As Energy Costs Soar, Regulators Warn Third-Party Suppliers Usually Cost More


TwitterFacebookCopy LinkPrintEmail

Given that Connecticut residential electric customers pay the highest bills in the continental U.S., the dozens of third-party electric suppliers selling contracts in the state may look enticing to customers fed up with Eversource or United Illuminating bills.

Claims of lower costs are often a key selling point as third-party electric suppliers try to bring in new customers, but state utility regulators are warning again — as the war Ukraine threatens to send energy costs still higher — that those contracts usually cost customers more, especially for those who are already struggling to pay their bills.

PURA found that a majority of Eversource and United Illuminating customers who have a third-party electric supplier pay more than the standard rate the larger utilities charge. Between January and June 2020, 59.4 percent of Eversource customers with a third-party supplier paid more than the standard rate, and 49.8 percent of UI customers paid more with their supplier.

The issue is more extreme in the second half of the year, when rates are typically lower. Between July and December 2021, 89 percent of Eversource customers and 73.3 percent of UI customers with a third-party supplier paid more than the standard, according to PURA.

For the “average” residential Eversource customer using 750 kilowatt-hours of electricity per month, a third-party supplier would have cost an additional $157.80 over 2021. For the average UI customer, it would have cost an additional $116.04, according to PURA. The regulator noted these are average numbers, so some customers paid less, and others paid more.

Traffic to the Energize CT rate board – where customers can compare rates of third-party suppliers – tends to increase in the winter, when the standard service rate usually increases. This year, the increase to the standard rate was especially extreme, as high natural gas prices drove it to spike nearly 40 percent above the winter rate in 2021.

Dan Dolan, president of the New England Power Generators Association, which represents power plants in the region, said the high cost of natural gas that led to those high rates was largely the result of COVId-related impacts on the supply chain. 

As the economy opened and rebounded faster than many anticipated, driving demand up, the gas industry had a hard time getting its workforce back, lowering supply. Last fall, that looked like a temporary situation that could sort itself out after one winter, Dolan said. 

But the Russian invasion of Ukraine, the natural gas market has fundamentally shifted in a way that could lead to longer-term increases in the price of fuel, Dolan said. In New England, where natural gas is the main fuel for power plants, that would mean longer-term increases in the price of electricity.

“Historically, we have imported very little [gas] directly from Russia,“ Dolan said. “But with less Russian production in the global market, that means the overall prices go up. Domestically, we aren’t insulated from that, because we are ramping up the production and export to try to backfill for Europe, which means there’s going to be a price impact for us right here.”

That means higher bills for customers in Connecticut and New England, where customers already pay some of the highest bills in the country. And a higher standard supply rate offered by Eversource and United Illuminating will mean more people looking for another option.

But, as PURA has found repeatedly, third-party suppliers’ promises of lower rates – while enticing – usually end up costing more. And that’s especially true for people who are already struggling to pay their electric bills.

Two-thirds of Eversource customers who were on payment plans to pay off overdue bills and had a third-party supplier had paid more than the standard rate – and 94 percent of UI customers in the same situation paid more.

It makes paying off bills even harder for people who are already struggling, and when they fail to pay their bills, the costs end up being passed on to the rest of Connecticut’s electric customers, PURA said.

Gannon Long, director of policy and public affairs at Operation Fuel – which provides grants to help people pay electricity or fuel bills – said they see people who come in for help with their electric bill who are paying a much higher rate than they should because they have a third party electric supplier.

It’s clear that these suppliers are responding to a demand, Long said. Customers are desperate to have lower electricity costs, and the suppliers use that to their advantage, signing people up for service that looks good, but isn’t in their best interest in the long term, Long said.

PURA also found that in the 25 zip codes with the largest non-white populations, customers of thrid-party electric suppliers were even more likely to pay a higher rate. PURA said some of the largest suppliers charged every Eversource customer in those communities a rate higher than the standard rate during the second half of 2021.

“Although the majority of all customers with a supplier paid more in 2021, the effect on communities of color was pronounced,” PURA said.

Many suppliers are known for aggressive marketing, through cold calls or door-to-door sales. They’re able to find people who are most in need of relief on their bills, and they meet them where they are, something assistance programs aren’t able, or always willing, to do, Long said.

State utility regulators have taken aim at the aggressive marketing tactics of some third-party electric suppliers – several of which regulators have penalized for violating state marketing laws.  Between March 2021 and 2022, PURA assessed a total of nearly $3.5 million in penalties against five separate suppliers through settlements or fines for marketing violations. 

Just this month, PURA fined third-party electric supplier Discount Power $2 million and suspended its license to operate in the state for three years after finding that its sales agents misled customers into signing contracts with the company – including at least one instance where a sales agent berated and lied to an elderly woman until she enrolled.

PURA also found that Discount Power sales agents misled customers into believing they would save more money by switching over from the standard rate than they actually would, and in some cases even lied about what the standard rate was.

“This speaks to how important it is for people to have lower costs,” Long said. “It’s something that people are really struggling with, and the willingness to even listen to these offers underscores it.”