EMP S3E4: Maryland PSC Chairman Jason Stanek discusses the 'maximum enforcement' campaign he's ordered to crack down on what he called 'fly-by-night' energy suppliers

Jason Stanek, the lame duck chairman of the Maryland Public Service Commission, is riding out the remainder of his term in office with a "maximum enforcement" campaign to crack down on retail suppliers "that engage in deceit, confusion, and trickery in order to close the deal." January saw the second-highest number of consumer complaints received, and February is shaping up to set a record for the month, he said, promising the PSC will use "expedited procedures to, if necessary, eject suppliers from the market."

He discusses how he's lost faith in retail competition in electricity. "I am not the cheerleader of retail choice that I once was," he notes, adding, "I can tell you that there's an appetite amongst a lot of state legislators who would say that after 23 years since we've been restructured, this experiment has not gone according to plan and perhaps we just call it a day." But he said he's not ready to give up yet. "We eject the bad actors, then we could rehabilitate it. Focus on the value, focus on products, focus on innovation."

Stanek concedes the state's market structure could be improved, but he called himself an implementer of policy. If retail suppliers want a better market structure then they should to go to Annapolis and advocate for change, he said. But "structural change is a heavy lift" and utilities are "well-entrenched" in state capitals, he noted.

Calling Maryland a "progressive state" with community solar, utility solar and electric vehicles mandates, he cautioned against folding too many clean-energy mandates into utility customer's rates. "We have to remember that, at the end of the day, whether the customer takes their commodity from the utility or the supplier, costs are going up. And all of these programs cannot be borne on the backs of utility ratepayers."

Stanek looks forward to the remainder of his five-year term, which ends June 30. "I am not recusing myself on any active cases just yet. I still have another four-and-a-half months on the job," he said. "Between now and June 30th my sole focus is on making sure that my work at this agency gets done. And then after June 30th I'll begin to consider what comes next."

Transcript

EMP S3E4: Jason Stanek, Maryland Public Service Commission chair
(transcript edited for clarity)

EMP: Welcome to the Energy Markets Podcast. I'm Bryan Lee. Our guest today is Jason Stanek, chairman of the Maryland Public Service Commission. Prior to his appointment to the PSC by former Governor Larry Hogan, Jason was senior legal counsel to the House Energy and Commerce Committee. For 16 years before that, he was at the Federal Energy Regulatory Commission. Jason, you’re back with us for a second go around. Welcome.

JS: Bryan, good afternoon. It's great to be back.

EMP: We invited you back to talk about the PSC’s recent enforcement crackdown on what you termed as “retail suppliers … that engage in deceit, confusion, and trickery in order to close the deal and effectuate the switch with an unsuspecting customer.” I have to give Paul Ring at Energy Choice Matters credit for all these quotes because he covered your last two meetings.

JS: Paul is very comprehensive in the retail energy space.

EMP: You caught the industry’s attention last month. You scored a big headline in Energy Choice Matters – which as you said is a must-read for retail suppliers – about launching a "Maximum Enforcement" effort as of February 1 targeting deceptive retail suppliers. Tell us about that.

JS: Unfortunately, in recent months, and over the past six months of last year, we've seen a significant uptick in terms of the number of complaints that the PSC Consumer Affairs Division has received. And we cannot turn a blind eye to these patterns and practices and the trend lines that we're seeing. So on February 1 of this year, I authorized a maximum enforcement campaign where during the next six months, all hands will be on deck in order to investigate and if necessary prosecute retail energy suppliers, both electric and gas who are failing to abide by the state's regulations and the state law.

EMP: And you recently had headlines with an enforcement action. Tell us about that.

JS: We have a number of enforcement actions currently underway. Some of them were initiated by our staff council, some of them initiated by the commission itself. So in the coming weeks, we have a number of retail suppliers including SFE Energy, SunSea Energy, and Greenlight will all be presenting themselves before the Commission. In addition, we have litigation underway in the various levels of courts in the state, including and probably most significantly, we have a matter pending before the Supreme Court of Maryland right now involving a case involving the retail supplier by the name of Smart Energy.

