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NEW MILFORD, Conn. – When Gretchen Mastrogiannis received a call promising a low, fixed rate for electricity last winter, she jumped at the chance.
She and her husband run Theo’s Downtown Diner, and a lower electric bill meant a better bottom line for her small business.
But the moment she opened her first bill, Mastrogiannis said she realized something was wrong: The rate was double what she’d been promised. In the ensuing months, her rate shot up to more than five times what she was expecting, she said, costing her thousands of dollars.
“Everything over and above what I would have normally paid came out of my pocket, personally, because that’s how small business owners make their living," Mastrogiannis said. "Whatever is left is what you get."
Connecticut is one of 15 states with deregulated electricity, meaning third-party suppliers can get into the game. The utility is still responsible for delivering the electricity, maintaining and repairing the power lines and reading the meters. But while utilities offer fixed rates per kilowatt-hour, third-party suppliers can buy electricity wholesale and sell it directly to consumers at variable rates that, in theory, are pegged to the market.
The goal of deregulation is to lower prices by increasing competition, and would-be electric suppliers have swarmed Connecticut trying to win business with telemarketing calls, door-to-door sales and advertisements. Their tactics have sometimes crossed the line, resulting in thousands of complaints to the state’s Public Utilities Regulatory Agency.
Elin Katz, who heads the state’s Office of Consumer Counsel, said electricity suppliers have preyed on the elderly and low-income groups with sales pitches that are often confusing and sometimes intimidating.
“There’s reports of them saying things like, ‘I’m from the electric company and you need to make a change, or the governor wants you to switch. Really outrageous claims,” Katz said. “Consumers are being misled on who they are even talking to.”
Bristol resident Russ Drachenberg said he was happy with his third-party electricity supplier so he was surprised when the company called.
“They said, ‘Why did you stop utilizing us?’" Drachenberg recalled. "And I said, ‘I didn’t stop.’ They said, ‘Well you’re signed up with another company.’”
The retired state employee said he’d been “slammed” by a telemarketer, meaning he was switched to another electricity supplier without his permission.
Salome Tsurtsumia
former third-party electricity customer
In addition to the aggressive pitches, some are outright deceptive. Connecticut reached a $4.5 million settlement with Energy Plus last year, following allegations that the company promised to save customers money and then charged them as much as double the market rate. Money from the settlement will go for enforcement of the state’s electricity supplier laws and for consumer education and assistance. Energy Plus admitted no wrongdoing.
A few years ago, I vaguely recall getting a solicitation in the mail offering "cheaper electricity” if I switched from Baltimore Gas Electric to Constellation Energy. Since Constellation owns BGE, I thought it was strange. Why would the parent company want to steal its own customer? Now I suspect why that was the case.Nurse and graduate student Salome Tsurtsumia received a call offering what she thought sounded like a good deal. The electric bill at her 1,200-square-foot Newington townhouse quickly jumped from $300 a month to $700 a month, she said.
“It’s called legal robbery. That’s what it is to me,” said Tsurtsumia, who emigrated from the republic of Georgia. “This is United States of America. People come here because things like this should not be happening because we are protected under law. Sometimes I do question that: How protected are we?”
Katz of the utility watchdog agency said what happened to Tsurtsumia is typical of the complaints she hears: Customers lured by a low teaser rate see it shoot up without warning once the variable rate kicks in.
“The basic model is you sign up for one rate and all of a sudden you look at your bill and the rate has gone up, doubled, or it’s gone up 50 percent,” Katz said.
Other states have reported similar problems with tactics used by third-party electricity suppliers:
* In January, Just Energy agreed to pay $4 million in Massachusetts to settle allegations it switched customers to its service without their consent and charged more than promised rates.
* Last year, the New Jersey attorney general sued three companies, alleging that they defrauded hundreds of consumers by misrepresenting the savings they’d be getting. In January, one of the companies, HIKO Energy, agreed to pay a $2.1 million fine.
* The Pennsylvania attorney general last year filed complaints against five out-state electricity suppliers, seeking to have their licenses suspended or revoked. The attorney general reported receiving more than 7,500 complaints about spikes in the cost of electricity over a four-month period.
* In 2007, the Illinois attorney general filed a complaint against 15 energy companies accusing them of price manipulation and $4.3 billion in excess costs. The companies eventually refunded $1 billion to their customers.
Craig Goodman, executive director of the National Energy Marketing Association, said the trade association is working hard to ensure its members stick to the best business practices.
“Bad ethics in the marketplace stink. I don’t like them. Nobody likes them,” Goodman said. “The consumer doesn’t like them and it doesn’t do any good for the company either. They lose money. They lose their investors’ money and it’s all private money. It’s not utility money. It’s private money. So there’s no gain here in playing the game wrongly.”
Goodman said consumers win in the long run with deregulation and points to a study from the Public Utility Commission in Texas showing prices lower now than when energy became deregulated in 2001.
He blamed the retail price spikes last winter on a once-in-a-generation “black swan” event: cold weather, a shortage of power in the Northeast and subsequent skyrocketing wholesale energy prices.
“The reality is we’re price takers. We are not price makers. The price is formed at the wholesale level,” Goodman said.
But Connecticut attorney Robert Izard has filed class actions against four companies, alleging the variable rates to consumers did not track the wholesale prices, as promised.
Elin Katz
Connecticut's Office of Consumer Counsel
“We’ve found that when the wholesale price of power goes up, the price goes up. But when the price of wholesale price of power goes down, the rate stays high,” Izard said.
“All we’re asking is for them to live up to the bargain they made. We’re not asking for anything more,” he added. “If they said, 'We’ll charge you whatever we want. We’ll gouge you,' we wouldn’t be here. But they said the price of power charged to consumers will be based on market conditions."
Lawmakers in Connecticut are now considering banning variable-rate electricity contracts, something the state’s consumer counsel favors because customers don’t learn what the rate is until they’ve already used the power.
“So it’s like you go to the gas station, you fill up the car, you drive around and use up all the gas and they tell you this is how much you were using per gallon,” Katz said.
Tsurtsumia said she once again gets her electricity from the utility, at a fixed rate. She has plenty of company: 67 percent of state resident are choosing the utility, up from 58 percent last year, according to Katz.
Tsurtsumia said she has no plans of ever returning to a third-party supplier.
“I don’t care how wonderful they make it sound and how attractive the offer is," she said. "The bottom line is they are counting on you not following up and not monitoring your bill so you fall through the cracks and you end up paying double or triple for the same services."
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