For all the countless types of goods and services consumers can buy, they basically fall into one of two different payment categories: those where you know (or can find out) your total cost before you agree to buy it, and those where you can't know the full cost until after you've taken on responsibility to pay for it.
Fortunately, most things you buy fall into the “before” category. Need a new car? Whether you pay cash or buy on the installment plan, you can determine the exact price and interest rate before you sign any contracts, and calculate to the penny how much it will cost to make the car fully yours. Going to the supermarket? You can look at the posted prices, add any applicable sales taxes and know what you must pay for that food before you get to the checkout line.
And in such cases, if you discover your first choice costs more than you can afford, you have time to find cheaper options — buy an older or less-fancy car, replace the steaks with less-expensive cuts of meat, even shop around and buy the exact same products from a lower-priced seller — whatever is required to make your purchase fit your budget.
But you can't do this with certain necessities whose cost cannot be determined until after you've agreed to pay. Medical procedures are the most notorious: what does it cost to set your broken bone, or deliver your healthy baby?
You can't find out in advance. You won't know until the bill comes due, and the answer will depend on thousands of different variables, including whether you have insurance, what insurance you have, how much coverage it offers, which doctor do you visit, is that doctor is covered by your insurance network, how much does the doctor charge in the first place, which hospital or medical group does said doctor work for, what medication is prescribed, how much do local pharmacies charge for it, are those pharmacies in your insurance network, and who the hell knows what else.
The bill comes later
Electricity is another bill-after-the-fact service: first you use the power and then you're charged for it, and if the bill proves higher than you can afford, there's no option to return or give back the extra wattage (though you can definitely take steps to reduce your power usage henceforth).
Even determining the price-per-kilowatt hour in advance doesn't always work. This is partly because the energy market is always in flux, largely due to reasons beyond sellers' or buyers' control: anything from cold winters to hot summers to political instability in any of a hundred different energy-producing regions can lead to a price rise.
But customers of third-party energy providers (as opposed to the single regulated utility in a given area) frequently complain of enormous price rises far higher than normal energy-market economics would indicate.
Last month, we showed you a sampling of reader complaints we'd collected about Ambit Energy, the majority of which boiled down to, “They promised low rates but then my bills skyrocketed, and canceling the contract proved difficult and expensive, too.”
Not that Ambit is unique in this regard; as early as 2007 the Associated Press reported that, industrywide, “Electric deregulation fails to live up to promises as bills soar,” and cited examples from a variety of states where deregulated energy is allowed, all of which boiled down to “Deregulated energy consumers often end up paying far higher rates than do customers of the local regulated utility.” The AP also spoke to the president of an energy providers' trade group who suggested that the only reason regulated-utility customers were paying lower rates is that perhaps they hadn't been paying the full market rate beforehand:
[Electrical Power Supply Association president John] Shelk says consumers in states like Illinois are seeing "sticker shock" because their rates were artificially low for years, and that forced a large increase to get back to market prices when rate caps were lifted.
That was seven years ago. Have things improved for the third party energy customers in Illinois?
Not if this report from the Illinois Citizens Utility Board (CUB) is any indication:
Amid a 115 percent jump in consumer complaints about unregulated electricity suppliers, the Citizens Utility Board (CUB) released a report Tuesday that exposed some of northern Illinois’ worst deals in a market that is much more treacherous for power shoppers than it was just a year ago.
The report goes on to say that not all third-party energy providers in Illinois are ripping off their customers, but for those that do, customers are being charged rates up to six times higher than customers of local regulated utility ComEd. Here are three typical examples from the CUB release:
An Oak Park man who signed up with Nordic Energy Services said he was told the chance of the rate going up was not likely—until it jumped from about a nickel per kWh to 21 cents per kWh.A Chicago man signed up with Viridian for a rate that stayed at 5.2 cents per kWh for six months, but then changed to a rate that reached as high as 16 cents per kWh.A Melrose Park woman with Major Energy said her rate jumped from an average of 7 cents per kWh to as high as 35 cents per kWh.
By way of comparison, Chicago's regulated utility ComEd is increasing its rates June 1, to 7.6 cents per kilowatt-hour.
Big red flags
The CUB also released a list of “Five big red flags in Illinois' electric market” (which apply in all states with third-party electric providers): exorbitantly high rates; low introductory or “teaser” rates that suddenly disappear; unexpected extra fees; punishing exit fees; and high-pressure sales tactics.
Third-party electric customers in Connecticut have long reported similar problems to their utility boards, to the point where earlier this month, the state House of Representatives unanimously passed a bill that would set certain limits on third-party residential energy providers.
There are no such laws in Illinois, but the state CUB gave its residents certain pieces of advice which apply to anybody thinking of signing on with a third-party provider: beware of any sales pitch that promises savings. Where the energy market is concerned, future savings are possible, but they can't be guaranteed.