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Reading 'Fine Print' Could Help State Monitor Shady Third-Party Power Suppliers

Some alternative carriers switch terms of contracts once bargain-price period comes to end

Assemblyman Upendra Chivakula (D-Somerset).
Assemblyman Upendra Chivukula (D-Somerset).

New Jersey's efforts to encourage consumers to shop for cheaper electricity could collapse, unless the state cracks down on unscrupulous power suppliers who sell customers contracts that fail to live up to their promises, according to regulatory officials, legislators, and others involved in the sector.

With the recent harsh winter, power prices spiked unexpectedly, leaving some customers with monthly bills that doubled and even tripled over what they had been previously paying. This is primarily because the contracts they signed with so-called third party suppliers allow prices to soar when electricity prices rise, in this case steeply.

Complaints about the suppliers, who offer customers cheaper prices on their electric bills than those of their traditional utilities, rose tenfold in the past year, according to officials at the state Board of Public Utilities. The agency is looking into developing tougher standards for marketing practices by power suppliers, according to BPU President Diane Solomon.

At one time, very few residential customers shopped around to buy electricity from other than traditional electric utilities -- although the state has allowed customers to do so since 1999 when it deregulated the sector. That changed in the past few years as natural gas prices dropped, allowing third-party suppliers to offer cheaper electricity than incumbent carriers.

Approximately 15 percent of residential customers buy their power from suppliers other than the state’s four electric utilities, according to Assemblyman Upendra Chivukula (D-Somerset), the chairman of the Assembly Telecommunications and Utilities Committee, which held a hearing yesterday on the issue in the Statehouse Annex.

“This is an incredibly important issue,’’ said Division of Rate Counsel Director Stefanie Brand, whose office represents the interest of utility customers, both large and small. “What’s been going on this winter threatens to end retail shopping in New Jersey, which no one wants.’’

The primary factor in the spike in customers’ bill is the variable-pricing contract, which allow suppliers to pass on unexpected costs to consumers when they have to go out and buy power when prices are expensive.

In some cases, customers do not know what they signed up for, according to Brand. While some lock in rates under fixed-price contracts, suppliers sometimes insert a provision to switch to variable pricing once the fixed-price term expires, she said.

Brand added that while most third-party suppliers are reputable, “there are definitely some bad actors out there. We need to rein them in.’’

The Retail Energy Supply Association, a trade group representing 23 independent power suppliers, agreed.

“If their are bad actors in the marketplace, they should be punished,’’ said Stephen Bennett, New Jersey chair of the association. “We’re not doing our job if customers don’t understand what they are buying.’’

Brand argued the state should more aggressively investigate companies involved in bad business practices and enforce current rules to discourage those deeds.

By most accounts, the best way to protect consumers is to ramp up education efforts about how to purchase electricity from a supplier other than their incumbent utility.

“While we want to promote competition, we want to protect citizens who don’t understand the difference between fixed-price and variable-price contracts,’’ Chivukula said.

Douglas Johnston, manager of governmental affairs for ARRP, suggested the state prohibit the practice of putting customers on variable pricing contracts, when their fixed price contracts expire. He also recommended the state should set limits on how much prices could rise in variable price contracts.

“We see these issues that need to be addressing,’’ he said.

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