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Attorney General Says Variable Rate Contracts Violate Existing Regulations

March 9, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

"Managed" variable electric rate products that set prices based on "market conditions" or "discretion" or similarly vague language violate regulations promulgated by the Massachusetts Attorney General, the AG said in comments to the DPU opposing such products' inclusion on any online rate board.

The AG described managed variable rate plan as plans in which the supplier obligates the customer to an electricity supply agreement of a certain term, but only discloses what the customer's price for electric power will be for a portion of the agreement's duration, and in which, for the remainder of the contract term, the competitive supplier states that the price will change based on the "market" and/or at the supplier's "discretion" or similar language.

The Attorney General's regulations at 940 CMR § 19.05 provide that, "it is an unfair or deceptive act or practice for a retail seller of competitive generation service to initiate service to a consumer, or to provide any product or service to a consumer, or in any way obligate a consumer to accept or pay for any product or service, unless and until the retail seller of electricity has provided the consumer with ... (a) Complete, accurate pricing information ... including ...a definition and a complete explanation of each and every charge that the retail seller may bill to a consumer."

"Far from providing 'complete, accurate pricing information,' these provisions [of managed variable products] provide virtually no information to customers concerning how much they will be charged for electricity over the remainder of the term. In effect, these provisions are illusory promises that give competitive suppliers unlimited discretion to set prices, which consumers are practically helpless to challenge, even though they are themselves bound to promises favorable to the supplier," the AG said.

Moreover, the Attorney General's general consumer protection regulations provide that, "[i]t is an unfair or deceptive trade practice for any person subject to 940 CMR 3.13: 1. to fail to disclose to a buyer prior to any agreement the price or cost of any services to be provided."

As to door-to-door sales, the Attorney General's regulations provide that it is an unfair or deceptive practice for any seller in connection with any door-to-door sale to, "[f]ail to disclose the exact nature, description and price of the goods or services which are to be subject of the transaction to the purchaser or prospective purchaser in advance of any attempt to induce the purchase or prospective purchaser to enter into (a) an agreement in writing, or (b) to pay consideration to the seller."

"As long as the variable rate is calculated pursuant to an index, methodology, or formula such that the customer can calculate his or her supply rate and other applicable charges based on publicly available information, the variable rate complies with G.L. c. 93A. A competitive supplier, for example, could market an electricity supply rate based on the NYMEX, an index that tracks an ISO-NE market plus a constant, or countless other methodologies. As to disclosure of price, the Attorney General's Office's regulations require only that competitive suppliers are transparent in their methods for setting price and that such prices are calculable," the AG said.

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