Most of Rhode Island is served by one utility, Rhode Island Energy, and they have a monopoly over the distribution of electricity (poles, wires, meters, billing), but not over the supply of electricity. This leaves residents of Rhode Island with three choices as to who to buy their electricity supply from: “Last Resort” power from the Rhode Island Energy, their city or town through municipal aggregation (if the community has a program), or from a third-party, sometimes called a competitive supplier.

The idea behind allowing customers to choose their electric supply from different suppliers was that competition would drive down electricity prices. This has worked when it comes to municipal aggregation, which has saved consumers money compared to Rhode Island Energy’s “Last Resort Service.” However, the last option, third-party electric suppliers, have charged residential customers more than municipal aggregation or Last Resort Service. The results in Rhode Island are very similar to what has been found over the years in Massachusetts.

Altogether, between 2017 and 2024, third-party supply customers paid $61.6 million more for electricity than they would have had they stayed with their default supplier (someone’s default supplier is their utility, unless they receive service from their city or town’s aggregation program).

Looking at individual suppliers shows that all but two of them have, on average, increased their customers' electricity bills. The two outliers, Archer and Nordic, are both new and small. Notably, none of the larger suppliers with longer track records have a history of saving customers money.

Average Third-Party Supply Cost Premium Compared to Default Service (Assuming the use of 554 kWh per month):

Why Third-Party Suppliers Increase Electric Rates 

In states that allow third-party suppliers, suppliers have consistently charged customers above-market energy prices, often by employing manipulative (and sometimes outright illegal) sales techniques.   

Some techniques used by the industry include:

• Offering customer contracts with low teaser rates, which (often unbeknownst to the customer) allow the suppliers to drastically increase a customer's rate later.
• Targeting vulnerable groups such as the elderly and non-English speakers.
• Signing-up customers to plans without their knowledge or consent, a practice called slamming.
• Greenwashing their products by offering “green electricity” based on the purchase of renewable energy credits (RECs) from states where RECs are cheap (and thus do little to support the development of wind and solar farms), rather than buying RECs produced in the region where their customers live. For example, purchasing wind RECs from Iowa does little to support the development of wind farms because land is plentiful and cheap. By contrast, purchasing RECs from New England renewable energy projects does more to support the development of resources in the region because clean energy projects tend to be more expensive and are more dependent on selling RECs to pencil out.  

The inability of residential third-party suppliers to operate in a non-exploitative manner is perhaps less surprising when considering that their main competitors, municipal aggregation programs and Rhode Island Energy, operate on economies of scale and do not have to spend money on marketing to get customers.   

Further, municipal aggregation programs are run by towns aiming to provide their residents with cheaper and greener electricity, not to maximize revenue. Similarly, Rhode Island Energy’s real profit center is building the infrastructure to move energy, not directly selling it.  

Altogether, this means third-party suppliers' main competitors have limited marketing costs and can supply electricity at cost. With third-party suppliers facing these massive disadvantages, it is not surprising that they have been unable to offer Rhode Islanders, or the residents of other states, lower rates. 

Why the Overcharging Problem Could Get Worse in RI

Fortunately, between 2017 and 2023, the number of residential third-party supply customers fell from 50,824 to 27,626.  

However, in 2024 the number of supply customers increased by just over 1,000, sending the total up to 28,668.  

In another recent change, the premium of third-party supply rates over default supplier rates has dramatically increased in recent years. While the average annual premium was 2.8 cents per kWh from 2019 to 2021, the average annual premium had almost doubled to 5.5 cents from 2022 to 2024.

So how were suppliers able to increase their rates relative to the customer’s other options while managing to gain customers

Purchase of Receivables – What is it and why does it matter? 

The most likely answer is that the implementation of a purchase of receivables (POR) system in Rhode Island starting in 2023 improved the economics of being a supplier and gave them an incentive to invest more heavily in marketing in order to sign up more new customers. However, while the institution of a POR system was likely good for suppliers, it has likely resulted in higher prices for residential customers, including those who have not signed up with a supplier.

