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State Agency Argues for Clearer Contracts from Third-Party Energy Suppliers

BPU looks to shield consumers from sticker shock when electric and gas bills are far higher than they would have paid to their utility

By: Tom Johnson |

The state wants to tighten regulations on how alternative energy suppliers market to customers shopping for cheaper prices on their gas and electric bills, an issue that’s been drawing scrutiny since this past winter when some ratepayers were socked with huge, unexpected increases.

In a stakeholders meeting at the headquarters of the New Jersey Board of Public Utilities in Trenton, the industry generally supported calls for greater transparency and more clarity on what prices customers can expect if they choose to go with an alternative (or third-party) energy supplier, rather than their incumbent utility.

The issue is important because since New Jersey broke up its gas and electric monopolies, the state has seen only modest gains in the number of residential customers shopping for better deals. Deregulation advocates had argued that ending the monopolies would lead to increased competition and lower prices for consumers.

Even those efforts could be derailed by allegations filed by the state attorney general’s office that unscrupulous alternative suppliers defrauded customers by telling them they would save money if they switched energy suppliers. In some cases, consumers ended up paying several hundred dollars more a month than if they had stayed with their utility, according to the civil complaints filed by the state.

Those predicted savings didn’t happen for thousands of customers, largely because the unusually cold winter spiked prices for both electricity and natural gas, with some suppliers passing those costs on to consumers, many of whom did not realize they were at risk of paying more if market conditions changed.

Much of the discussion yesterday focused on how to bring greater clarity to consumers when — and if — they decide to switch from their incumbent utility to a third-party supplier.

There was general agreement among most that the state should require suppliers to write contracts in simple language that consumers can understand — rather than the arcane terms used in the energy industry to describe their offerings.

In the past winter, for instance, many customers complained they were unaware that they had signed up for variable-price contracts, a misunderstanding that left many angry when prices unexpectedly spiked.

A draft proposal developed by the BPU staff questions whether a ceiling should be established for variable-price contracts and whether so-called fixed-rate contracts — in which prices are set for a certain period of time — should be clearly spelled out on websites before consumers decide to switch suppliers.

“It would be unreasonable and unfair to expose customers without exposing the methodology of how variable contracts work,’’ said Ev Liebman, associate director of AARP of New Jersey.

Others in the sector, however, questioned how far the state should go in dictating to companies what details must be supplied on their websites. Some representatives noted that prices can vary depending upon the state where potential customers live. Others said they determine prices for small commercial customers based on energy usage.

“We need to be careful about how much we dictate how a private website works,’’ said Stephen Bennett, New Jersey chairman of the Retail Energy Supply Association, a trade group that represents third-party suppliers.

Bennett noted that suppliers often offer different products to consumers at different times, a practice that could be very confusing to customers looking to compare prices when shopping for a better deal.

Virtually everyone agreed, however, that consumers ought to be able to shop and compare prices without having to first sign a contract to switch suppliers.

Liebman argued that customers looking to shop for better deals should not be required to provide their names and addresses, other than describing what kind of customers they were — residential or small commercial.