Alternative energy scams hit poor blacks and Latinos the hardest, complaints show

Cynthia Green ignored all the red flags.

The 47-year-old Humboldt Park resident was running errands when a young man approached her in a Walmart parking lot on North Avenue last fall. The man, Green recalled, said he worked for a company helping residents save on their energy costs. He asked to see her bill. She obliged just to see what he had to say. She really had no intentions of switching her utility.

“Usually red flags will come up if somebody asked for information,” Green said. “But they kind of roped me in with the free two months of service. He made it seem like it was going to be a good deal.”

Green’s ComEd bill usually ran less than $100 per month. But a few months after she signed with Major Energy her bill skyrocketed to $150. Major Energy is one of 55 active alternative energy suppliers — private companies that resell energy to residential and commercial consumers at unregulated rates — operating in the state.

At first Green blamed her rising electric bill on the space heater her son used as winter set in. But by March, the single mother working two jobs had trouble paying her power bill and missed a payment. She considered applying for energy assistance such as the Low Income Heating Energy Assistance Program — or LIHEAP — to help defray the cost. In the end, Green put it on a credit card, a move that strained her already tight budget. By the time she finally extricated herself from Major Energy’s contract, she owed close to $300.

About 1.7 million Illinoisans currently use alternative energy suppliers. Green is among thousands coaxed into switching suppliers in hopes of saving money but wind up paying more, and sometimes going into debt. Tactics such as these have brought alternative energy suppliers under the scrutiny of Illinois Attorney General Lisa Madigan, who sued Major Energy and three other suppliers, charging them with deceptive business practices. Since 2015, the Illinois Commerce Commission, which oversees the power utility market, has recorded more than 6,400 consumer complaints against these alternative suppliers, mainly from residential customers.

Now a Chicago Reporter analysis finds that a disproportionately high concentration of consumer complaints against alternative suppliers occurs in the city’s low-income Black and Latino ZIP codes. Majority Black ZIP codes have twice as many complaints per household as Latino ZIP codes and three times the rate of white ZIP codes. And high-poverty areas have twice the complaint rate of the rest of the city.

The highest volume of complaints in Illinois is found in the 60619 ZIP code, Chicago’s Chatham neighborhood on the South Side, which is 96 percent African-American. This is happening not just in Chicago. Outside the city, the most complaints were found in predominantly Black south suburbs like Chicago Heights and Calumet City, as well as Latino areas of north suburban Waukegan and Park City.

The Reporter found high complaint rates as far as Rockford and East St. Louis.

“There is a fair amount of evidence that communities of color are being targeted as well as non-English speakers and seniors,” said David Kolata, executive director of the watchdog group Citizens Utility Board. “This is a market that is not working well for consumers. You hardly see any deals that save consumers money. What you do see is a lot of trickery, a lot of misleading marketing and in some cases outright fraud often aimed at the most vulnerable folks in our community.”

Deregulation of  Illinois’ energy markets was intended to increase competition, lower consumer bills,  and give customers choice beyond the giants of ComEd, People’s Gas and Ameren. But many wind up paying higher rates.  An ICC report shows customers who switch paid $138 million more than if they had stayed with ComEd and $89 million more than if they stayed with Ameren.

Thousands of customers have made complaints about business practices of the alternative suppliers. Analysis of ICC data shows that the top three consumer complaints against alternative energy suppliers are: sales tactics, marketing tactics, and unauthorized switching, also known as “slamming,”  in which a customer is switched from one provider to another without permission.

High energy bills can economically devastate low-income households. An unforeseen increase can lead to shut offs, bad credit, or force families to choose between food, electricity and heat. Community Organizing and Family Issues, a nonprofit parent advocacy group for low-income families, issued a report early this year examining the root causes of debt. The report found that for families making less than $15,000 per year, 33 percent of their debt comes from utility bills.

“The ones that sign up for the alternative suppliers really need that discount,” said Tracy Occomy, a senior organizer with COFI. “When they sign up, after that trial period, the cost doubles and triples making it that much harder for those who are already struggling. They get caught up in a debt spiral — getting deeper and deeper into a financial obligation that they cannot meet.”

Many families turn to taxpayer-financed aid such as LIHEAP to pay a portion of their utility bill. Illinois’ Department of Economic Opportunity, which administers LIHEAP, does not track how many LIHEAP dollars are funneled to alternative energy suppliers, nor do they track how many LIHEAP recipients have signed with these companies, but DECO says it plans to track information this fall.

The sales pitch

CUB executive director Kolata says alternative suppliers use a variety of methods to snare new customers. Salespersons claim to be loosely affiliated with ComEd, even though they have no connection. Telemarketers tell people they are eligible for savings because they are good ComEd customers. And door to door sales reps ask to see residents’ bill to determine if they are entitled to a rebate. Others search for potential customers outside of big box stores and even at local public aid offices.

One of the most common tactic is luring customers with gift cards. For Talibah Moore, 34, it was a $70 Sam’s Club gift card. Moore was shopping at the 95th and Western store last November when two representatives from Just Energy approached her. Her part time job at a nonprofit had warned her about alternative energy suppliers, but this time seemed different.

“You look for these people to be outside knocking on your door. You see them inside the store, especially Sam’s Club… that made me feel like they were ok,” said Moore. She planned to cancel the contract when the term expired and go back to ComEd and People’s Gas as her regular utilities. But the salesperson told her her bills would always be cheaper if she stayed with Just Energy. “So I said, ‘OK.’”

But just like Cynthia Green, Moore saw her bills go up, especially for gas. She too attributed the high bill to the winter months. Eventually Moore sought assistance from LIHEAP for a gas bill that topped $1,000.  

“It was scary,” said the Washington Heights mom of three, who feared having her gas shut off and her children in the cold. “I don’t want them to ever experience having no gas in the house, not being able to cook and not having hot water. It was just scary because I don’t want my children to ever experience that.”

Many of these sales tactics now violate new ICC rules put in place last May. The rules require suppliers to disclose rates upfront, inform customers in advance of rate changes, contract renewal or expiration dates, prohibit the use of public utilities logos or names in marketing materials, and record all telemarketing calls.

Kevin Wright, president of the Illinois Competitive Energy Association, a state trade group representing a handful of alternative suppliers, acknowledged that there are some bad actors in this industry who mislead customers to turn a quick profit. Those businesses, he said, should be run out of the market, and he hopes the new ICC rules will do that.

“But don’t paint all of us with the same broad brush,” he added. “I think there are six or eight bad actors that ought to be thrown out of the market for no reason other than they have high complaint rates.”

Wright disputed the notion that alternative suppliers routinely overcharge customers. Figures often cited by industry critics are taken out of context and fail to consider the additional services these companies provide, he said. Some suppliers provide energy efficiency products like smart thermostats, energy audits to help customers weatherize their homes, he said. Customers pay on average $9 to $10 extra a month for these services.

But Illinois Public Interest Research Group State Director Abe Scarr is skeptical of the new rules, which he believes will not solve the problem. He said it is not a few bad actors, but the industry itself. He wants a section of the bill to list the dollar amount that customers would have paid if they stayed with ComEd versus the amount they are paying to an alternative energy supplier. Without more reforms, he added, “There is a strong argument that this is an experiment that has failed and we should end it or greatly limit it.”

Correction: This story has been updated to state that, according to a report by Community Organizing and Family Issues, 33 percent of debt for families making less than $15,000 comes from utility bills, not utility bills and past-due parking tickets.