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BPU Moves On ‘Plain English’ Summary for Alternative Energy Contracts

Third-party suppliers to start offering consumers one-page explanation of fine-print details of what they’re offering

BPU Joseph Fiordaliso
Credit: Amanda Brown
Joseph Fiordaliso, commissioner of the NJ BPU.

The state is taking steps to make it easier for consumers to understand contracts if they want to switch gas or electric suppliers. Confusion about what these contracts actually said emerged as a common problem during the winter’s unusually cold weather.

In an order issued by the New Jersey Board of Public Utilities, alternative energy suppliers will be required to begin providing potential customers a one-page summary explaining the contract in plain language if they decide to switch from their incumbent utility. The new regulation will take effect in the middle of next month.

The action follows this past winter when customers who had switched suppliers were hit unexpectedly with huge increases in their energy bills -- largely the result of the frigid temperatures that sent electric rates soaring due to huge spikes in natural gas prices.

Among the energy suppliers covered by the new rule are three that were charged by the state attorney general’s office in a civil complaint with defrauding customers by promising they would save money on their utility bills when, in fact, they skyrocketed.

Because some energy suppliers had not locked in prices for natural gas, they had to pay higher prices for the fuel, costs they passed on to their customers, many of whom were not aware that their contracts allowed for variable pricing, depending on market conditions. That misunderstanding is likely the chief reason that the BPU was deluged by a tenfold increase in complaints about contracts with so-called third-party suppliers (TPS).

In response, the BPU is initiating a proceeding to adopt new rules to ensure that sufficient consumer safeguards are in place for customers who shop for their energy suppliers, including a one-page summary that aims to explain in plain language -- without using energy-industry jargon that otherwise might be misunderstood or overlooked -- the fine print of a long contract.

Because adoption of the rules could take six months or more, the BPU ordered the suppliers to complete the so-called TPC Contract Summary and begin supplying it to customers who sign up for new service by November 14, 2014.

The contract summary sheet was modeled on a version adopted by Pennsylvania, according to BPU Commissioner Joseph Fiordaliso.

“This is really an evolving process,’’ Fiordaliso said. “It is important the industry become involved in the educational process. We didn’t expect this sustained cold.’’

By and large, the industry supports efforts to crack down on unscrupulous suppliers because it discourages consumers from shopping for cheaper energy. However, it is wary about proposals from the agency to dictate how their websites offer information to consumers.

Virtually everyone agreed in recent stakeholder meetings that consumers should be able to shop and compare prices without having to first sign a contract to switch suppliers.

Among other things, the new contract summary will spell out to consumers in plain language the difference between fixed-rate contracts offered by suppliers, according to Eric Hartsfield, director of the BPU’s Division of Customer Assistance.

Fixed-rate contracts set what customers will pay for a certain predetermined period. Variable pricing contracts allow suppliers to raise rates depending on market conditions. Not understanding this contributed to the confusion of customers who had switched suppliers.

In the future, the BPU also plans to set up a website to allow consumers to easily comparison shop on what various energy suppliers are offering, compared to their incumbent utilities.

Since New Jersey deregulated the energy sector back in 1999, far fewer residential and smaller commercial customers have opted to switch from their incumbent utilities to new suppliers when compared to other deregulated states. Both the industry and state regulatory officials fear that if the problems that beset consumers this past winter are not rectified, consumers will stop shopping for cheaper deals.

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