EMP: You described enforcing this sector as “emptying a cesspool with a teaspoon.” Is it really that bad. Are the complaint numbers that much higher than what you see with the utilities?

JS: It is really that bad. And I'm flattered that we do have some beat reporters that cover the PSC. In January, last month, it was the second near record high in terms of complaints. And unfortunately, this month, February is looking like you will set an all-time record in terms of complaints. So the situation is not getting better. In fact, if these complaint volumes are any indication, it's getting worse. So the crackdown as you characterize, it and I think it's an accurate characterization, is currently underway. And the commission will use expedited procedures to, if necessary, eject suppliers from the market.

EMP: You were quoted in Energy Choice Matters as saying that you came into the commission five years ago as one of the strongest supporters of retail choice in Maryland. But after your five years of experience, you’re now agnostic on retail choice. Can you elaborate on that?

JS: Well, I’ve seen over the past five years, how some of these suppliers go about recruiting and retaining customers. And I've seen so many deceptive marketing practices employed because, at the end of the day, these customers are purchasing a commodity, a market-rate commodity in many cases, whether they choose a variable rate, whether they choose a fixed rate, whether they choose a product that has some type of environmental attributes or other type of benefit associated with it. This is a complicated product. And if the folks who are purchasing the retail energy do not fully understand the terms and conditions of what they're getting themselves into – and most people unfortunately don't appear to – that's when we get into trouble. That's when we get additional complaints filed, not only to the retail suppliers themselves, but if the customer is not happy with the resolution there then, as a second step, they come and file a complaint with the Public Service Commission.

EMP: How has that made you agnostic? I mean, is the fact that there's this proliferation of bad actors, does that make the whole shebang tainted?

JS: No, that's a great question. Back in 1999, when the state was restructured, the promise of retail choice competition was that it would bring innovation, it would bring other services and products. To date, we have not seen that. We have invested a lot of time, energy and resources into attempting to make sure that the retail supply market is a success. We implemented supplier consolidated billing. We spent untold resources developing the MDenergychoice.com website to allow customers to find a really easy-to-use interface on the web to shop for customers. And unfortunately, it's very difficult for suppliers to compete solely on price and  solely to beat whatever the default SOS rate is. I recognized recently that NRG is offering an innovative product where they provide a free electric vehicle charger to any customer that subscribes to this particular offering. Associated with that is a time-of-use rate and a lower rate on off-peak hours. Those are the type of products that I would hope that we would see more of. But of late, all we see are offerings that perhaps might save a customer a fraction of a penny per kilowatt hour. Perhaps it's a few cents less but that teaser rate is only available for the first three months. And then after that teaser rate expires, it goes well in excess of the default service rate. So the innovation has been overall lacking. It is still the state law and I support the state law but I am not the cheerleader of retail choice that I once was.

EMP: Is the problem with retail choice? Or is it a problem with how retail choice is structured in the state?

JS: It's probably a little bit of, of both. Maryland, I would argue, is at the leading edge in terms of allowing – or setting up a process to allow – suppliers to develop that relationship with the customer to ultimately bill their customers directly instead of being just a line item on the utility consolidated bill. Structurally, can the design be improved? Most definitely. The design could always be improved. But I can tell you that there's an appetite amongst a lot of state legislators who would say that after 23 years since we've been restructured, this experiment has not gone according to plan and perhaps we just call it a day. I'm not ready quite yet to give up on that just because we’ve spent so much already in terms of capital and resources. But it's a fair question and it's one that's being debated in the Capital.

EMP: Let's talk about how default service is calculated in the state. Now, I think New Jersey has a three-year rolling average, something like that, but I think in Maryland, it's quarterly process? Explain that to us.

