The Massachusetts Office of the Inspector General has warned that a lack of oversight of municipal aggregation programs leaves electric customers vulnerable to, "fraud, waste, abuse and mismanagement."

Municipal aggregation is a program where a city or town chooses the electricity supplier for every customer in the city, unless the customer affirmatively chooses to opt-out.  In short, cities and town are given the power to switch a customer's electric supplier without affirmative consent -- something competitive energy suppliers are not permitted to do.

Because customers must affirmatively opt-out of municipal aggregations, and because customers may miss the minimal public notice required from aggregations, many customers do not realize their city has changed their power supplier.

The grant of such expansive authority to municipalities has created some concerns.  A chief concern is that the municipality may not always contract for the lowest rate for electricity, and will instead accept self-serving side-deals or inducements from bidders for the aggregation's contract.  For example, rather than passing on savings in the form of the lowest electric rate, a municipality may award an aggregation contract based on a bidder funding a new fire truck.  If the fire truck did not have to be paid for by the aggregation's supplier, the aggregation's electric rate could have been lowered.

The Massachusetts Inspector General has raised more concerns with municipal aggregations, particularly after the state's Department of Public Utilities said its authority over aggregations is limited.

Specifically, the Department of Public Utilities declined to hear concerns about the Cape Light Compact, a large municipal aggregation on Cape Cod.

The Massachusetts Attorney General has alleged three main concerns regarding the Compact's aggregation:

  • An "operational adder" charged by the Compact to aggregation customers amounts to an unlawful fee or improper tax.
  • Benefits and costs of the aggregation do not result in equitable treatment of customers, as required by statute, because customers paying the operational adder are not those who benefit from the adder. The Attorney General alleges that the adder funds projects that disproportionately benefit municipal customers.
  • Municipal loads are provided with better electric rates than non-municipal customers in the aggregation.

The DPU has repeatedly refused to consider these allegations, finding them to be outside of the DPU's authority to review aggregation plans for compliance with specific statutory provisions.

The Inspector General said that as a result, the DPU has created, "a substantial void in the regulatory and oversight structure for municipal aggregators, a void that leaves ratepayers and municipalities vulnerable to fraud, waste, abuse and mismanagement."