rating from the Better Business Bureau, it still operates in New Jersey, New York, Ohio and the District of Columbia. Until last year, SunSea was just one of more than 120 retail companies that sell electricity, gas or both in Maryland, which fully deregulated its residential energy markets in 1999.
Proponents of deregulation said it 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 low teaser rates would soon expire and then rise sharply.
An analysis of 110 low-income Baltimore households by Laurel Peltier, a local energy advocate, 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.
The Abell Foundation, a public policy think tank in Maryland, found in a 2018 report that Maryland residents paid an additional $255 million to third-party electricity suppliers between 2014 and 2017 compared to what they would have paid to the state’s utilities like BG&E.
Peltier, who co-authored the report, did an updated analysis from 2014 to 2019 that put the total at over $700 million. She said this sum included a conservative estimate for gas because data for it is nearly non-existent.
The Wall Street Journal, in a recent analysis based on EIA data, found that U.S. consumers paid an astounding $19.2 billion more to energy retailers from 2010 to 2019 than they would have paid to utilities. In Maryland, the Journal calculated that consumers paid $399 million more for retail electricity from 2015 through 2019.
The Journal also found that majority-Black and Hispanic zip codes accounted for just 12 percent of New York City households—but electricity retailers found 47 percent of their customers in those zip codes.
“It’s been well documented that [sellers] are targeting low-income consumers, consumers of color, elderly consumers and even immigrants who don’t have strong language skills,” said Elin Swanson Katz, a communications executive who previously worked for the Office of Consumer Counsel in Connecticut.
Retail Energy Didn’t Take Off Until Regulators Approved the ‘Purchase of Receivables’
Maryland deregulated its residential electricity market in 1999 with the Electric Customer Choice and Competition Act at a time when the federal government was pushing what the nascent retail energy sector liked to call “energy choice.”
Maryland’s Public Service Commission, the body responsible for regulating its utilities, opened up the household gas market to similar options that same year. According to the consulting firm Energy Professionals, 29 states and the District of Columbia are deregulated, although the extent of deregulation varies greatly. Maryland is one of about half to open both its electric and gas markets, and more than 120 companies now operate there, buying power from the wholesale market and selling it to businesses and residents.
But the boom in retail energy began only about a decade ago when states, including Maryland, adopted a regulation called “purchase of receivables,” an incentive that guaranteed retail energy suppliers would be paid even when their customers defaulted.
Seth Blumsack, a professor of energy and environmental economics and international affairs at Pennsylvania State University, said the idea that “retail energy was something that was gonna save everybody money was certainly mistaken.”
But he acknowledges that deregulation is not without its potential upsides.
“If you want to be a sophisticated consumer, maybe you can use [variable rates] to your benefit, right, and save some money,” he said about plans that offer discounts depending on the time of day, week or year the energy is used.
Another benefit he mentioned was the choice to buy from companies that offer electricity created from renewable sources, a point on which Katz agrees.
But overall, consumers have paid billions of dollars more in higher rates largely thanks to the “purchase of receivables.” Under this regulation, utility companies are responsible for collecting on debts owed to third-party retailers. To recoup the costs associated with collecting bills, utilities charge energy retailers a small fee, often around one percent.
The Abell Foundation, in its 2018 report, called the “purchase of receivables” a “moral hazard” and described the situation created as one in which “one party is freed up to take risks, while another party bears the consequences. Purchase of Receivables freed third-party suppliers to increase prices to levels that created a greater likelihood of nonpayment of a bill, while reaping guaranteed payment of invoices and transferring the risk of nonpayment to ratepayers.”
The Office of People’s Counsel argued against the Public Service Commission’s intent to adopt the purchase of receivables as far back as 2007, saying “ratepayers would be in the position of providing a guaranteed revenue stream for companies whose actions may or may not be ‘consumer friendly,’” administrative documents show.
“In no other business world, except for a deregulated construct that places the promotion of retail competition above consumer rights and protection, could such a proposal receive serious consideration,” the Office of People’s Counsel said. “It is also ironic, in that so-called competitive companies effectively would be handed subsidies, paid for by captive ratepayers of regulated gas distribution companies, in the name of promoting ‘retail competition.’”
Nonetheless, the Public Service Commission authorized the purchase of receivables in 2009, and it went into effect halfway through 2010. Soon thereafter, the retail energy industry in Maryland became ascendant, and as with many burgeoning industries, graft soon followed.
‘The Worst of the Fly-by-Night Type of Companies’
Fields is well-versed in the deception practiced by some retail energy suppliers. As the number two lawyer for the Office of People’s Counsel, he’s tackled multiple cases in the last couple of years as complaints have increased. And those cases represent only a fraction of the total.
Before he received his own call from SunSea Energy, his office had been hearing whispers about shady telephone enrollments.
“Obviously, I knew right away, you know, because of the work I do, that it wasn’t BGE calling,” Fields said.
But given the brazen nature of the lie—the misrepresentation of SunSea as BG&E—he said he understands how others can be fooled. This confusion is compounded by the multitude of contractors and energy efficiency programs at utility companies, which have names similar to those of some suppliers.
The general term for third-party deceit is “slamming,” which refers to any deliberately illegal customer enrollment. And because the laws and administrative regulations governing interactions between retailers and buyers are complex, there are a great many ways to misstep, intentionally or otherwise.
In Fields’ case, the complaint shows a SunSea contractor “spoofed” their call to Fields—masking the true number and location of the caller. SunSea also never obtained Fields’ signature, although it did somehow get his BG&E Electric Choice ID number beforehand, which is vital to enrolling a customer.
