Regulation of retail energy supply competition in dire need of reform, Office of People’s Counsel tells state regulators
BALTIMORE – A major overhaul of the rules governing retail energy choice is necessary to protect residential customers, the Office of People’s Counsel said in comments filed this week with the Public Service Commission. Twenty-four years of retail energy choice shows that customers face significant challenges in shopping for gas and electricity suppliers, are usually paying far more than non-shopping customers, and are being harmed by common marketing practices, OPC said.
“Existing regulations are full of loopholes that allow retail suppliers to take advantage of customers,” said People’s Counsel David S. Lapp. “Consumers are being harmed by a lack of effective regulations covering supplier licensing, marketing practices, and customer disclosures.”
Retail energy markets are complicated, OPC said, enabling suppliers to sell electricity and gas at prices significantly higher than customers would pay without shopping. Current Commission regulations have few restrictions or limitations on supplier marketing practices and enable—and sometimes incentivize—practices that result in customer harm, including:
- Binding contracts completed by telephone or at a customer’s front door that are based on incomplete or deceptive marketing materials;
- Use of unlicensed or unregistered marketers that cannot be effectively regulated, even when they have previously violated state consumer protection laws;
- Exploiting customer interest in the environment with marketing terms like “green” or “clean” without defining these terms and when the supply package does not contribute to Maryland’s clean energy goals beyond current law;
- Initial teaser rates that soon convert to variable rates with insufficient notice to customers, resulting in exorbitant rates and costly customer bills;
- Excessive fees for early termination that leave customers locked in to high rates; and
- Affiliated companies operating under different licenses, creating loopholes that reduce the risk of regulatory enforcement actions.
These practices have resulted in recent increases in customer complaints, OPC pointed out. Over the last decade, OPC has successfully filed a number of complaints against retail suppliers, alleging violations of state consumer protection laws and Commission regulations. Although violations were found, the Commission—to which the governor has recently appointed three new commissioners who were not part of the earlier decisions—imposed weak sanctions that allowed suppliers to continue profiting from abusive practices.
OPC filed its comments in response to the Commission’s August 2 notice for comments on “potential energy retail market reforms that, if implemented, should enhance the benefits of retail choice to consumers in Maryland.” The notice responded to a petition from the Maryland Energy Advocates Coalition asking the Commission to end the practice known as “purchase of receivables,” under which utilities assume responsibility for billing the amounts shopping customers owe retail suppliers and reimburse the supplier for those bills within five days, regardless of whether the customer actually pays the bill.
OPC’s comments support the coalition’s request to end purchase of receivables. “[R]etail suppliers feel no impact from slow or erratic customer payments; instead, they enjoy consistent payments from a reliable vendor supported by ratepayers,” OPC’s comments said. “As a result, retail suppliers currently incur no billing or collections costs, and they can neglect any consideration of their potential customers’ creditworthiness.”
OPC’s comments further recommended numerous changes to the Commission’s retail supplier regulations. Among them:
- Requiring retail suppliers to provide customers additional notices and disclosures, such as average annual rates charged;
- Prohibiting customer enrollments from telephone-only communications;
- Requiring contracts resulting from door-to-door sales to be completed only after the customer has had a proper chance to evaluate the contract;
- Prohibiting suppliers from using third-party sales agents to sell to consumers;
- Establishing rules for “green” marketing that require such offers to exceed the requirements of Maryland clean energy laws;
- Ending the practice of granting perpetual licenses to retail suppliers and requiring affiliated retail suppliers to hold a single license; and
- Enhancing Commission enforcement policies, by ensuring customers receive refunds for law violations and creating a presumptive penalty schedule.
“We welcome the Commission’s effort to evaluate and enhance its retail supply regulations,” Lapp said. “It is long past time to improve customer protections, enhance transparency and enforcement, and improve the market so that customers can make better choices.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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