JS: We do have a quarterly process over a two-year time horizon where the utilities purchase medium, long-term and short-term blended products. Of course, that's designed to ensure that there's no necessarily peaks and valleys and that the customers are receiving as stable a rate as they could possibly get on the market. So it's a conservative process. It's a competitive process. We oversee the SOS bid auction that occurs quarterly. We approve those rates in an open meeting quarterly. And we have an independent evaluator to ensure that all of the bids that were submitted to our various utilities were above board. Nothing to call into question that we had a full and fair competitive offering. That said, in recent years and in recent quarters, we've seen commodity prices increase quite spectacularly and more recently they've been going up. So of course, there's a lag as prices go up. And the customers will not feel the full brunt of their SOS price increasing dramatically. At the same time, once prices start going down, there'll be a lag as well, where the customers will experience the benefit of downward pressure on those rates. But overall the SOS bid process in the state is very intense. We have a lot of steps and safeguards to ensure that customers are getting the best rate on the market that's possible.

EMP: It's a de facto wholesale rate that the utilities are offering. They're obtaining this energy at cost. And then, you know, they make their money by delivering the electricity and transmitting the electricity. You mentioned earlier in this podcast how a retail supplier is doing well if they can compete at a fraction of a penny on this wholesale rate. I don't know how we can say that it's not worked over the past 20 years when it's structured in a way that it can't work.

JS: Well, you raise a good point there. The only customers that are seeing significant monetary savings are those who time the market perfectly. They lock into a, let's say, a three-year fixed price contract. And they don't have to worry about the SOS rate for that period. They are they are hedged. But that takes a lot of luck and market timing. So, yes, it's a tough business if you're only competing on price. Therefore, these retail suppliers need to look beyond that. What other types of innovative offerings are there? Could they potentially sell their commodity at a premium if there are some other benefits attached to that? And we see that with any of the green products where environmentally conscious customers wish to pay a premium, either for their electric or gas service, knowing that there are some offsets or perhaps RECs associated.

EMP: Well, I want to get back to the point that it's – of the market structure here. You're familiar with the market structure in Texas, right? 

JS: I am.

EMP: And so how is that different from how Maryland does its retail market?

JS: Well in Texas, as I understand, the customers are required to choose a supplier. So you don't have a default utility in most areas of the state, with the exception of perhaps areas that are served by a cooperative. We don't have that structure in our state. Three years ago NRG did file legislation in Annapolis attempting to do something akin to a Texas-style market. That legislation did not get off the ground and it hasn't been reintroduced in the intervening legislative sessions. But you're right, how we structure our markets, and every one is different, will determine if it's successful or not. In Maryland, the overwhelming majority of customers just remain with – you could call it inertia – but they remain with their utility and take the standard service. Only about 20% – between 15% and 20% – of our customers actively shop in the state and have a retail supply contract.

EMP: And so is Texas with its structure that does not have the utility involved in the commodity supply, is that creating a difference in terms of the customer experience there?

JS: Since customers in Texas are required to choose a commodity supplier – or that if they don't choose, as I understand it, they're assigned one of the available suppliers – it forces the customers to be a little more savvy forces them to shop. That is not the situation in Maryland. Nobody's forcing you to shop if you're happy not looking at commodity rates every year or every month, then you just take the utility service. So it's a it's a different market structure. I wouldn't say one is better than the other. We saw the fallouts of what happened during Winter Storm Uri and folks that were on the Griddy supplier and they saw their rates go up by untold multiples. And that's obviously a situation that we want to learn from in this state.

EMP: When we had you on last year we talked about supplier consolidated billing, and you being the first state outside of Texas to implement that. How's that going for you? It's been almost a year. Are customers opting for that?

JS: It's been a year but recall that the law was actually passed almost 20 – more than 20 years ago. So the process is still underway at a workgroup. I recognize that there are some really difficult questions that the utilities and the suppliers are trying to iron out in terms of their billing and their EDI transactions. It's going to take a little while longer, but the commission receives regular updates from all the participants of this workgroup, and we should be hearing them from them any day now.

EMP: So your five-year term expires June 30, as you know, and we have a new governor. And it's been in the headlines that he's got someone else in mind for Chairman. I guess they haven't talked to you about staying on the commission? Or you’ve got your resume polished up and are you recusing yourself?

