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As Temperatures Drop, Energy Prices Climb for Third-Party Suppliers

Customers not locked into fixed-rate contracts see bills rise, despite promises of cheaper power

Systrum

When Mark Gottlieb signed up to buy electricity from a supplier other than his utility, his promised savings on bills ranged from 5 percent to 15 percent. Instead, bills rose 34 percent over the past 12 months, including a whopping 214 percent increase in his most recent bill, he said.

That last monthly bill came in at $460.95, about $146.86 more than he would have paid if the Little Ferry resident had stayed with Public Service Electric & Gas, rather than switching to Systrum Energy, a relatively new supplier based in Fairview in Bergen County, according to Gottlieb.

“When you make a claim, you have to make good,’’ said Gottlieb, who says he knows something about the issue as a marketing professional.

He and thousands of other customers fell victim to a spike in winter prices, an event that strained the reliability of the regional power grid at a time when typically it is not under stress. It also resulted in steeply higher bills for customers who had switched to energy suppliers but failed to lock in a price for the electricity to power their homes and businesses.

For some energy suppliers, the extreme weather turned out to be equally unfortunate -- especially for those who needed to go out in the market and buy the power to supply their customers. Systrum is a case in point.

“When this polar vortex (the weather event blamed for the brutally cold weather) came in, it just killed everything,’’ said Alex Tullo, one of the owners of Systrum, which has been offering customers the option to switch electricity suppliers for nearly four years.

In a span of about eight days in late January, prices rose by up to 10 times to 20 times than in a normal day, Tullo said. “Something like this happened up the chain, it had nothing to do with us,’’ he said.

Tullo pinned part of the blame on energy speculators who took advantage of the weather to drive prices even higher. “This is not something we did.’’

In any event, the supplier passed on those increased costs to its 5,000 customers, the bulk of which have now returned to their incumbent utility, according to Tullo.

Even with the big spike some customers, such as Robert Rashkes of West Orange, said they have seen savings in their electric bills over the past 11 months although that might be eroded when their next bill comes in.

Still, Rashkes, a retiree living on a fixed income, said his last monthly bill jumped $62 over what he would have paid if he had stayed with PSE&G. “Hopefully, they will be able to give me some adjustment,’’ he said.

In the wake of the cold wave, the operators of the regional power grid lifted a cap on what power suppliers could charge for the electricity they produce as a means of ensuring enough plants would run to keep the lights on. It came on the heels of a surge in natural gas prices, in part caused by an inability of some power generators to get the fuel to run their plants.

The problems that some of the so-called third-party suppliers are experiencing underscore the difficulties the state has encountered in creating more competition to lower high energy bills since it decided to break up electric and gas monopolies in 1999. For many, that goal has not been realized, particularly in the residential sector.

Fortunately for most residential customers, the price spikes will not boost their bills. Roughly 85 percent of them are locked into long-term fixed prices offered by the state’s four electric utilities as a means of stabilizing costs for their customers. Bigger commercial customers may have more problems if they are not locked into fixed-price contracts.

Systrum apparently is not the only so-called third-party energy supplier experiencing problems, according to state officials.

“We have seen an increased amount of calls (from customers) of Systrum and other TPS (third-party suppliers) who chose variable-rate contracts, which are subject to market conditions,’’ said Earl Pierce, a spokesman for the New Jersey Board of Public Utilities. The agency gives licenses to those suppliers, but does not have regulatory authority over the prices they charge their customers.

The huge spikes renewed concerns among consumer advocates who pressed for more oversight of New Jersey’s deregulated energy market. Ev Liebman, associate state director for New Jersey AARP, noted it is one of the reasons her organization backed a recent bill (A-3422) signed into law by Gov. Chris Christie to prohibit alternative energy suppliers from making false and misleading claims and making them responsible if consumers lose money as a result.

“Some of these companies may go out of business,’’ Liebman said. “We don’t want consumers holding the bag. To see some bills triple overnight is bad.’’

Director of the Division of Rate Counsel Stefanie Brand argued recent decisions by PJM Interconnection, the nation’s largest regional power grid, and the Federal Energy Regulatory Commission to lift caps during these winter emergencies is a cause for concern.

“I think this is going to have an impact on prices overall,’’ she said.

The Retail Energy Supply Association, the trade organization representing third-party suppliers, cautioned the recent spike in energy prices is having an impact, particularly on customers without fixed-price contracts. Systrum is not a member of the organization, according to Bryan Lee, a spokesman for the organization.

“RESA urges customers to review and understand if their energy contract is significantly based on variable pricing, as this may leave them exposed to high prices during unusual periods such as we have witnessed this winter,’’ according to Jay Kooper, New Jersey chairman of the organization in an email delivered to NJ Spotlight.

The unexpected turn of events left some wondering whether some energy suppliers can survive, given their liabilities.

Asked about it, Tullo, whose business is family owned, replied, “We’ll see -- one day at a time.’’

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