Lawmakers Aim to Protect Consumers from Rip-Offs by Third-Party Suppliers

Tom Johnson | December 5, 2014 | Energy & Environment
Three-bill package would help make sure energy customers aren’t hit with huge price increases and can understand complex contracts

Assemblyman Wayne DeAngelo (D-Mercer)
The Legislature is weighing in on ways to protect consumers from unscrupulous third-party suppliers of gas and electricity who hit customers with price spikes after they’ve switched from incumbent utilities.

A three-bill package, unanimously adopted yesterday by the Assembly Telecommunications and Utilities Committee without any debate, mirrors some regulatory actions under consideration by the New Jersey Board of Public Utilities.

Representatives of some energy suppliers, as well as AARP of New Jersey, backed the package but did not speak before the committee, which held a hearing on the issue earlier this year. In at least once instance, the state Division of Rate Counsel endorsed a bill in a letter to the committee.

The moves to tighten regulation of so-called third party suppliers was spurred by events of last winter when customers who had switched companies were hit unexpectedly with huge increases in their energy bills, largely the result of unusually frigid temperatures that sent rates soaring due to high spikes in natural-gas prices.

It led to a civil complaint against three energy suppliers by the state attorney general’s office, accusing them of defrauding customers by promising they would save money on their utility bills when, after the cold spell, they skyrocketed.

Some energy suppliers had not locked in prices for natural gas so they had to pay higher prices for the fuel, costs they passed on to their customers, many of whom were not aware they faced such a prospect. The spikes led to a huge increase in complaints about contracts with the alternative energy suppliers.

“The deregulated market leveled the playing field for third-party competitors and gave consumers the opportunity to shop around for the best rate,’’ said Assemblyman Wayne DeAngelo (D-Mercer), the chairman of the committee and a sponsor of the three-bill package. “This legislation will begin to strengthen consumer protection for residents who choose to go with a third-party electric or gas service as their utilities provider.”

Since the state deregulated the energy sector in 1999, few residential customers opted to switch from their incumbent utilities, primarily alternative suppliers could not beat the price they offered to consumers. That has changed with the discovery of cheaper natural gas reserves in nearby Pennsylvania, a development that has helped third-party suppliers undercut prices offered by gas and electric utilities.

As of September, 14 percent of residential customers have switched electricity suppliers and 7.6 percent have changed gas suppliers, according to latest information on the BPU’s website. The switching rate is much higher for commercial and industrial customers, who account for much of the gas and electric usage in the state.

Many third-party suppliers approve of the effort to tighten standards for the sector, in part because they fear if consumers do not trust the system, they will no longer switch from their incumbent utility.

“There needs to be more transparency in the process,’’ said Assemblyman Tim Eustace (D-Bergen), a cosponsor of the package. “We want consumers to continue to make their own choices with clear rules and regulations in place to guard residents who enter into these contracts with chosen suppliers.

The first bill (A-3849) aims to achieve that goal by requiring the BPU to provide more information to consumers on a website to allow customers to compare prices between gas and electric suppliers. The BPU is working on that site, but some in the sector have complained it has been too slow in development.

The second bill (A-3850) would allow customers to switch from an energy supplier within 30 days of a request — a move that some suppliers have argued is impractical. DeAngelo said utility companies should remain open to consumer choices.

The final bill (A-3851) would require the BPU to establish contract standards between customers and third-party electric and gas power suppliers, an initiative already underway. It wants suppliers to provide a one-page summary that aims to explain in plain language — without using energy-industry jargon — the fine print of a long contract.