Power sellers fight state marketing clampdown
By Steve Daniels, Crain’s Chicago Business, May 27, 2017
As complaints pile up against energy suppliers, the industry is gearing up for a fight this summer to weaken state rules aimed at protecting consumers.
The Illinois Commerce Commission is expected to finalize regulations soon that would require electricity marketers to be more transparent with households about their offers and pricing. The rules, first proposed in September, are backed by consumer advocates like Illinois Attorney General Lisa Madigan and the Citizens Utility Board. But the association representing Illinois suppliers contends that they’re too costly. The commission in some cases oversteps its legal authority, the association also says.
Suppliers are preparing to lobby a bipartisan group of state lawmakers that will review the rules this summer, sources say. The Joint Committee on Administrative Rules has the final say over significant new regulations put forth by state agencies and can reject them or send them back with proposed changes.
The battle comes as competition to sign up residential customers heats up in an era of unusually low electricity prices. Difficulty providing savings from what Commonwealth Edison offers has led suppliers to lure new customers with three-month teaser rates or $25 and $50 gift cards.
In the year that ended in February, the ICC received 1,457 complaints about electricity suppliers. That topped 1,429 the previous year, which represented a spike at the time because of unusually high pricing following the polar vortex in the winter of 2014-15.
The ICC’s proposed rules would, among other things, require recorded third-party verification of door-to-door sales, mandate that suppliers record and preserve telemarketing calls, and make power price changes available online to customers before they take effect.
In September, when the commission approved the rules, Chairman Brien Sheahan said they would “deter retail electric suppliers from using deceptive marketing practices and protect consumers by providing them with clear information necessary to make informed decisions.”
In testimony filed with the ICC, suppliers have said the commission is overreaching and lacks the legal authority to take some of the actions it’s proposing.
Kevin Wright, president of the Illinois Competitive Energy Association, an industry group, says rules already on the books prohibit many of the sources of consumer complaints. “What’s missing is aggressive enforcement of the commission’s current powers to rid the marketplace of those few suppliers who skirt the rules,” he says in an email. “What’s being considered is a new rulebook, of questionable consumer protection benefit, that is chock-full of highly prescriptive and costly procedures for the vast majority of suppliers who are law-abiding.”
He says the association will decide whether to appeal the rules to JCAR, the legislative review panel, after the ICC makes the rules final.
There is little question that consumers are often confused by how the market works. Suppliers aren’t required to post the utility’s current energy price when making offers, so consumers frequently don’t know whether they’ll save money by signing up. The proposed rules would for the first time require suppliers that claim savings to show the utility’s “price to compare” when pitching would-be customers.
That consumers are confused is evident in the data. From June 2015 through 2016, customers in ComEd’s service territory getting electricity from a retail supplier paid $115.2 million more for power than they would have with ComEd, according to the ICC’s Office of Retail Market Development. On average, customers who weren’t with ComEd paid nearly 1 cent per kilowatt-hour more. Over a year, that was about $71 for the average household.
As of nearly a year ago, 651,570 households in ComEd’s territory had signed up with alternative suppliers, according to the ICC. That’s nearly 1 in 5 northern Illinois households.
AND IF YOU SIGN UP NOW . . .
Constellation, the retail arm of ComEd parent Exelon and the biggest player in the retail market, confirms it’s selling both electricity and natural gas door to door via dozens of agents, something it has done only sporadically in the past. Constellation’s current offer on the ICC website is for 12 months at 7.69 cents per kilowatt-hour. That’s 12 percent above ComEd’s 6.89-cent price beginning in June.
When customers also agree to buy natural gas from Constellation, they get a $50 “sign-up incentive.” Constellation’s gas price of 45.9 cents per therm is 24 percent above Peoples Gas’ May charge of 36.96 cents. “This dual fuel option is attractive to customers who value price certainty as a measure of insurance against the natural fluctuations in energy prices,” a spokeswoman says in an email.
Other suppliers follow the same model generally because they need to build a profit into the commodity they sell. ComEd, on the other hand, isn’t allowed to profit on the energy it sells. It makes money delivering the fuel per rates that the state regulates.
Many of the complaints revolve around far higher prices customers see after three- or six-month teaser rates expire. Those prices then change month to month, often with no explanation of what they’re based on.
At last count, more than 50 suppliers had residential customers in the Chicago area.
Another supplier, MC Squared, recently introduced an innovative offer that guarantees residential and small-business customers that they’ll save compared with ComEd no matter what the utility’s price is.
It won’t be available to all, though, because MC Squared has to crunch numbers based on a specific customer’s usage pattern to determine whether it can save them money. Company President Chuck Sutton estimates that 45 percent to 65 percent of ComEd customers could qualify.
Chicago-based MC Squared, which has next to no customer complaints with the ICC even though it has more than 20,000 residential customers, also doesn’t sell door to door, instead using social media and direct mail. “I think the fundamental problem in the marketplace today is educational,” Sutton says. “People don’t understand. . . . It isn’t that we can’t deliver savings to people. We’ve got to simplify this.”
As for offers to provide savings for three months and then shift to variable rates? “Well, what do you think is going to happen after three or six months?” Sutton says.
“We do have some interesting actors in my space, let’s put it that way,” he adds.
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