Forced Arbitration Roadblock: Going Up Against Energy Suppliers in a Deregulated Market

The Texas winter storm in February and the escalating energy prices that followed have drawn scrutiny to the promises of the deregulated energy markets in Texas and 16 other states. In a deregulated energy market, consumers purchase power from suppliers while their local utility delivers the electricity. Free market proponents argued that energy deregulation and more competition would lead to lower electricity rates for consumers.

Researchers have shown the opposite to be true, that deregulation has not led to lower rates, but reportedly has led to aggressive and deceptive sales tactics to get consumers to switch from their local utility to private energy providers. Energy suppliers’ practices also caught some states’ attention.

But what are consumers’ options when they view themselves on the losing end of these deals? In January, when Maryland resident Patricia Brito tried to challenge the business practices of electricity provider Major Energy Electric Services, LLC, she was stopped by the fine print in the energy supplier’s terms and conditions.

In January 2020, Ms. Brito sued Major Energy over its sales practices. She alleged that Major Energy engaged in deceptive practices using various solicitations, including door-to-door and telephone sales to get utility customers to switch services. According to Ms. Brito, Major Energy solicited and enrolled new customers without getting the customers’ “actual agreement or authorization” and promised lower electric bills “but then plac(ed) much higher charges on the bill.”

Ms. Brito alleged that she was approached by a Major Energy representative as part of a door-to-door sales campaign. She stated that she never actually consented to switching providers and did not sign any contracts at the time.

Ms. Brito claimed that some time after her utility service was switched to Major Energy, her electric costs were much higher than at her local utility, Baltimore Gas & Electric, despite using the same amount of electricity. On behalf of herself and other Major Energy customers, she alleged violations of the Maryland Consumer Protection Act, as well as claims of “common law fraud, including fraudulent inducement, and fraudulent concealment, and negligent misrepresentation.”

Major Electric successfully ended Ms. Brito’s lawsuit by invoking terms in its residential customer contract that required private arbitration of claims and prohibited customers’ participation in class actions. While Ms. Brito disputed whether she signed the take-it-or-leave-it terms in the first place, a Maryland district court concluded that she was still subject to the Major Energy’s contract and its arbitration terms. As a result, Ms. Brito was barred from continuing on in court.

Arbitration clauses suppress customer claims like Ms. Brito’s by forcing them out of court and into private, secret proceedings. In addition, by banning class actions in its customer contracts, Major Energy stopped Ms. Brito from acting on behalf of other customers who may be similarly affected. The ongoing and widespread use of forced arbitration means that consumers who have potentially suffered harm as a result of suspected violations of law are left without adequate redress and remedies.

“This case shows us that arbitration blocks ordinary consumers’ ability to get redress even for vital services like utilities,” said Jane Santoni, a consumer attorney in Maryland.

Consumers in deregulated energy markets already have less protection from potential price gouging and other predatory behaviors compared to those in regulated states. Without regulation, these consumers need a way to stand up for themselves when they are harmed. Forced arbitration removes their main avenue for redress by shutting them out of our court system.