Electric deals often look good — until the contract ends

February 06, 2012|Jay Hancock

Your first job as a Maryland electricity shopper is to sign up for a good deal at a good price. I'll remind you how to do so later in the column.

Your second job is to make sure you don't get switched to a bad deal once the good deal expires.

Thousands of Baltimore Gas and Electric Co. households have taken one- or two-year contracts since electricity prices began falling a couple years ago. Now that many of the terms are coming to an end, inattentive consumers risk being rolled over to a lousy new rate.

In some cases the rollover prices are more expensive than BGE's default price for its customers (the majority) who never bothered to shop around in the first place. That's the case with plans sold by BGE's parent company, Constellation Energy.

Constellation Electric, part of Constellation's merchant-energy operation that sells electricity packages to households and businesses in several states, has been renewing contracts for BGE customers at 9.25 cents per kilowatt hour for a year.

"Peace of mind with a fixed rate," says Constellation Electric's letter disclosing the change. "To take advantage of your new fixed rate, no action is needed."

What they don't tell you is that the new rate is about 2 percent higher than the price being paid by customers who stuck with BGE's standard price. It's 6 percent higher than what Constellation Electric is offering new (non-rollover) customers. And it's more than 15 percent higher than other electricity deals available to BGE customers.

To obtain those lower prices, action on your part is very much needed. You need to cancel the Constellation Electric renewal or others like it to find something better.

But it's likely that many customers overlook the renewal letter that electricity suppliers are required to send disclosing the new price. Even if consumers open the letter, the new rate means nothing unless they read the very fine print or check the Office of People's Counsel's website to see what other companies charge.

Adding to the consumer inertia is the possibility that many people forgot they even switched suppliers. If you sign with Acme Megawatts, Acme doesn't send you an electricity bill every month. Instead, the charge is included on your BGE bill, and BGE pays Acme. (You also pay BGE for delivering Acme's electricity over the BGE wires and transfer stations.) So when it finally comes, customers think the Acme renewal notice is junk mail.

"They get mail. They don't open it. They don't look at it," says Maryland People's Counsel Paula Carmody, who is charged with looking after the interests of utility consumers. "It could be a year, two years or three years later when they get the renewal notice. My guess is that people have totally forgotten who they were dealing with."

The merchant electricity business looks more and more like the credit card, checking account, cable TV and mortgage trades. The business model is to lure you with an attractive, teaser deal and then nail you with fees and higher rates after you stop paying attention and become too lazy to switch.

Even if you realize your mistake after the contract rolls over, it's often too late. With many companies, once you get the letter there are only a few weeks to cancel the renewal without paying an early termination fee. In Constellation Electric's case, that's $150.

Many readers wonder why BGE's parent company, which is scheduled to be taken over by Chicago-based Exelon Corp., would poach BGE customers through Constellation Electric. One answer is that BGE gets paid more or less the same no matter how many households dump its standard electricity product. Another answer is that third-party sales of electricity by companies such as Constellation Electric can be quite profitable, especially if customers aren't careful.

"Renewal rates offered to customers are dependent on market conditions at the time of a customer's contract expiration," says Constellation spokeswoman Maureen Brown via email. "Changes in wholesale commodity market conditions and other factors cause offers to vary, but we consistently offer rates that are fixed over the life of the renewal period."

As noted, Constellation Electric's recent renewal price was 9.25 cents per kilowatt hour. But BGE's regular price from now until June is about 9.05 cents. It's true that BGE's standard price will rise to 9.46 cents from June through September. But it drops back down in October, and it's likely that the Constellation Electric plan will cost you more than if you had just stayed with BGE's regular offer.

An alternative: Dump both BGE's standard fare and any Constellation Electric deal (unless you're locked into a contract) for a cheaper plan. ConEdison Solutions (conedsolutions.com) is offering BGE customers a fixed rate of 7.99 cents per kilowatt hour until February 2013. Castlebridge Energy (cbenergygroup.com) has a one-year contract of 7.95 cents.

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