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Alleging Fraud, State Moves Against Three Alternative Energy Suppliers

Despite promises of lower gas and electric costs, many customers saw steep spikes in their utility bills

acting Attorney General John Hoffman
Credit: NJTV
Acting Attorney General John Hoffman.

The state yesterday sought to crack down on unscrupulous alternative energy suppliers who allegedly defrauded customers by telling them they would save money if they switched from their utilities only to see their electric and gas bills skyrocket.

In three separate civil complaints filed by the Attorney General’s Office, the New Jersey Division of Consumer Affairs, and the state Board of Public Utilities, three third-party suppliers were accused of using misleading and deceptive marketing to urge customers to switch suppliers by offering guaranteed savings.

What those customers typically ended up with, in fact, were huge spikes in their electric and gas bills.

“These three companies allegedly lured consumers with promised monthly savings that turned out to be fictional,’’ said acting Attorney General John Hoffman at a press conference in the Justice Complex in Trenton. “Even worse, consumers who hoped to save money instead saw their bills increase to unconscionable levels.’’

The issue arose this past year when more than 100 energy suppliers were actively soliciting residential customers to switch their gas and electricity from incumbent utilities because of a steep drop in natural gas prices, a trend that made it easier to compete with the more established companies.

That all changed this winter when the Northeast was hit with unusually frigid temperatures, sending natural gas prices soaring. Because some suppliers had not locked in prices to buy the fuel, they passed along big increases to customers. In some cases, the increases amounted to several hundred dollars a month more than consumers would have paid if they had stayed with their utility.

The three energy suppliers accused in the separate civil complaints are Palmco Power NJ, LLC and Palmco Energy, NJ, LLC; HIKO Energy LLC; and Keil & Sons (doing business as Systrum Energy). Two of the companies failed to respond to calls or e-mail messages seeking comment on the allegations. Systrum Energy, according to its website, has ceased enrolling new customers in New Jersey.

Palmco released a statement responding to the allegations. ‘’Palmco values excellent service and satisfaction and we’re currently look into the information provided by the New Jersey Attorney General’s office.’’

All three companies generated nearly 1,500 complaints to various state regulatory bodies—far more than they have received about other energy suppliers, according to officials.

Two of the companies were also accused of “slamming’’ customers -- switching them from their current utility accounts without their permission or knowledge. According to state officials, the two were Palmco and HIKO.

Hoffman said the state will seek civil penalties, other fees and potential restitution for customers who were switched without their consent and ending up paying more on their utility bills than they would otherwise have done. He also did not rule out revoking the companies’ licenses to sell gas or electricity in the state.

However, customers who signed so-called variable price contracts, which allowed utility prices to rise depending upon market prices, may not be entitled to restitution. Hoffman compared the situation with risks incurred by homeowners who sign variable-rate mortgage loans.

In detailing the charges against the three companies, state officials repeatedly emphasized that the vast majority of alternative energy suppliers, dubbed Third Party Suppliers (TPS) in bureaucratic jargon, are not guilty of the same offenses.

“While today’s announced allegations against a few energy suppliers should send a clear message to the energy supply industry, consumers should understand that there is still a robust market of alternative energy suppliers to be considered that may offer savings on electric and gas bills,’’ said BPU President Diane Solomon.

To some state officials, the controversy over misleading marketing and advertising practices could lead residential customers to shy away from looking to reduce their energy bills by switching suppliers. For most of the 15 years since the state deregulated the energy sector, few residential customers have bothered to switch suppliers.

According to BPU data as of April 2014, 9.5 percent of residential gas customers have switched suppliers and 15 percent of residential electric customers have done the same. The numbers reflect a big improvement over earlier years when customers were also allowed to switch, but still are much lower than some other states, which have deregulated the energy sector.

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