Misleading electric ads make case for reregulation

The woman who says she represents North American Power is not telling the truth about the benefits of buying electricity from her company.

"You can save up to 10, 15, 20 percent of your bill, depending on your usage," she says in a telemarketing call to my house.

But the rate she eventually quotes is only about 7 percent less than the standard price offered by Baltimore Gas & Electric — something the average customer would have no way of knowing. And of course the percentage savings won't vary even if my "usage" goes up to that of a steel mill.

This is a problem for North American. A few weeks ago the staff of the Public Service Commission, having done its own investigation, challenged the company to show why it shouldn't be penalized for "committing fraud or engaging in deceptive practices."

(The allegation "was pretty horrifying to me," company CEO Kerry Breitbart said in an interview. Any misrepresentations were "inadvertent," he said, adding that the company recently hired five new employees to make sure sales reps obey the rules.)

But this is also a problem for the industry. As power companies plead with Annapolis to maintain electricity deregulation, widespread misbehavior by people selling kilowatts to households furnishes another argument for scrapping the whole mess.

"There clearly is a problem with the way that price information and other information is being presented," says Maryland People's Counsel Paula M. Carmody, who represents residential consumers before regulators. "What we're finding more often than not is that the price comparison that we're seeing in ads is not transparent. It's not clear. It's not accurate."

A decade after the arrival of deregulation that was supposed to let everybody shop for power the way they buy laundry detergent, electricity shopping for households has truly, finally arrived in Maryland.

BGE and Pepco remain our utilities and will always deliver the kilowatts to your house, but these days you can buy the raw electricity from more than 10 independent suppliers. They try to beat the utility's standard price by getting a better deal in the wholesale market.

Nearly one in five BGE households has signed with an alternative supplier, BGE reported two weeks ago. Ads for residential electricity are everywhere. Telemarketers bother people during meals. Kilowatt sellers are going door to door. Multilevel marketing companies such as Viridian Energy are doing the Amway thing, signing up layers of loosely affiliated sales reps to amplify the message.

Unfortunately, some companies seem to be putting more effort into closing deals than making sure customers understand what they're getting.

One North American agent claimed to be a PSC employee, according to the complaint from the PSC's staff. A North American ad falsely claimed customers could save up to 20 percent, the complaint said. North American "deceptively implies" that savings from a variable rate, which could change any month, would continue for several months, the complaint said.

Viridian Energy also "uses misleading and deceptive practices" to sell electricity, promising savings of up to 20 percent and representing that BGE "is an active partner" in its sales campaign, according to another PSC staff complaint.

Betsy Webb, Viridian's vice president of regulatory affairs, said it would be inappropriate to comment on the allegations since the case is pending before the commission. (The PSC inquiries into Viridian and North American are regulatory, not criminal. But the companies could lose their licenses to sell electricity and be fined up to $50,000.)

North American's Breitbart suggests that his company's rapid growth contributed to a lapse in standards and notes that it voluntarily agreed to stop telemarketing and door-to-door sales in Maryland until the PSC's concerns are resolved.

But it's not just North American and Viridian. Last fall I criticized Constellation Electric for exaggerating potential savings by hawking its price against a BGE standard rate that was about to expire.

Carmody is concerned about all multilevel marketing companies selling electricity, arguing that their sales folks should be licensed. She's also worried that people are getting creamed by high "early termination" fees and being inadequately notified when contracts automatically roll over to a new, more-expensive deal.

So what about it, electricity industry? Your reputation in Maryland was already pretty poor. Shenanigans and abuse by competitive suppliers are one more factor for the legislature to contemplate as it decides whether to continue the deregulation experiment.

"You want to ensure that you have actors participating in the marketplace in an appropriate manner," said David Fein, vice president of energy policy at Constellation Energy and president of the Retail Energy Supply Association, a trade group of independent marketers. (North American Power and Viridian are not RESA members.) "If you have a bad actor or actors, that can count in the court of public opinion and reflect poorly on the industry."

Well, maybe the industry should police itself instead of waiting for regulators.

Markets only work with good information. If residential electricity sellers can't give customers full and honest information, maybe that market shouldn't exist.

•Most contracts roll over to a new deal unless you opt out. Note the contract's expiration date and make sure you don't get committed to new terms you don't want.

Getting the right deal

Misinformation about electricity and natural-gas offers is flying. Here's how to avoid a bad deal.

•Never agree to a contract after the first sales call. Ask for written information or visit the company's website to confirm the offer.

•Compare the deal against competing prices listed by the Office of People's Counsel at http://www.opc.state.md.us. Click on "Electricity Retail Supplier Prices."

•BGE's standard "price to compare" from now through May is 10.083 cents per kilowatt hour for electricity and transmission. Measure savings against that.

•If a company promises certain savings but can't quote a rate to compare against BGE's standard offer — that's why they call it the price to compare — hang up.

•Ask about early-cancellation fees, which can be hefty.

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