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Maryland PSC Staff: Contracts Without An Expiration Date Are Subject To SB1, Price Limits
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Retail energy contracts that do not have an expiration date are subject to SB1, including the new law's price cap for residential customers, Maryland PSC Staff said in comments to the Commission
PSC Staff were addressing a request for comments in response to a sought clarification from several retail suppliers and RESA, as the suppliers argue that contracts without an expiration date are not subject to SB1. Retail suppliers argue that because the relevant contracts do not have expiration dates, such contracts do not expire and thus are not "renewed". SB1 only applies to new and renewed contracts, and the law contains provisions stating that the new law shall not disturb an existing contract or obligation
See more background here
Staff, in its comments, addressed perpetual contracts, month to month contracts, and automatic renewal contracts
Perpetual contracts, as identified by Staff, are contracts which do not have an express expiration date. Staff said that, if a perpetual contract has a variable rate, the contract does not include an express price.
Staff argued that price is a material term of a residential energy contract
Staff argued that a perpetual contract with a variable rate, "is basically an agreement to make an agreement in the future."
Staff said that each time the customer is provided a new rate under a perpetual contract, "a contract is formed at that moment in time, and only at that
time."
Staff noted that the variable rate perpetual contracts allow a customer to cancel at any time
"If either party can cancel
at any time, essentially, the variable price creates a new offer, one which either side can accept or
reject. An agreement to make an agreement at a future time is not an enforceable contract," Staff said
As such, Staff said that residential variable rate perpetual contracts are subject to SB1's provisions, including the rate cap
Staff cited Maslow v. Vanguri and Schloss v. Davis, both of which are Maryland court cases, as finding that contracts which omit key terms, or which are vague, are not enforceable. Staff argued that variable rate perpetual contracts omit a material term (price), and thus are not enforceable contracts until such material term is provided. Applying the SB1 rate caps to variable rate perpetual contracts does not impermissibly disturb any contractual obligation, since no contract exists at the time that the new rate is provided, Staff argued
Staff also argued that month to month contracts expressly include an end date (e.g. the monthly term), as do contracts which auto renew, and thus continued service under a new monthly term, or an auto-renewal, is a renewal and is subject to SB1 effective January 1, 2025
In separate comments, the Office of People's Counsel generally agreed that perpetual contracts are renewed upon new pricing, and should be subject to SB1
OPC warned that a ruling from the PSC excluding perpetual contracts from SB1, "might also incentivize retail suppliers to sign up as many customers as possible before January 1, 2025, under such contracts in order to insulate them from SB 1 applicability."
Indeed, the Maryland Energy Advocates Coalition (MEAC) alleged in separate comments that variable rate perpetual contracts (as opposed to month to month contracts) have been used since the passage of SB1, but that MEAC, which assists customers in reviewing retail energy offers, had not encountered such perpetual contracts prior to SB1
MEAC said, "This type of [perpetual] contract
appears to have been used by a few suppliers since SB1 was passed in
April 2024. While MEAC may be misinformed, we can find no examples of
this never-ending, no time limit, non-month-to-month contracts prior to April
2024. We have several examples of this never-ending contract after April
2024."
MEAC, in support of the need to apply SB1 to perpetual contracts, cited "Retail suppliers['] continued and consistent excessive rates charged
in 2023. For electricity only, 313,500 households paid on average 45%
more for electricity. Regulated SOS average supply rate in 2023 was
10¢ / kWh while retailers charge 14.4 ¢ / kWh. $440 more per account
for electricity. Slightly lower than 2022’s 50% premium to regulated."
Treatment of Incidental Residential Accounts
Retail suppliers also sought clarification on the treatment of incidental residential accounts under SB1, as retail suppliers argued that service under IRAs is not residential, and that the underlying IRA customer is not residential
PSC Staff said that any accounts on a residential utility rate class should be subject to SB1
Staff said that the utility tariffs generally classify customers based on the manner and use of service (e.g. "domestic" usage), regardless of the structure of the account's owner. Staff said that if a customer believes that they are in the wrong rate class, they may seek from the utility a rate classification change
Staff said that, to ensure no gaps in oversight, all accounts on a utility residential tariff should be subject to SB1, regardless of the account owner's structure (e.g. regardless of whether the customer is a business, government, or non-profit)
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December 9, 2024
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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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