Explainer: Shopping for Cheaper Energy Remains a Chancy Undertaking

Tom Johnson | September 16, 2014 | Energy & Environment, Explainer
Unexpected spikes in prices is one reason that the state is looking into ways to better regulate alternative power suppliers

explainer button shadow
It has been 15 years since the state broke up its gas and electric monopolies, allowing consumers and businesses that heat their homes with natural gas and use electricity to keep the lights on to shop around for cheaper energy. For much of that time, most of those who reaped savings on their bills were larger businesses, since residential customers typically stuck with their incumbent utility.

What’s changed: The discovery of large deposits of natural gas in the Marcellus Shale formation in Pennsylvania and other states has brought a new dynamic to the state’s energy market. That’s led to big savings over the past few years for customers who use natural gas and electricity. The cheaper prices for natural gas also have spurred many energy suppliers to come into the state with claims they could offer consumers lower costs than those offered by their utility.

What happened: In many cases, the alternative energy suppliers delivered on those promises — until this past winter. The brutally cold weather led to a rapid spike in natural gas prices, which sets the market for electricity, straining the reliability of the regional power grid. As a result, some suppliers passed those costs along to their customers, who were often unaware that they were liable for such unexpected increases.

The problem: A large factor in the huge spike in monthly bills — for some customers it was hundreds of dollars — was that they signed up for variable-pricing contracts, which allow suppliers to pass on unexpected costs to consumers when they have to go out and buy power at higher prices. Other customers signed fixed price contracts, which promised savings on their bills, but failed to read the fine print. In some cases, those contracts allowed suppliers to raise costs after a fixed period of time.

The state’s reaction: In one instance, the state attorney general’s office brought civil complaints against three energy suppliers, accusing them of defrauding customers by telling them they would save money if the switched from their utilities, only to see their gas and electric bills skyrocket. The number of residential gas customers who have switched is close to 8 percent, while some 14 percent of residential electric customers have made the move, according to data compiled as of July by the New Jersey Board of Public Utilities. Both numbers are down slightly since previous switching data was published by the agency, after steady growth in the past few years.

Why the issue is important: As the switching data seems to show, if people lose confidence in the promises made by alternative energy suppliers, they will stop shopping around for better deals on their gas and electric bills. If that happens, it would derail one of the primary reasons that the state decided to deregulate the energy industry back in 1999. Backers of the effort said it would lead to increased competition and lower prices for customers.

How the state aims to fix the problem: The BPU — backed by the New Jersey Division of Rate Counsel and to some extent by a trade group representing many alternative energy suppliers — is working to tighten regulations on how those companies go about marketing and advertising to potential customers. A big priority is requiring suppliers to write contracts in simple language that consumers can understand– rather than the arcane terms used by the energy sector to describe its offerings. The agency also is working to put up a consumer-friendly website to help consumers more easily shop and compare prices offered by energy suppliers.

What happens next: Many details of the proposed tougher regulations remain to be worked out. Energy suppliers are wary about the state dictating precisely how they should spell out the terms of their offerings, noting that prices can vary depending on where the consumer is located. It also is uncertain whether the BPU will adopt a ceiling on how much variable-price contracts can rise.