Regulators Warn that Third-Party Suppliers Usually Add to Electric Bills

Electricity in Connecticut is expensive, and for customers of Eversource and United Illuminating the possibility of lower-cost power from a third-party supplier can look attractive, but in a report released this week state regulators concluded that those alternatives usually end up costing customers significantly more for the same energy.

According to a draft of PURA’s annual report to state lawmakers on the deregulated electric market, most customers who signed up for variable rate electric contracts ended up paying higher prices than they would have under the standard service contract in 2020.

The higher cost of third-party energy suppliers was even clearer in the second half of the year, when almost 70 percent of UI customers and 83 percent of Eversource customers with those contracts paid more than they would have under the standard contracts. The average residential Eversource customer using 750 kilowatt-hours a month would have paid about $132 more last year using a third-party supplier. The average UI customer would have paid about $85 more using a third party supplier, according to PURA. 

Without customer-specific usage data, the state regulator was not able to calculate the total cost that customers overpaid. 

Every customer of the state’s two publicly-traded electric utilities pays two rates on their bill – one for the actual supply of electricity, and another for the cost of maintaining the distribution system. Most customers pay a standard rate for the supply of electricity through their regular contract, but customers also have the option to purchase that supply through a third party.

Some third party suppliers charge premium rates for customers who want more of their power to come from renewable sources. Others pitch themselves as a lower-cost alternative.

The number of customers using these third-party contracts in Connecticut has steadily decreased since 2013, but in 2020 about 271,926 residential UI and Eversource electric customers used a third-party supplier – around 20 percent of residential customers. Five years ago, about a third of customers used a third-party supplier, according to PURA.

And the issue of higher rates isn’t limited to Connecticut. 

Massachusetts Attorney General Maura Healey released a report on Monday that found that the roughly 450,000 customers in Massachusetts purchasing electricity from a third-party supplier paid $426 million more than they would have if they had remained with their utility companies over the past five years.

Healey’s report found that low-income customers in Massachusetts are nearly twice as likely to sign up with third-party suppliers, and that low-income customers are charged higher rates than those with higher incomes. Low-income customers lost an average of $241 a year on those contracts, while other customers lost an average of $194 a year, according to the report.

Customers in zip codes where more people of color live also bore a disproportionate share of those extra costs, according to Healey. In Worcester, customers with third-party suppliers paid nearly $400,000 more than they should have in September 2019 alone.

According to PURA, two-thirds of the Connecticut customers who use third-party suppliers and are on payment arrangements because they have overdue bills, were paying a higher rate than they would under a standard contract.

These electric suppliers drew scrutiny from lawmakers in 2014 and 2015 after multiple suppliers reached multi-million dollar settlements to resolve investigations into their marketing tactics. 

One of those suppliers, North American Power and Gas, paid $2.6 million to Operation Fuel to settle PURA’s claims that the company deceived customers by offering a low rate up front, then raising that rate by as much as 30 percent after one month. 

The state legislature passed a law in 2015, in the wake of those investigations, barring the practice of offering variable-rate monthly-adjusting contracts, which lawmakers believed were ripe for abuses, but according to the latest report, 14,644 customers were still enrolled in this type plan in January. 
That enrollment number has dropped 41.2 percent from January 2020, but state regulators suggested that the thousands of customers still on those plans is evidence that they don’t understand their energy bills.

In July, for example, after PURA approved a distribution rate increase, there was an “anomalous” increase in traffic on the state’s site comparing supply rates. But customers contracting with third-party providers will pay the same distribution rate regardless.

Latest from Brendan Crowley