Fields still doesn’t know how this happened, and this exact same issue has bewildered an unknown number of retail customers, some of whom have come to find they’ve been enrolled for months. While this might sound unlikely, Peltier, the energy advocate, said it is not.
Retail energy suppliers use an array of marketing tactics to lure people in, the classic one being to sell at low introductory rates that jump after a few months.
“It’s created this cottage industry,” Katz said about deregulation. “They knock at your door, call at dinnertime … And consumers hate it. There’s nothing consumers like less than to be subject to another form of telemarketing.”
And yet, more trouble awaits those who sign up with an underhanded energy retailer, clueless as to what’s happening.
It’s not uncommon for companies like SunSea to go dark after enrolling a customer: phone calls, if the provided number works at all, go unanswered. If the phone number is active, messages aren’t returned. If by chance someone picks up, they might tell you there’s no reason to cancel. Letters seeking redress come back with “return to sender—not deliverable as addressed.”
If by chance a SunSea customer wanted to double-check the company’s rates for themself, no prices would have been available on its website, according to documents filed in Fields’ case. Had they wanted more details about their energy that was “100% Green Month to Month,” none would be found. And if they were curious about the contract, there would have been nothing to pour over because the company never sent any to telephone enrollees.
In what was just a simple attempt to find savings, customers can find their charges piling up as they try to cancel a phony contract by calling a non-existent customer service line again and again. Some low-income customers are scared away from breaking ties with a retailer because of cancellation fees. And those who fail to read the fine print might find their contracts auto-renewing at much higher rates.
At the moment, the Public Service Commission is awaiting multiple audits on SunSea: one is for the refunds it was required to give its customers enrolled over the phone and another for the contracts given door-to-door. The company began operating in 2019 and managed to enroll 5,728 households. One-quarter were signed up over the phone, and the rest came from door-knocks, according to commission documents.
As for the actions of the person who called Fields, the company blames them on a “rogue” telemarketing contractor, whom SunSea immediately fired, according to the company’s response to the complaint.
But none of these corrupt behaviors leading to excess consumer costs is unique to Maryland. A 2018 report prepared for the Office of People’s Counsel documented similar accusations and accounts of fraud throughout the country. The Consumer Law Center, a nonprofit organization dedicated to the rights of low-income families, had similar findings as well.
Maryland isn’t the first state where the CEO of SunSea Energy, Jacob Adigwe, has run into trouble. Nor was his encounter with Fields the first time he collided with precisely the wrong person.
In 2012, Adigwe was in New Jersey selling retail energy door-to-door while posing as a utility worker, court filings in New Jersey Superior Court show. At one point, he knocked on the back door of a police officer’s home before moving on to others. The officer, wearing his badge, approached Adigwe and when he asked for credentials and ID, Adigwe began shoving him with a binder. He was arrested and found guilty of simple assault and resisting arrest.
Fields cites a case he worked on in Maryland against Smart One Energy as another particularly blatant example of fraud.
While misrepresenting itself as a utility, Fields said Smart One would call up people at home, promise a discount and obtain their gas customer ID numbers. Next, they would begin charging about double the utility rate, and then—poof—they were gone.
The company was able to enroll over 17,000 households, and the average overcharge compared to utility rates was nearly $1,000 per customer, filings from the Office of People’s Counsel shows.
The Public Service Commission eventually pulled Smart One’s license completely and ordered it to pay a fine of $561,000. But documents from the case show the commission was only able to get $250,000, which came from the bond Smart One secured in order to get its retail energy license. The commission was never able to resolve the issue of refunds.
“The company’s just, you know, sort of disappeared,” Fields said. “That’s kind of the worst of the fly-by-night type of companies.”
Legislation Would Protect Retail Consumers Receiving Energy Assistance
Protection could be on the way for some of Maryland’s low-income earners.
A bill in the state’s General Assembly would, if passed, require third-party suppliers to match or beat utility rates for customers who get state assistance to pay their energy bills.
Through June of 2021, an individual Maryland resident needs to have made less than $1,861 in the past 30 days to qualify for assistance.
Delegate Brooke Lierman (D-Baltimore) is the General Assembly’s House sponsor of the energy supplier bill, HB0397. She first became aware of the issue after her constituents started contacting her because they weren’t sure if the people going from door to door selling energy were crooks, or whether they were even allowed to do so.
A 2020 report from the Public Service Commission found an enormous level of activity by retail energy sellers in the heart of Baltimore, where many low-income people live. Eighteen different zip codes in the city had agents from 18 or more companies knocking and ringing doorbells.
“Not only were these plans detrimental to the low-income customer, but they were, you know, siphoning off precious state resources,” Lierman said.
Maryland provided $76.6 million in various bill and debt assistance payments to low-income residents in 2020, some of which ended up in the coffers of retail energy firms that were gouging their customers. There is no public data on how much, but Laurel Peltier, the local energy advocate who helped advance the bill, said a conservative estimate would be $15 million.
During a testimony to the General Assembly, a lobbyist for the Retail Energy Supply Association said that greater consumer education was needed to protect people from high rates.
Katz agrees—she said she’s seen it help in Connecticut. “But despite all that, we still see consumers being overcharged,” she said.
“Markets only work if there’s some parity of information on the part of both parties,” Katz said. “The suppliers hold most of the cards, and the consumers end up with most of the bills.”
An earlier version of this article incorrectly identified the organization that a 2018 report documenting fraudulent practices leading to excess consumer energy costs nationally was prepared for. It was the Office of People’s Counsel.