Anti-slamming rules slow to evolve

By Jim Veilleux, VoiceLog

As competition slowly develops around the country for electricity and gas at both the consumer and commercial levels, only a few states have had to deal with the issue of slamming-the unauthorized switching of a customer’s service. But, we fully expect this issue to grow as competition increases and customers get more comfortable with switching their energy suppliers.

Because slamming has been such a huge issue in the competitive telecommunications markets for the past 16 years, many people expected this to be an issue with the energy utilities. In telecommunications, for example, slamming has been one of the top consumer complaints at the Federal Communications Commission for many years. In truth, however, relatively few complaints of electric or gas slamming have emerged. As a result, there are few states with explicit regulations to control slamming, other than to make it illegal.

Varying standards

The regulations that do exist have been developed either based on tradition (written contracts), past experience with telephone slamming (written contracts or third party verification), or have been unspecific. New Jersey, for example, decided to use wet signatures as the only means by which customers could indicate their decision to change their electric service provider. California used its experience with telephone slamming to require third party verification for consumers and wet signatures for businesses. Arkansas includes utility slamming under its general consumer protection laws.

In total, we count four states providing explicitly for third party verification as a sales verification method, 11 states that include wet signatures and 12 states with no specific requirements other than general consumer protection laws (note that some states allow either third party verification or wet signatures.)

The fact that a state does not have a specific standard does not mean the energy marketer can be lax, however. Several states put the burden of proof that the customer agreed to a switch on the marketer. Without proof, a competitive energy supplier can be subject to fines, refunds for service and payment for switching back. Clearly, it’s smart to have some kind of proof that the customer agreed to the switch.

When it’s wet

Ironically, although tradition favors the wet signature as the best proof of customer agreement, experience in telecommunications shows that written contracts are the biggest source of slamming complaints. Interestingly, the biggest incident of slamming in electricity so far occurred in New Jersey, where the wet signature is an explicit requirement.

The preference for wet signatures in many states is curious, since third party verification is either preferred or equal to written verification in most states for telecommunications slamming control. On the other hand, wet signatures used to be preferred for telecommunications as well; it was only after several years that public utility commissions (PUCs) adopted third party verification after proof of its effectiveness.

The other problem with a wet signature requirement is its inability to work with electronic methods of customer solicitation and switching. Third party verification, by contrast, has been used with Internet orders and there are various electronic signature schemes that should also do a good job of consumer protection. Since Congress authorized electronic signatures, effective last October, it may be that electronic signatures may satisfy the wet signature requirements in some states, but we have not found anywhere that this idea has been tested.

It should not be surprising that so few slamming complaints have occurred; the market has been much smaller than telecommunications so far. At the high point in telecommunications, more than 50 million consumers switched from one supplier to another in a given year-some more than once. In energy, customer switches appear to be less than one million, nationwide. In addition, profit margins for competitive energy suppliers aren’t anywhere close to what has been available in telecommunications, so the incentive to slam is much less.

But, slamming complaints will grow. As the market develops, consumers become more comfortable with switching and margins grow over time, electric and gas slamming will unfortunately grow along with them. And, based on the history of slamming in telecommunications, it’s a near certainty that regulations will expand to meet the problem. Perhaps the PUCs will turn to third party verification and other more advanced verification methods faster for energy. Only time will tell.

Slamming Rules as of 1/01 (PDF)


Jim Veilleux, president of VoiceLog, a Charlotte, N.C.-based anti-slamming services provider, can be reached by phone (704-543-6613) or e-mail (jveilleux@voicelog.net).
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