People's Counsel Says Supplier Variable Rates Which Deviate from Wholesale Market Are Unlawful

The Maryland Office of People's Counsel said that variable rates of retail electric suppliers which far exceed competitors' prices and prices based on wholesale market conditions are deceptive and unlawful.

The People's Counsel's argument came in a request for the PSC to expand its investigation into Starion Energy (see prior story for background). Starion's pricing methodology for variable rate contracts had not been highlighted by Staff as prompting the need for the current investigation (though Staff did say the issue of whether contracts were properly disclosed to customers depending on sales channel warranted review).

However, OPC alleged that Station's variable rate contracts are "deceptive" because they describe the product as based on "market conditions," but include rates, after an initial promotional period, that are well above both the range of competitors' retail prices, and retail prices that would be expected given wholesale market conditions.

If adopted, OPC's argument could set precedent, such as a "zone of reasonableness," for other retail suppliers competing in Maryland offering a "market-based" variable rate.

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Specifically, OPC said that many of the complaints it has received concerning Starion were about the very high rate charged to the customer.

"In most instances, it appears that a competitive rate (in comparison to the utility SOS rate or the range of rates listed on OPC's website) was charged for one, three or six months, and then began to increase sharply. The complaints cited increases to 15.99, 16.99, 17.99 or 18.99 cents per kilowatt hour. Many customers claim that they were given assurances of a lower or competitive rate with the utility," OPC alleged.

OPC alleged that Starion contract documents filed by Staff in the proceeding state that the variable rate, "will be calculated monthly based on the Starion variable price methodology."

"The contract documents do not identify or describe the methodology to be used in a way that is transparent or that can be understood, but merely states [sic] that: '[t]he Variable Rate may change in response to market conditions, including such factors as electricity market pricing, applicable taxes, transmission costs, utility charges and other market price related factors, as determined in Starion's discretion (emphasis by OPC),'" OPC alleged.

"[W]hile the contract terms and conditions ... state that the variable rate 'will be calculated monthly' and 'may change in response to market conditions (emphasis added),' the rates on customer bills increased to amounts far in excess of wholesale prices and retail prices charged by the utility or other energy suppliers," OPC alleged.

"The variable rates charged to the complaining customers fall in the range of 15.99 to 18.99 cents per kilowatt hour and are in no way related to wholesale market conditions in PJM or retail market conditions in the State of Maryland or the relevant utility service territory," OPC alleged.

OPC produced an affidavit from Jonathan Wallach, Vice President of Resource Insight, Inc., which indicates that the expected "retail service cost" for suppliers from January 2012 to June 2013 in the BGE territory never exceeded 9.5 cents per kWh. This "retail service cost" includes full requirements wholesale supply, including capacity, losses, and RPS obligation, the retail transmission rate, plus consolidated billing fees. It does not, however, appear to include any overhead costs for a retail supplier (Matters notes this merely for emphasis, and not to intimate that overhead costs would reasonably push the price to 15 cents or more).

As a result of this analysis, OPC alleged that the, "prices charged by Starion to its customers within this price range [15-18 cents] did not have any relation to wholesale electricity 'market conditions' in the State of Maryland or within PJM."

OPC also produced a review of competitors' retail rates over the same period and found that no competitor prices (of those publicly listed) exceeded 11 cents per kWh, and that only two competitors had rates in excess of 10 cents per kWh during this period (and only for several months in spring 2013).

OPC also noted that while Starion allegedly charged the higher rates to certain existing customers, it continued to list promotional prices as generally under 9 cents per kWh for (apparently) new customers during the same period.

OPC said that this comparison, "further establishes that the prices charged by Starion to its customers within this excessive price range [15-18 cents] did not have any relation to competitive retail electricity supplier offers ('retail market conditions') in the State of Maryland."

"The high prices were unreasonable and non-competitive prices charged by Starion after a competitive promotional price was quoted to the customer," OPC alleged.

Matters would note that the issue, at first glance, would appear to be not the "excessive" rates themselves, but that the variable rate was described as a rate that "may" vary due to market conditions (though the contract was not explicit that "market conditions" was the only factor that would lead to a rate change, it also did not explicitly list any other factor which would cause a rate change). In other words, had the variable rate simply been labeled as changing at Starion's discretion, OPC's argument in this area would be moot, since it could not be claimed that customers were deceived into thinking the rate would vary only with the market.

However, OPC said that, "[i]n addition to the explicit prohibitions on unfair and deceptive practices, Commission law and regulations explicitly require that a supplier 'must provide adequate and accurate information on available electric service,' [PUA § 7-505(b)(4)(i)] and must provide specific minimum information in the supplier contract."

It is unclear if simply providing the first month's rate, and stating that the rate may vary after the first month at the supplier's discretion, would constitute compliance with the requirement to provide, "adequate and accurate information on available electric service."

OPC further noted that PUA § 7-507(j) requires, "An electricity supplier shall post on the Internet information that is readily understandable about its services and rates for small commercial and residential electric customers," and COMAR 20.53.07.07(c) requires, "A supplier shall post on the Internet readily understandable information about its services, prices, and emissions disclosures."

Additionally, PUA § 7-510.1(c)(2) requires that, "At least once each month, each electricity supplier with an open offer to supply electricity shall submit detailed information about the offer to the Commission through a secure portal maintained by the Commission on the Commission's Web site for this purpose [of maintaining a website listing offers to supply electricity]."

An October 14, 2011 notice by the PSC concerning the supplier offer web portal said that, "[t]he information that is required to be uploaded by each electricity supplier shall be prominently displayed and include, at a minimum: 1) the terms of any open offers to supply electricity, including: (a) the duration of the contract; (b) the cost of electricity per kilowatt-hour; and (c) any cancellation fees..."

"OPC's review of the Commission supplier web portal has revealed that Starion has not uploaded any offers for residential customers in any Maryland service territory, despite the fact that it has been actively soliciting customers in the BGE, Pepco, Delmarva Power and SMECO service territories. Starion has failed to comply with Commission law and directives by failing to upload the information through the Commission web portal," OPC alleged.