JS: I am not recusing myself on any active cases just yet. I still have another four-and-a-half months on the job. Obviously, when an administration changes, particularly when a party of the governor changes, the governor has the prerogative and right to appoint his own people to all of the boards and the commissions that are in the state. So, I'm looking forward to what comes next. But between now and June 30th my sole focus is on making sure that my work at this agency gets done. And then after June 30th I'll begin to consider what comes next.

EMP: We last saw each other at the joint state-federal task force on transmission that Rich Glick set up when he was chairman at FERC. And it was really a stunning report that we got from FERC Chair Willie Phillips and – and you as the Maryland chairman – and from NERC and DOE that we've seen a spike in physical attacks, white supremacist attacks, and that it's a dramatic rise. And as you discussed, there was a recent episode resulting in an arrest which is unusual. Most get away as NERC and DOE recognized. Tell us about the BGE attack and how that factors into this larger white supremacist thing that raised my hackles at the meeting.

JS: We've seen an uptick. The law enforcement agencies, and I can't say enough about them, have been monitoring the dark corners of the dark web in terms of trying to figure out whether there are groups planning sabotage or direct attacks on both distribution and transmission systems. They’re obviously a lot easier to find when we're not dealing with lone wolves who are working by themselves. And in this case, there were two young people, one in Maryland and one in Florida, who found each other. And they began to figure out how they could bring effectively destruction – that was the word of the young lady – to the city of Baltimore. So they began to do their research. They used Google Maps. They went about trying to find the proper gun hardware and artillery and then they set about looking at both transmission lines and substations around the city of Baltimore. And they found five. And they found five that they wished to target. All this information is publicly available in the U.S. Attorney's criminal complaint, but it is scary to see how much information is out there on the web, if you're looking at it, to give a simple step-by-step of how to take out a transformer, how to take out a substation. And we've seen the effects of what happened in Metcalf 10 years ago, or what happened in Moore county late last year. It's a concern and I'm glad that we're having the conversation at the federal and state levels because it was in Baltimore last week, but it could be in New York tomorrow or Chapel Hill the day after. So we do need to have a clear line of communication between the utility regulators, the federal regulators, DOE, FBI, Homeland Security, and we've started that conversation.

EMP: And this couple targeted Baltimore why? Why did they pick out Baltimore?

JS: The young lady, who happens to be terminally ill, lives just outside of Baltimore in the town of Catonsville so it was very close for her. And she was receiving instructions and directions from this fellow from Florida who has an extensive rap sheet and everybody who associates with him apparently ends up dead. But she for some reason or another was enamored with this other young man and it was very convenient for her because it was effectively in her backyard. And some of these substations were very close to where she lived.

EMP: But these were white supremacists, right? Did they have a racial reason for targeting Baltimore?

JS: It's not clear but, yes, they are alleged to be Neo Nazis and obviously the city of Baltimore has a large African American population. So there could be that angle there. That wasn't fully fleshed out, however, in the in the FBI complaint.

EMP: The underlying theme of this podcast is how do we effectuate a clean-energy transition at least cost to consumers. And with that in mind, I'm a little disappointed to hear comments about the retail market not working because we need to have retail customers responding to the wholesale prices set in the marketplace. And there's this disconnect that doesn't seem to be going anywhere. And you know, and it's unfortunate because now we're seeing with AI the types of technology coming along that could really effectuate the kind of set-it-and-forget it type of technology where you introduce the parameters under which you want your refrigerator turned off for 15 minutes during a peak hour, or anything else in that regard. And how do we do that if we don't have a retail market?

JS: And that's a possibility and that's my hope and dream. But we cannot get there right now with the current rate of bad actors in the market. So we clean up the market first. And then we work on reforms to allow our suppliers – our reputable suppliers – to unlock that potential. I was particularly happy that last week the Retail Energy Supply Association released a press release supporting the Maryland PSC’s enforcement actions. They recognize that reputable suppliers have nothing to fear. But it's these fly-by-night characters who are ruining it for all customers in Maryland. Because if you receive an offer, and your first reaction is all retail supply offers equate to scams, well then you're never going to even consider opening that envelope. But you raise a good point. As we hit this edge of innovation and new technological capabilities on your smartphone, on your smart thermostats, that's an area for retail suppliers to exploit. And we encourage them to do so. They can participate in our Empower program which has been very successful energy efficiency program that the state has had for almost the past 15 years. But you raise a really quality point that I think should be discussed. But Square One is cleaning up the market. And once we eject the bad actors, then we could rehabilitate it. Focus on the value, focus on products, focus on innovation.

