It Looks Like Junk Mail, But Ignoring It Could be Costly

[Note: Although this story is about certain Massachusetts towns, the same thing is likely happening around the country.]

Last week, tens of thousands of Massachusetts residents in a couple of cities and towns found letters like this in their mailbox:

With a little prior knowledge of what sales pitches from alternative electricity suppliers look like, this appears to be just another one of those letters promising savings if you choose them instead of your regular electric company. Even though it has the name of the city (Somerville) in the return address window, it lists an energy company name (Dynegy) and an address in Illinois, not Massachusetts. So many people might simply toss the letter out as junk mail.

A similar letter from the same company also went out to residents of Brookline, Massachusetts last week. Here is the front page of it:

Click letter to see full size.

Surprisingly, the letter really was sent on behalf of the town. It suggests that the town has bulk buying power when purchasing electricity for thousands of residents and businesses and thus has negotiated a plan “to provide you with competitive choice, longer-term price stability and more renewable energy.”

Good news, right. Not so fast. There are three big catches.

*MOUSE PRINT:

“There is no guarantee of future savings. The primary intent of the program is to provide price stability and savings over the duration [a 30 month fixed price contract] shown above. … Rates may drop below the program rate during any given six-month and three month period.”

So, first strike: no savings are guaranteed.

*MOUSE PRINT:

The details get worse. At the bottom of the page is the first unambiguous statement of what is really going on here.

“As an eligible participant, your account will be automatically enrolled in the program unless you choose to opt out.”

What, you are deciding for me what electric company is going to supply my power? Yep. Every resident and business in town will be automatically switched away from their current electricity supplier, Eversource.

Since when is a negative option plan legal that lets a seller impose its services on you unless you take action to stop it? If this were legal in other commercial contexts, we’d all be getting letters from swimming pool installers saying that next Tuesday a new pool is going to be installed in our backyards unless you call to stop it. Unbelievably, the Commonwealth of Massachusetts passed a law some 20 years ago allowing cities to set up “municipal aggregation plans” like this, and foist it onto their citizenry automatically as long as they allowed people to opt-out. How anti-consumer! These aggregation plans are not limited to Massachusetts, incidentally. Some states have had them for five or more years already and take a similar approach.

We’re not done yet with this bad deal.

*MOUSE PRINT:

To add insult to injury, the rate per kilowatt hour that everyone in Brookline is involuntarily being placed into is about 5% higher than the rate currently being charged by the regular electric company.

Dynegy charges $0.11098/kWh, while Eversource’s rate is only $0.10759/kWh. So much for the savings in the short term because the town was buying electricity in bulk. It should be noted that should everyone’s current electricity supplier go up in price during the next 30 months, people on the new plan may indeed save some modest amount of money.

The only way a Brookline consumer can get a lower rate than their current electricity supplier through Dynegy is to affirmatively opt-in to its basic plan rather than the default plan that the town chose for everyone. In that case, people will save just over one-third of one cent per kilowatt hour of power used. Woohoo!

Of course, saving money is not the only reason that cities adopt these aggregation plans. The hope is to force its citizenry into an electric plan that gets a good portion of its power from renewable energy sources like wind or solar power. In the case of Brookline, the default plan gets an additional 25% of its power from renewable sources.

On balance, we think that consumers should be offered these greener electricity plans, but they should be sold based on their merits and residents should not be forced into them involuntarily (even if there is a no-penalty way to opt-out).