Money Management

Constellation Energy Review: What Everyone Can Learn from Their Bad Behavior

By  Opher Ganel

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(Or, how I just saved hundreds of dollars by paying attention, and how you can too.)

I just saved hundreds of dollars.

All it took was paying attention, and acting on what I realized.

Before I give you all the details, I’d like to take a small detour to set up the context.

A Joke that Hits Close to Home

There’s something many great jokes share.

They start off with an everyday occurrence, then add something that seems off-kilter, and finally reveal a twist that resonates with our life experience.

Here’s one of my long-time favorites, and the lesson it teaches us.

A man goes to a restaurant for a solo dinner. He orders a steak dinner with wine, and really enjoys it. When the check comes, he’s shocked – over $175! He calls the waiter over and asks, “I understand the $33 for the steak, the $12 for the wine, and the $10 for dessert, but what’s this $110 for ‘work’?” Pulling out a pencil, the waiter crosses out the offending line in the check, hands it back and responds with a shrug, “Didn’t work…”

This resonates with so many experiences in our lives, that when something like it happens to someone in my family, we just all say in unison, “Work/didn’t work.

A Case Study in Treating Customers Badly for Fun and Profits

In 1999, Maryland deregulated the energy supply market.

Since then, we Marylanders, like the residents of 25 other states, can choose our energy suppliers (though we’re still captive to a specific company for energy delivery, which accounts for ~40% of my electric bill and ~60% of my gas bill).

We also get to choose whether we want our energy prices to fluctuate month to month with the volatile energy markets, or have them stay fixed for anywhere from a few months to 5 years by signing a fixed-rate plan.

A couple of years ago, I signed up for a 12-month fixed-rate plan for both electricity and gas supply from Constellation New Energy, Inc. They had what were then the best rates for residential electric and gas supply, which I happily locked in.

Just under a year later, they sent me their auto-renewal offer with much higher rates, unless I called to opt-out.

I called them and asked to get out of their renewal offer.

They tried to entice me to stay by offering better rates.

Even those better rates were higher than our local utility’s baseline price for gas, so I declined their new offer. For electricity, their revised offer was slightly better than other options, so I agreed to renew at the improved rate.

Another year went by, and another letter arrived.

Again, the renewal was set to be automatic, what’s known as “opt-out.” And if you don’t pay attention and ask to get out after they renew you, there’s a $175 cancelation fee.

Also again, the offer was significantly higher than my previous rate, and more importantly, significantly above current market rates.

To get out of this bad deal, I again had to call Constellation.

The rep that picked up the phone (after a long wait on hold) couldn’t unenroll me. He could only offer me a better rate if I agree to stay with Constellation. That better rate was closer to the market rate but still higher than other options. When I still declined, he had to transfer me to a different rep.

Another long time on hold.

Then the call was disconnected.

When I called back, after another long wait, I was back in the hands of a rep who couldn’t get me off the auto-renewal, and again had to be transferred.

Another long wait, and finally I was able to get out of the bad renewal deal without paying a $175 cancelation fee.

Constellation’s 1-2-3 Setup for Bilking Their Customers

It’s a 1-2-3 setup.

First, make a bad-faith opt-out offer.

Next, offer those who catch on a less-bad deal that may still be above market.

Finally, make those who still don’t buy it jump through multiple hoops to opt-out. This, because, (a) it costs less to have fewer customer “service” reps, and (b) maybe we’ll give up.

Why Constellation (and Other Companies) Do This

In a word, profits.

Their experience teaches them that most of us don’t pay attention.

Say 2 in 3 electric customers sign a fixed-rate plan.

If 3 out of 4 of those customers ignore the opt-out renewal letter, based on the average residential electric usage, Constellation would make on average an extra $100/year profit per customer.

For the minority of us who pay attention, if the increase in rates sounds small enough (e.g., less than 2 cents), we let inertia prevent us from picking up the phone.

If that accounts for half of those who open the letter, it would net Constellation another $17/year average profit per customer.

Then, there’s the even smaller minority who not only pay attention but also realize that even 2 cents multiplied by enough kWh over the course of a year adds up to hundreds of dollars. They make those of us in this smaller minority jump through multiple hoops, in the hope that we’ll just give up.

In my case, it took 2 phone calls, 3 reps, and 4 long waits on hold to opt-out of their bad auto-renewal deal.

If they make even 1 in 6 of the small minority who actually call give up on trying to get through, that would bring in another $3/year average profit per customer. As an added benefit, making it harder to get through to a rep saves Constellation on labor costs.

And for those of us in the smallest minority, who pay attention, don’t let inertia prevent us from calling, and insist on getting through all the hoops?

Shrug. “Didn’t work…

Estimating the Excess Unearned Profits that Come at Our Expense

Using the above hypothetical percentages (even ignoring the labor-cost savings), the total extra profit to Constellation would be over $120 per year per customer.

That may not sound like a lot for a big corporation. But again, if you multiply it by a large enough number of customers, you start talking real money, even for them.

Constellation says they serve about 2 million customers.

The US Department of Energy says that about 87% of electric customers are residential, so Constellation likely has ~1.74 million residential customers like you and me.

If they generate an extra $120 annual profit per residential customer through these tactics, that would bring in over $200 million in excess annual revenue!

And not only does it not cost anything extra, it actually saves them on labor costs, so their profits climb by even more than that obscene amount of money!

Enough said?

The Bottom Line

On a personal basis, I will never again choose to buy energy from Constellation New Energy, Inc.

Like the old proverb says, “Fool me once, shame on you. Fool me twice, shame on me.

But more broadly speaking, we all need to pay close attention to the (mis)behaviors of big corporations, not let inertia stop us from protecting our financial interest, and not let setups intended to discourage us from making the best choice for ourselves deter us from doing just that.

Caveat

The above total numbers for Constellation’s excess profits are based on guesstimates, since utilities don’t make it commonly known how many customers are on what sort of plan, and how many of us jump through all the hoops to opt-out of their artificially expensive auto-renewal plans. Their actual excess profit may be lower or higher than the $200 million/year I arrived at.

Similarly, it’s theoretically possible to come up with a different explanation for why Constellation does things the way they do. However, I think profit is the most likely motivation.

What isn’t a guess is that, by opting out, I’ll save hundreds of dollars on my electric supply next year.

What’s also more likely than not is that if you pay attention, you should be able to similarly save hundreds of dollars a year on your utility bills when it comes time to renew your plan.


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About the Author

Opher Ganel

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

Disclaimer: In order to make Wealthtender free for our readers, we earn money from advertisers including financial professionals who pay to be featured on our platform. This creates a natural conflict of interest when we favor promotion of our clients over other professionals not featured on Wealthtender. Learn how we operate with integrity to earn your trust.

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