Slamming specter haunts electric industry

Roxane Richter

Customer Systems Editor

Think it`s too early to be concerned about slamming-the unauthorized switching of customer energy services-just yet? With looming threats of decertification, per-incident and per-day fines of $100,000 and even jail time for slamming, your first mistake in not protecting your company against slamming could well be your last.

Our predecessor in deregulation, the telecommunications industry, has already gotten its fingers stuck in the mire of illegal switching, and some less-than-honorable providers have some had their hands slapped-hard. One long-distance carrier who found itself on the wrong side of the Federal Communications Commission (FCC) not only lost its operating license, but was walloped with $5.7 million in fines.

“Telecommunications` deregulation was supposed to unleash a new entrepreneurial energy in America,” complained U.S. Rep. Peter DeFazio (D-Oregon), “Instead, it seems to have created opportunities for some unscrupulous entrepreneurs to take advantage of defenseless consumers.”

And it`s not just slamming that defrauds the nation`s “defenseless consumers,” there`s also cramming, the unauthorized billing of services on a customer`s bill.

The pot-holed road between slamming and cramming in telecom is only a short hop from the energy industry. Just as telecom service providers succumbed to consumer pressure to abate illegal switching, energy providers are beginning to feel the crunch of end-user demands and state-mandated legislation.

“Clearly, energy is moving slower in addressing slamming than telecom. In energy, there`s just not that many markets open to competition and many large providers are only focusing on large consumers, not small residential customers,” said Jim Veilleux, President of VoiceLog, an anti-slamming, third-party verification service. “But state commissions have been through slamming before in the telecom industry, so it`s a little like licking an open wound. As soon as you start seeing more slamming complaints and more large fines and de-certifications, you`ll see more aggressive anti-slamming action in energy.”

You-can`t-afford-it fines

In the past few months, some natural gas customers in Georgia have been saying the decision to switch gas providers has already been made for them-without their permission. In Atlanta, slamming fines against natural gas service providers have hiked into the realm of $15,000 per incident, according to local news media coverage.

In New Jersey, Public Service Electric & Gas (PSE&G) complained that it has received “hundreds of calls” from angry customers who feel they have been deceived into switching their electricity supplier. In October of 1999, the Star-Ledger reported that many customers pointed to a two-year-old company, Energy America, as the culprit behind PSE&G`s woes. According to the New Jersey newspaper, consumer advocates are calling on the state`s Board of Public Utilities (BPU) to revoke the company`s provisional license.

States are responding with aggressive anti-slamming penalties. New York threatens a $100,000 maximum fine (after warning); Oregon has a maximum penalty of $25,000 per violation, per day; California has a $20,000 per-violation, per-day fine (and potential jail time); and Georgia imposes a $10,000 per-violation, per-day penalty. Most of the states also threaten de-certification, or the loss of authority to market within the state, along with hefty fiscal fines and possible jail time (see table.)

“In energy, no one can afford the fines you`ve seen in telecom. There`s so little profit in this industry now, it could keep people from entering the market,” said Craig Goodman, president of the National Energy Marketers Association (NEM-formerly NEMA). “We hear very few problems from slamming in energy now. The real problem is that it`s virtually impossible to switch a customer. It almost requires an act of God. The majority of state PUC laws are arcane and onerous and they make it virtually impossible to switch a customer. It`s a huge barrier to entry, a major impediment to open competition.”

Yet there are several critical areas that may successfully address anti-slamming and -cramming issues. States can enact a more rigorous licensing check and state utility regulators can strictly enforce and actively levy fines and other penalties against companies found guilty of slamming and cramming. PUCs and local utilities can heighten consumer awareness by implementing high-visibility campaigns. Industry organizations, such as NEM, can implement self-policing uniform codes of conduct. And lastly, stringent security checks, such as code words and third-party verification, can be enforced in all stages of switching and billing.

Anti-slamming protection

One company, Charlotte, N.C.-based VoiceLog (www.voicelog.com), has built a business around anti-slamming services. Companies seeking protection against slamming and cramming fines can use VoiceLog`s automated third-party verification services. Total Slamming Control is a VoiceLog product that provides three separate verifications of the customer`s order, including a full audio recording of the customer`s authorization, a live operator review of the recording, plus one or more callbacks to the customer to confirm the decision to change service providers. The company also conducts an inventory of the client`s sales practices and conducts statistical audits to look for potential problems in verifications.

The average cost of its anti-slamming and -cramming services range from approximately 75 cents to $1.65 per verification. Backed by a $3 million dollar liability insurance policy, VoiceLog guarantees to pay any fine imposed as a result of an order verified by its Total Slamming Control.

“All slamming is merely a question of incentive. You`ve got to ask `Who`s getting paid?` And how? If the customer service rep gets $5 or $10 per sign up, there`s a potential for slamming there. Once you understand the incentive, you can put in enough security to prevent slamming, yet not discourage legitimate sales,” Veilleux explained. He added that companies need to look at additional security issues, such as full-time employees versus independent agent staffs, employee payment schedules, as well as overall discipline and training.

Slamming history & future

As usual, it was the revolutionary forerunner California who led the nation`s charge against telecom slamming back in 1998. And due to its very aggressive past stance on telecom slamming (California is the only state in the nation that requires every residential long-distance service change be third-party verified), Pacific Bell has seen a dramatic decrease in complaints from 243,000 in 1996 to 133,000 in 1997. That`s a 45 percent drop in a single year.

Yet in sharp contrast to California, telecom slamming appears to be on the rise in almost every other part of the country. US West reported that slamming complaints more than doubled in 1997, Ameritech announced an 80 percent increase from 1996 to 1997, and Southwestern Bell recorded a 50 percent increase in slamming in 1997. The FCC reported an increase in slamming complaints from 16,000 in 1996 to 44,000 in 1997.

What can the consumer do once he`s been slammed or crammed? According to consumer protection advocates, customers who believe they`ve been slammed should not pay their bill and should file a complaint with their state`s commission. Customers then should call the marketer and demand to have the accounts closed and the bill(s) erased. Consumers can also contact local and national consumer protection organizations, such as the National Consumer`s League (www.natlconsumersleague.org), which is actively involved in addressing unauthorized switching fraud and abuse.

More times than not, high-tech solutions offer technologically advanced inroads for high-tech thievery.

And, as surely as slamming in energy is following slamming in telecom, the Internet is the next bastion for illegal electronic service switching and billing. But the verification of Internet-based orders poses new modern-day problems. Some states now require the verification on orders made via e-mail or the World Wide Web. In e-commerce, the risk is that there is no no-fault way to confirm identity. As there`s no faxed signature, original “wet signature” or voice to confirm a user`s identity, companies are forced to resort to the low-tech solution of person-to-person telephone confirmations or code words.

But no matter if unauthorized switching and billing is transacted over the telephone, door-to-door or via the Internet, slamming and cramming are the unfortunate by-products of competition. Both distort the market, assault consumer choice and batter open competition.

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