By: Heather Newgent
If an offer appears too good to be true, chances are it is. Just ask Laclede Gas who, cloaked in a scheming veil of customer service, is proposing a pilot program that could result in millions lost by participants.
The program will offer consumers the option of buying a twelve month fixed gas-rate, which, according to a recent article in the Saint Louis Post Dispatch, is an effort to “make their bills more predictable, not a vehicle to save money” (Laclede proposes letting customers choose fix-rate plans, June 10, 2007). What the article did not mention is that Laclede is including this plan as part of a broader rate-case proposal, despite the fact that similar fixed-rate programs in Illinois, Minnesota and Nebraska are experiencing relentless full-throttle challenges by advocacy groups, attorney generals and state commissions who want nothing short of their disappearance.
Foremost in the struggle against fixed-rate programs is Minnesota, where, according to Pam Marshall, executive director of Energy CENTS coalition, a nonprofit advocacy group, the programs are in the process of being terminated. “It was realized that the utilities prey upon peoples’ fear of high gas prices to market these programs as a predictable, safe alternative, but are offering nothing more than pure snake oil.”
From 2001 to 2006, customers of CenterPoint, a Minnesota utility, paid $26 million more on the fixed-bill than standard rate customers paid; in each of these years only 31,300 customers participated in the programs. According to Lori Swanson, Minnesota Attorney General:
‘The deals are stacked against consumers. . . . The product really amounts to a type of insurance policy — if you will — where the consumer is kind of buying insurance against a future increase in gas prices. And virtually every year every consumer has ended doing worse under the program than they would have done if they had not been under the program’ (Minnesota Public Radio, May 25, 2007).
The problems with fixed-rates have not been limited to higher gas bills. Marshall and Swanson agree that in many cases consumers were confused about what the program was really offering and did not know how difficult it would be to get out after enrolling. Also, many people mistook the fixed-rate program for a newer version of traditional budgeting, while others, terrified by the false threat of extremely volatile energy prices, felt pressured to buy into the idea of needing certainty (Minnesota Public Radio, May 25, 2007).
Illinois is no different. “In Chicago and the surrounding suburbs, where two companies offer plans similar to the one proposed by Laclede, more than 90 percent of customers ended up paying more than they would have otherwise” (St. Louis Post-Dispatch, June 10, 2007).
According to Brian McDaniels, employee of the Citizens Utility Board, “of the hundreds of phone-calls I received from customers who were angry with these programs, there was one woman who absolutely loved it.” He explains that the woman was a landlord who advertised gas as being included in the rent. “She didn’t care that the gas rates were wasting money because she wasn’t the one paying them.”
Laclede is now working to finalize program details, which must then be approved by the Missouri Public Utility Commission. At this time Laclede has no comment regarding the outcomes of similar programs, and commission sources said they were unaware of the devastation all together. Marshall recalls a similar situation prior to adopting fixed-rate programs in Minnesota, for which she says, “the customers will most likely end up paying the price.”
The question now is, whether the Missouri Public Utility Commission is taking critical measures for ensuring consumers receive a fair and necessary service by Laclede and not the fate of those in Minnesota, Illinois and Nebraska. Prior to approving any type of fixed-rate program, the commission must gain a comprehensive understanding of what is being offered. For example, has the commission learned the answers to any of the following questions?:
1. Will fixed-rate customers be automatically re-enrolled for the program after one year of service?
2. Is Laclede offering a fixed-fuel-cost or a fixed-total every month?
3. Will Laclede show the fixed-fuel-rate and the regular consumer rate on each bill?
4. In the off chance that fixed-rate customers come out ahead, what rates can consumers expect the following year when Laclede attempts to make up forthe loss in profit?
5. What is Laclede’s projected bottom-line increase when figuring in the additional profits from the fixed-rate service?
6. Who will be charged with figuring out the fixed-rate? Will the methodology be public information? Will it be handled in-house or by an unregulated third party?
7. Why is Laclede offering a program that could result in a profit loss unless the majority of risk belongs to the consumer?
8. Why is this program even necessary when, according to information on Laclede’s website, extensive measures are already in place to ensure that St. Louis consumers get nothing but the best price for natural gas. It states:
Laclede Gas Company uses an aggressive approach to moderate the impact of price spikes on our customers that is designed to help ease their financial plan. Our objective is to increase price stabilization through our gas supply risk management program. This involves the utilization of a variety of financial instruments to “hedge” approximately 70 percent of our normal gas purchases.
Given the harmful track records of similar fixed-rate programs and Laclede’s high-tech capacity for managing gas prices, it is difficult to understand why the local company sees value in delivering a service that, most likely, will only succeed in proving the grim adage, warning: Buyer beware! No matter how great the offer, the house always wins!
