Shocked By Your Electricity Bill? Understanding Electricity Costs and Department of Public Utilities Regulations

By Lauren Ennis

Spring has at long last reached Massachusetts, but that doesn’t mean that consumers aren’t still feeling the bite of winter. Between damaged roofs and stalled public transportation, 2015 ushered in a winter that many of our wallets won’t soon forget. As the last remainders of snow finally melt, one of this winter’s after-effects continues to spark controversy; the sharp rise in electricity costs. While delivery costs for electricity remain at a fixed rate overseen by regulators at the Department of Public Utilities (DPU), supply costs are determined by production costs. The majority of the Commonwealth’s electricity is now generated using more expensive natural gas, and as a result, electricity production costs have increased in accordance with the fluctuating supply and demand of the natural gas market. Since many homes are heated with natural gas, the demand for natural gas generally rises as temperatures drop, leading electricity supply prices to likewise rise each winter and decline in the warmer months. When this year’s forecast reached unprecedented levels, electricity supply prices followed suit, leading many customers to change suppliers. If you were one of the thousands of consumers who made that switch this winter, you might have been surprised to find a bill from your old supplier in the mail soon after; rest assured that you were not alone.

What many consumers mistook for a penalty fee from their old supplier is actually a ‘recalculation fee’ that basic supply providers charged fixed-priced option customers when they terminated their contracts mid-way through the payment period. After mixed efforts to bring competition into the formerly monopoly dominated electricity market in the late 1990’s, Massachusetts enacted the Basic Service Bill Provision in 2000 “to ensure that basic service customers pay the full costs of providing the service for the period that the customers receive the service” (Mass.gov). What this rule essentially did, was allow basic service electricity suppliers to charge customers an additional fee to cover the cost that they would otherwise lose if a customer ended their service in the middle of the pricing term. The Commonwealth enacted this provision in hopes of discouraging customers from changing suppliers each time that prices rose and “gaming the system” (DPU 14-140). Adding to existing consumer frustration was the fact that the law did not require companies to inform customers of the recalculation charge, and customers did not learn of its existence until they had already switched suppliers. This ambiguity led to confusion and a high number of consumer complaints when thousands of customers received unexpected costs after changing suppliers.

Following a six month investigation, the DPU has now announced the enactment of Order 14-140, an administrative order which will eliminate suppliers’ right to recalculate bills. This order is not retroactive, and will not remove recalculated fees that consumers have already been charged, but it will prevent suppliers from charging any future recalculated fees to customers who switched suppliers on or after April 13, 2015. Even with this crucial change, however, understanding your electricity bill can still be a bewildering task if you aren’t familiar with the terms that electricity companies use. Next time that you read your electricity bill, be sure to look out for these key terms provided on Mass.gov: 

Competitive Power Supplier: This is the company that creates and sells your electricity, which is then delivered to your home or business by a Distribution Company. Competitive Power Suppliers’ rates fluctuate with supply and demand and vary throughout a given year.

Distribution Company: The company that delivers the electricity to your home or business. Distribution Companies charge fixed rates for the delivery of electricity that are subject to the jurisdiction of the DPU, rather than the marketplace. They also read meters, maintain power lines, and restore power during outages.

Kilowatt Hour (kWh): The standard of measurement for electricity. One Kilowatt Hour is equal to 1000 watts of power used over the span of one hour. An electricity bill is calculated by multiplying the cost of one kWh by the number of hours of electricity used.

If you find that you aren’t satisfied with your current supplier, be sure to do some homework before you decide to change companies. Some key questions to ask before you make a final decision are:

·         What companies service your area?

·         Is a fixed rate or a variable rate best for you?

·         If you choose a fixed rate, what term length is best for you?

·         Are there any termination or start-up fees with the prospective company you’re considering?

·         Are there any consequences if you later decide to switch from this prospective company to a new supplier?

*As always, read any contract before you sign it and do not hesitate to approach the company with any questions that you might have.

The DPU is currently creating a website listing supply company rates to assist consumers in making informed decisions, which will be available in October, 2015. In the meantime, here are some resources you may want to consider:

The DPU’s page on Mass.gov for information about suppliers, understanding your bill, and DPU Order 14-140.

http://www.mass.gov/eea/electricity-utilities-clean-tech/electric-power/electric-market-info/choose-supplier.html

The Better Business Bureau, www.bbb.org

Consumer review websites such as www.yelp.com and www.angieslist.com

Electricity company comparison websites such as www.electricrate.com and www.electricitywatch.org

Changing regulations at the Department of Public Utilities, combined with knowledge of your bill and research about your supplier, can help you avoid receiving any more shocks next time you open your electricity bill.

Information for this article was obtained from:

Nancy Stevens, Director, Consumer Division, Massachusetts Department of Public Utilities Commonwealth of Massachusetts, Department of Public Utilities, DPU14-140, Order on Eliminating the Basic Service Bill Recalculation Provision

Mass.gov, The Official Website of the Commonwealth of Massachusetts

The content of this blog is intended for informational purposes only and does not constitute legal advice. As such, any articles featured on this blog are not meant to serve as or substitute for legal advice. No action should be taken on reliance of the content of this article or any information posted on the Middlesex Community College Law Center Blog. Any specific legal questions should be directed to a licensed attorney.

Lauren Ennis is a paralegal student at Middlesex Community College and is currently working as a consumer mediator at the MCC Law Center and interning at the Youth Advocacy Division juvenile defense office.

