The dubious sales pitches of retail power suppliers hit home
By Steve Daniels, Crain’s Chicago Business. August 22, 2018
I’ve been writing about how electric suppliers mislead and at times rip off residents for several years, and it never ceases to amaze how regulators and lawmakers here allow this state of affairs to persist. But it didn’t get personal until now.
Responding to a mailed offer, my north suburban parents, retired and in their late 70s, signed up with an outfit called CleanChoice Energy in early 2017. In the 17 months since then, they paid $607 more for electricity than they would have with Commonwealth Edison, an average of $35.71 per month—by CleanChoice Energy’s own admission.
CleanChoice enticed my parents, who care very much about protecting the environment and the effects of climate change, with a promise that the power they’d be buying would be from entirely renewable sources like wind farms and solar developments. Yes, it would cost some more, the company said, but clean power is more expensive than conventional sources like coal, nuclear and natural gas.
The markup at first was “modest.” CleanChoice was charging them 8.7 cents per kilowatt-hour, 38 percent more than ComEd’s price at the time. My parents paid an average monthly premium in those first three months of $11.41. But in the month following the introductory period the price spiked to 10.2 cents per kilowatt-hour, 48 percent more than ComEd and swelling the do-good premium to $26.35 a month.
With no notice, the price kept going up—10.6 cents, then 11.1, then 13.4 and finally 14.8. That last price, in effect for four months in late 2017 and early 2018, was more than double ComEd’s price at the time.
CleanChoice Energy and I are old acquaintances. Launched by Tom Mattzie, former policy director for progressive advocacy group MoveOn.org, the Washington, D.C.-based company a few years ago was called Ethical Electric. I wrote about its misleading marketing in 2015, which enticed other people like my parents to sign up for what at the time was called the “clean energy option” without an idea of how much more it would cost than ComEd’s “polluting energy.”
Illinois Attorney General Lisa Madigan’s office investigated and negotiated a settlement in August 2016 with the company to refund at least $10 to each of its Illinois customers at the time and scrap the most egregious of its misleading marketing claims. Ethical Electric changed its name to CleanChoice Energy.
So here it is again, blanketing parts of the Chicago area with mail solicitations just like before. The mailer my parents responded to set a firm price of 8.7 cents per kilowatt-hour, roughly in line with what other retail power suppliers are charging for 100 percent green energy, for three months. After that, they were put on a variable price that could change each month.
I asked Kate Colarulli, CleanChoice’s vice president of retention marketing and public relations, to explain what drove my parents’ power price so high. She said it was due to volatility in the energy markets. Prices fluctuate, and renewable energy costs more than power from nuclear and coal-fired plants, she said.
It’s a poor explanation, given that suppliers don’t buy wholesale electricity using daily markets. They strike deals that lock in their costs for substantial periods of time.
To be sure, wholesale energy costs have risen in the past 18 months, thanks in large part to regulatory interventions I’ve written about in other contexts. But the price my parents paid with CleanChoice increased far more than the costs ComEd customers were required to pay.
Colarulli also said via a subsequent email that CleanChoice makes clear that “our product is a premium product. We market it that way. . . .In the same way that one might pay more for organic strawberries or cage-free eggs, renewable energy service offers the customer a product that provides the highest level of environmental benefits from that company that is working hard to leave the world a cleaner, greener place.”
It’s true that CleanChoice in its marketing materials says it costs more than the utility. It just doesn’t say how much more. A recent mailer one of my colleagues received from the company said precisely this: “Supporting new renewable energy development costs more than delivering polluting energy.” It then pivots quickly to reassure: “For most consumers, the biggest factor determining the size of their bill is the amount of electricity they use.”
So just how much does it cost, you may be wondering, to “support new renewable energy development”? Well, thankfully, we have a recent data point in Illinois, which is where CleanChoice says it sources the renewable power for its customers here. The Illinois Power Agency, which negotiates deals with generators on behalf of utility customers statewide, conducted a procurement a year ago of wind and solar providers for 15-year contracts. The winning bidders are receiving credits that average 0.426 cents per kilowatt-hour. Those are the same credits CleanChoice is presumably purchasing to be able to say it’s providing homegrown clean power. So that’s the best estimate of the current cost over and above wholesale electricity prices for new renewable development in Illinois.
At the peak of 14.8 cents, the premium my parents were paying CleanChoice Energy was 7.6 cents per kilowatt-hour. What accounts for the extra 7 cents-plus? Looks like some premium profits were being booked.
Colarulli couldn’t or wouldn’t explain what went into that extraordinarily high price beyond her assertions about market fluctuations and volatility.
CleanChoice is hardly the only supplier in this market and other states using the same tactics. What’s particularly outrageous about this is that policymakers in Illinois for years now have had all the information they need to crack down on an industry that provides little or no value proposition for the residential market.
Chicago-based electricity giant Exelon owns ComEd. But it also owns Constellation, the largest retail supplier both in Illinois and the country as a whole. Exelon, one of the most clout-heavy companies in the state, has stood in the way of meaningful state reform of the retail-supply industry for years, most recently helping to kill legislation in the General Assembly at the end of May. That bill, among other things, would have required ComEd to show its comparative price on every electric bill, whether the customer gets power from ComEd or, say, CleanChoice Energy.
ComEd now says it will do that voluntarily, perhaps because two consecutive years of state reports show that households served by suppliers are paying hundreds of millions of dollars more than they should for electricity. That’ll give customers who sign up for these “deals” a fighting chance to figure things out before too much damage is done. It’s just a start.
My parents will absorb the $600 premium they paid as a lesson learned. But there are lots of households hoodwinked into signing with these firms that have trouble making monthly ends meet. That this state has allowed this situation to go on is inexcusable.
Read the full article here.