In a POR system, utilities, like Rhode Island Energy, are made to act as a middleman between suppliers and their customers. As the diagram below shows, under this system, rather than receiving a bill from the supplier, customers receive a bill from the utility which includes both the utilities’ distribution costs and the suppliers' costs.

Importantly, this also means that customers do not directly pay the supplier. Instead, it's the utility that pays the supplier, and only after paying the supplier does the utility attempt to collect the money from the customer. This distinction matters because it means that, under this system, it is financially irrelevant to the supplier if their customers can pay their bills. The supplier will make the same amount of money if they charge a customer $1,000 and the customer pays, or if the customer falls $1,000 behind on their electric bills. This change means that suppliers can sign up customers without having to be concerned that many of them will not be able to pay their bills. The POR system also enables the supplier to raise its rates with confidence that it will get paid by the utility, whether or not its customers pay their bills.

This also means that Rhode Island Energy’s customers, including those who haven’t signed up with a third-party supplier, could face higher prices as the utility increases all residential rates in order to cover the difference between what they are paying suppliers and what they are getting paid from those suppliers’ customers. 

Unfortunately, past experiences from other states that have created similar PORs suggest that Rhode Island is likely to see third-party suppliers signing up and overcharging more customers in the years ahead. 

After the adoption of a POR system similar to Rhode Island’s by Connecticut’s largest utility, Connecticut Light & Power Co., that state saw the percentage of eligible residential customers with third-party suppliers rise from 4% in 2007 to 25% in 2015. In Massachusetts, which has had a similar POR system since 2014, 16% of all households and 26% of low-income households were with a supplier on an average month between July 2023 and June 2024. For context, only 8.6% of Rhode Island Energy’s customers were with a third-party supplier in 2024, meaning that suppliers have room to grow now that they are backed by a POR system. 

Neither Connecticut nor Massachusetts has been well served by retail suppliers, with Connecticut customers being overcharged by $358 million between 2011 and 2023, and Massachusetts customers being overcharged by $81 million in 2024 alone.

How to Reduce Electric Rates 

One very simple way Rhode Island could protect its residents from scams and reduce electric rates is by passing legislation to ban third-party electric suppliers from signing contracts with individual residential customers. Far from being a radical move, this change would put Rhode Island more in line with most other states, which do not allow these companies to sell directly to individual residential consumers. To be clear, any changes to the market should limit retail suppliers while continuing to support municipal aggregation.

The map was taken from An Introduction to Retail Electricity Choice in the United States. 

Alternatively, Rhode Island could follow Maryland, which passed legislation in 2024 overhauling the residential third-party supply industry by setting electricity price caps and cracking down on greenwashing, among other changes.  In a similar vein, Massachusetts Governor Maura Healey filed an energy affordability bill that, among other measures, contained sections that would reform the state’s POR system, limit suppliers' ability to overcharge low-income customers, and curb the use of automatic renewal contracts.   

Having suppliers sell electricity directly to residential customers is an experiment in deregulation that has failed. Banning or better regulating these suppliers is an easy way Rhode Island can reduce residential electric rates and protect people from scams.

How to Avoid Suppliers as an Individual  

1. Check to see who your current supplier is. Sometimes people will get signed up to third-party supply contracts without their knowledge, which can result in higher bills. You can see who your supplier is by looking at your electric bill.

2. Third-party supply salespeople will sometimes, illegally, pretend to be from the local utility or the town’s municipal aggregation program, so be wary of anyone talking about electric plans door to door, regardless of who they say they represent.

3. If you have been signed up by a supplier without your knowledge or otherwise wronged, file a complaint here.

If you’d like to learn more about third-party suppliers and our advocacy in Massachusetts, you can check out a recent podcast episode we released called “The Dangers of Third-Party Suppliers.”