Competitive Electric Supply: Frequently Asked Questions from the Office of the Massachusetts Attorney General

FAQs Regarding Competitive Electric Supply for

Residential Customers in Massachusetts

                                         

• What is a competitive supplier?

A competitive supplier is a company licensed by the Department of Public Utilities to sell electricity and related services to retail customers.  See 220 C.M.R. § 11.02.  A competitive supplier purchases electricity and related services from the wholesale electricity markets for resale to retail customers.  Typically, a customer who buys electricity from a competitive supplier will see the charge as a line item on the customer’s electric utility bill. 

• Why should I choose a competitive supplier?

By shopping among competing electric suppliers, you may choose among different pricing, term and billing options or find a supplier that uses a higher percentage of clean, renewable energy resources than your electric company. 

• If I do not sign up with a competitive supplier, what happens?

Customers who do not sign up with a competitive supplier remain on their electric utility’s Basic Service supply rate.

• What type of rates are offered by competitive suppliers?

Competitive suppliers offer fixed and variable rates.  A fixed rate remains the same during the length of your contract, which could last for a few months or several years.  However, many fixed rate contracts will automatically renew at a variable rate.  A variable rate typically changes from month-to-month according to the market and the terms of your agreement with a competitive supplier.  The rate for fixed Basic Service, the electricity supply offered by your electric utility, changes every six months for residential customers. 

• Is my electric utility overcharging me for electric supply?

Electric utilities in Massachusetts do not earn profits from selling you electric supply.  Every six months your electric utility sets the Basic Service price for residential customers based on the electric utility’s cost to purchase wholesale electricity. 

• If I decide to talk with a competitive supplier, what are some of the questions I should ask?

If you are considering buying competitive electricity, you should ask the supplier for the following information:  

 What is the price per kWh (i.e. unit of electricity sold)?

 Is the price fixed or variable?

 If the price is variable, how does it change?

 What is the term or length of the contract?

 Are there penalties for early termination of the contract?

 Does the contract contain an introductory price? If so, how long will it be effective?

 Does the contract automatically renew at the end of the term?

 Does the contract provide renewable power?  If so, what is its source (i.e.wind, solar, hydroelectric, etc.)?

• What if I sign up with a competitive supplier, and then change my mind?

You have three days from when you receive your competitive supply contract to cancel, without charge or penalty. See M.G.L. c. 164 § 1F(8)(a)(ix).  If you cancel your contract after three days, you can return to Basic Service, but there may be an early termination fee depending on your contract with the competitive supplier.

• Can a competitive supplier turn off my service?

No. Only your electric utility is authorized to connect or disconnect your service.

Avoiding Pitfalls in the Competitive Supply Market

• Do not show a competitive supplier’s agent your electricity bill or give him/her your account number unless you have agreed to sign up with the competitive supplier.

A common tactic for a dubious sales agent is to ask to see the customer’s utility bill under the pretense of “determining eligibility” or “comparing the rate that you’re paying now.” Some Massachusetts consumers have complained that they have been switched to competitive supply without their authorization after showing a competitive supplier’s sales agent their account number or showing the agent their electricity bill. 

• If signing up for a variable rate, understand how your rate will change.

If a competitive supplier is offering a rate that changes from month-to-month after an introductory period, make sure you understand how the rate will change.  A competitive supply may offer you   variable rates that change based on “market conditions,” the “supplier’s discretion,” or similarly vague language that does not commit the competitive supplier to set your rate based on any formula or methodology.  Be very wary of signing up for these kinds of rates.  A competitive supplier may offer these variable rates with a short term “teaser” rate that is lower than the customer’s utility Basic Service rate, but once the “teaser” rate expires, the competitive supplier uses its “discretion” to set rates that are sometimes twice as high as the rates offered by the electric utility. 

• When signing up for a fixed rate contract for a year or more, understand that electricity in Massachusetts is most expensive in the winter.

Due to seasonal factors, electricity in Massachusetts is currently more expensive in the winter months, especially January and February, than it is the rest of the year.  The electric utilities change their Basic Service rates every six months, so, during the six-month period that includes January and February, their rates are expected to be higher than in the next six-month period.  Therefore, a fixed-rate contract with a competitive supplier that lasts for an entire year may have a price that is lower than the rate you are receiving from your electric utility in the winter months, but much higher than the electric utility’s Basic Service rates in the summer and fall.  Be especially wary if your house has central air or you use window air conditioners during the summer, because high consumption could amplify any difference between a year-long rate locked in with the competitive supplier and the lower rates that electric utilities typically offer in the summer months. 

• Your electric utility will NOT contact you about your electricity supply rates.

Your utility will not send representatives to your door, or call you on the phone to talk about electricity supply rates. If a representative contacts you about electricity supply rates, this person most likely works for a competitive supplier.

• Be wary of aggressive sales tactics.

Do not let a sales agent pressure you into signing up with a competitive supplier.  If you choose, you have the right to stay on Basic Service or choose another competitive supplier.  If a competitive supplier’s sales agent refuses to take “no” for an answer or refuses to leave your home, contact local law enforcement authorities.  

Complaints Involving Competitive Suppliers

• First contact your competitive supply company to give the company the opportunity to resolve the issue to your satisfaction.
• If contacting your competitive supply company does not resolve the problem, contact the Department of Public Utilities Consumer Division at: (617) 737-2836 or 1-877-886-5066 (toll free) or file a complaint with the Attorney General’s Office at (617) 727-8400.

For more information on understanding your electric bill, stay tuned for the MCC Law Center's upcoming blog!