Massachusetts is one of only around a dozen states that has a market for electricity. Even though there are three electric utilities that control the power grid — Eversource, National Grid and Unitil — state residents can choose who supplies their energy: the electric utility, a municipality or a private company (so-called “competitive suppliers”). This well-intentioned policy was meant to protect consumers by giving them more choices, instead, it has let companies trample consumers’ rights.
Electricity providers further complicated the story by consolidating the two bills ratepayers receive — one from the energy supplier that generates the electricity, and the other from the energy provider that transports the electricity to households. In theory, this makes it easier for consumers to pay their bills. Instead, this has generated more confusion by obfuscating what exactly ratepayers are being charged for and why.
This is far from the market’s only problem. Economic theory tells us that a perfectly competitive market will likely yield lower prices for consumers when compared with monopolistic or oligopolistic markets, so rates here should be lower than in states with utility monopolies, right? Wrong.
Nearby Vermont is the only state in New England with a regulated electricity monopoly instead of a market, yet the most recent data from the U.S. Energy Information Administration shows that Vermonters pay less for electricity than residents in every other New England state. Why would more competition for electricity raise energy prices? It doesn’t — at least not directly. The blame lies squarely with competitive suppliers and the state’s inadequate regulatory infrastructure.
The Massachusetts Department of Public Utilities requires a lengthy rate review with public hearings to determine the appropriate rates for electric utilities, but competitive suppliers are bound by no such restrictions. These companies can charge whatever they want while tacking on burdensome termination fees, often in the hundreds of dollars, that make it financially untenable for consumers to end their contracts early. Companies are required to get a ratepayer’s consent to change their plan, but unfortunately, this far too often comes through malpractice or outright deception.
The result? Consumers who use competitive suppliers find themselves paying over $200 more on their electricity bills annually. The Massachusetts Attorney General’s office found that these companies are specifically targeting low-income or non-English speaking households. The results are devastating. 29% of low-income households across the state use competitive suppliers, compared to 15% of high-income households. Likewise, low-income households using competitive suppliers paid 14% more for electricity than high-income households. More recently, these companies have turned their attention to vulnerable college students — many of whom have not had experience paying electric bills before.
While lower-income households are largely the ones in these companies’ crosshairs, these predatory practices have negative price effects for everyone. Electric utilities are required by law to pay electricity suppliers the monthly amount in full, even if a ratepayer cannot pay their bill. This, in effect, allows competitive suppliers to rip off the major electric utilities which invariably leads them to raise their rates to compensate for increased costs.
The market for electricity suppliers in Massachusetts makes it easy for consumers to lose out. However, some cities and towns across the state offer a third choice for electricity supply — municipal aggregation plans. These plans are pre-negotiated with energy companies to have more stable rates over the course of multiple months or years. Electric utilities, on the other hand, get to change their rates biannually.
Many cities, including Tufts’ host communities of Medford, Somerville, Boston and Grafton, have these aggregation plans and students should take note. These plans can often save ratepayers substantial sums. For example, a Somerville resident consuming the state average of 500 kWh/month, the city’s most basic aggregation plan could see savings this year of over $355 compared to what they would’ve paid if enrolled on Eversource’s plan. For students, those kinds of savings could be a lifeline. The university ought to do more to prevent scams, ensure students are aware of their options and advocate on Beacon Hill for a stronger regulatory apparatus.
A glance at the Tufts Office of Residential Life and Learning’s website shows how little the university has done to prepare students looking to live off campus or actively living off campus for the labyrinth that is Massachusetts’ deregulated utilities market. Utilities are hardly mentioned in ORLL’s official guidelines and resources, which increases the likelihood that students will pay higher rates than necessary or that companies will swoop in to try to scam us.
The university does us all a disservice by not providing us with the proper resources to make informed economic decisions. Take it from a senior: There are few skills you’ll learn in college more important than money management. Tufts, don’t let students find that out the hard way.