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State Launches Probe into Business Practices of Third-Party Power Suppliers

By: Tom Johnson |

Are some third-party power companies misleading consumers about guaranteed prices and other promised benefits?

The state is launching an investigation into whether power companies luring customers away from their incumbent utilities used misleading advertising, marketing, and contracting practices.

The probe, undertaken after a memorandum of understanding reached between the state Board of Public Utilities and the New Jersey Division of Consumer Affairs, reflects the fact that there’s been a tenfold increase in complaints from customers about unexpected spikes in their electricity bills.

The investigation follows a brutally cold winter for many customers who switched from their incumbent electric utilities to so-called third-party suppliers, who promised them cheaper bills. Those savings quickly disappeared when prices for natural gas, which sets the market for electricity costs, skyrocketed.

As a result, customer bills soared, in most cases because the suppliers had not locked in prices for natural gas, which led them to pass those increases on to their customers. In some cases, customers were unaware of that possibility, thinking they were guaranteed the discounts offered by the suppliers.

The issue is a concern to both the state regulators and the trade group representing alternative energy suppliers. Each fears the controversy will discourage consumers from shopping for new electricity supplies in the future. Since the state deregulated the energy sector in 1999, few residential customers bothered to switch providers until natural gas prices fell, allowing third-party suppliers to undercut utility prices.

“Numerous customers alleged behavior by certain Third Party Suppliers that if corrobated would at best be considered dishonest and/or misleading,’’ said BPU President Diane Solomon. She vowed to hold suppliers accountable if they run afoul of the agency’s regulations or consumer standards.

That vow found support from the Retail Energy Supply Association, a trade organization that represents many third-party suppliers.

“Consumer trust is integral to the success of any market and must be protected through effective regulation and strong enforcement,’’ said Stephen Bennett, New Jersey chairman of the group.

“If any retail suppliers are found to have violated New Jersey’s rules or statues, RESA is confident that the BPU and DCA will act in a way that sends a message to customers and suppliers alike that abuse and mistreatment of customers will not be tolerated in the Garden State.’’ Bennett said.

DCA, which will lead the investigation, did not respond to a call from NJ Spotlight about the probe.

At a legislative hearing earlier this month, officials warned that the state’s efforts to encourage consumers to shop for electricity or gas could collapse, unless it cracks down on unscrupulous power suppliers.

“What’s been going on this winter threatens to end retail shopping in New Jersey, which no one wants,’’ Division of Rate Counsel Director Stefanie Brand told the Assembly Telecommunications and Utilities Committee.

Others have suggested that the state prohibit suppliers from offering customers so-called variable-price contracts, which fluctuate, depending upon the price of electricity sold on the spot market.

According to the BPU, approximately 16 percent of residential customers have switched to alternative energy suppliers, although that percentage is much higher for commercial and industrial customers.

Others argue that the state needs to step up consumer education efforts regarding shopping for electricity, a cause Solomon embraced. “It is my intention to make sure New Jersey ratepayers have an understanding of the third-party supplier market through more consumer education and outreach,’’’ she said.