EMP: I think Square One should be changing the market and getting the utility out of the market because the utility makes its revenue from how many electrons it sells. And as long as the utility is involved in the retail market that's going to skew things, especially when the utility can make a poor business decision and recoup those losses from ratepayers that the competitive suppliers can't do.

JS: Well, I'm not disagreeing with you. The PSC is a policy implementer. Any changes to the market – any structural changes to the market – would have to happen in Annapolis at the state Legislature and the governor would obviously need to sign the bill into law. So that's an issue that if the retail suppliers wish to change the structure of the market, they would address the State Assembly.

EMP: Do you think we would have a better market if the utilities weren't part of the generation market?

JS: I think it goes back to the question of, how is the market designed? With or without the utility involvement. I hear a lot of positive things regarding the structure of the Texas market. But there's been some setbacks in Texas as well. So just simply employing the Texas model and overlaying it into Maryland might not be the solution. The sad thing is we haven't seen a tremendous amount of states really open up to retail choice the same way that that Texas has. There is a lot of hesitation, I could tell you, amongst my fellow state chairs with respect to the state of retail supply in their state. And I think we're all addressing these issues with different levels of interest and intensity. But the retail supply business model in each of our states are different and we're adapting the best that we can.

EMP: I just think it'd be a shame as we're heading into a runaway climate change here that we don't have a market structure that's really going to have effective price signals for customers.

JS: Price signals are important. And Maryland, obviously, is a very progressive state. So it has some of the strictest climate legislation on the books right now. I actually wrote an op-ed in the Baltimore Sun a few days ago touching on this issue, and it's a need to balance. We need to balance our very aggressive climate goals with options, costs and choices for customers. We're a state where we have the energy storage development well underway. Community solar, utility solar and electric vehicles – we're doing a lot all at once, but we have to remember that at the end of the day, whether the customer takes their commodity from the utility or the supplier, costs are going up. And all these programs cannot be born on the backs of utility ratepayers.

EMP: That's a good point. I guess I should, I should say before I close out that I worked for many years as a consultant to the Retail Energy Supply Association as their media relations consultant. I am not affiliated with them anymore and this podcast is not supported by them. But it did inform my views of the retail market. And, and yeah, and I just – whether it's the wholesale market or the retail market, I just get very frustrated that we're not talking about the types of structural change that we need to have more effective markets.

JS: The structural change is a heavy lift. These markets are complicated. This issue is not top-of-mind of most legislators and we have 187 state legislators in Annapolis. Right now their attention is elsewhere – climate issues, environmental issues. But clean energy is top-of-mind and obviously there's a lane for retail energy suppliers to take advantage of as we move forward towards the 100% clean energy goals in this state.

EMP: I find the Maryland approach typical of many states in which they set aggressive goals in terms of emissions reductions, but they don't have any framework to get there. And I just don't think as long as you have a utility involved in the marketplace, whether it's at the wholesale or the retail level in terms of energy supply, that we're not going to get anywhere in terms of meeting those kinds of targets.

JS: Well, of course, utilities in any state capitol are well-entrenched. They have their lobbyists. It's not in their interest to open this up to a free market. So that's a political angle and aspect that needs to be also considered. So I agree that it's an uphill battle. We've seen some states move more in that direction than others.

EMP: Well, Jason, I appreciate you coming on. I wish you best of luck with whatever you end up doing next. And hopefully it'll be something where I'll invite you on for a third time.

JS: Thanks, Bryan. I definitely look forward to that. And I've always enjoyed being on your podcast. So thank you.

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