Retail end-user slamming: Where the money isn’t

By Steven M. Brown, Associate Editor

When promoting their cause, proponents of retail electric power competition often cite the benefits derived from competition in the telecommunications industry. Innovative value-added services and price competition among suppliers represent the good side of telecom competition and the hoped-for rewards of successful electric power competition. But the competitive telecom market has given rise to less-appealing byproducts as well. Slamming-the switching of a customer’s utility service provider without the customer’s permission or with fraudulently obtained permission-is chief among them.

In 1998, the J.D. Power and Associates Residential and Long Distance Customer Satisfaction Study revealed that within the year the survey was conducted one in every 10 U.S. households reported being victims of long-distance service slamming.

While slamming has not been as rampant in competitive electric power markets as it has been in the telecom industry, it remains a concern in states where retail-level competition has been most successful.

With more than 590,000 customers being served by alternative suppliers (as of July 1, 2001), Pennsylvania’s competitive electric power market stands as the most well-developed in the United States. The Pennsylvania Public Utility Commission (PUC) reports that slamming has not been a widespread problem in the state, but isolated instances of slamming have occurred. In 1999, the year that competition opened for two-thirds of the state’s customers, the PUC investigated 598 cases in which electric customers had alleged being slammed. In 2000, the year retail competition was opened to the entire state, the PUC investigated 513 cases of alleged slamming. In 2001, through July 27, Pennsylvania’s electric customers had registered 259 complaints about slamming that the PUC had either investigated or was in the process of investigating.

Taken in comparison, the percentage of electric customers who have alleged slamming in Pennsylvania do not come close to the percentage of telecom customers who reported slamming incidents in the J.D. Power study. A quote often attributed to prolific bank robber Willie Sutton goes a long way toward explaining why that might be. When asked why he robbed banks, Sutton is said to have told a newspaper reporter, “Because that’s where the money is.”

At the present, the money simply isn’t there in the competitive retail electric power market, said Jim Veilleux, president of VoiceLog, a Charlotte, N.C.-based anti-slamming services provider. Veilleux attributes the lack of slamming in electric markets, in part, to high wholesale electric prices that make it difficult for electric power marketers to turn a profit.

“In the telecom market there were pretty significant profit margins available five years ago,” Veilleux said. “There was much more aggressive marketing behavior and it was much easier to slam a bunch of customers, pocket the money and head out of the country.

“In the electric utility market, the profit margins are a lot thinner right now. That makes it a lot less attractive to people who are looking to make a relatively easy buck.”

Thin profit margins and the relative immaturity of competitive retail electric power markets aren’t the only factors deterring would-be electric customer slammers. Consumer protection measures, the enforcement of anti-slamming laws and the levying of punitive fines have done their part as well. In 1999, for example, the Pennsylvania PUC required Total Gas & Electric (TG&E), an electric generation supplier from Florida, to pay a $5,000 fine to settle claims that its marketing practices misled customers. When dealing with TG&E’s door-to-door marketers, some PECO Energy customers reportedly were led to believe they were dealing directly with PECO and, thus, enrolled for TG&E services under false pretenses. Besides the $5,000 fine, TG&E was directed to pay restitutions of $100 to each customer TG&E enrolled without his or her authorization or consent.

Signed authorization (a “wet signature”) from the customer switching his or her service is still the predominant method competitive suppliers and state regulators use to prove that a customer has indeed switched service providers, and that’s the form of verification Pennsylvania state law prescribes. The Pennsylvania PUC reports that suppliers also use third-party verification or audiotaped sign-up calls to verify customer switches in that state.

In neighboring New Jersey, another state with relatively strong competition at the retail level, switching is verified by wet signature or by records of Internet enrollment, which must be maintained by the competitive electricity suppliers. Penalties against slammers in New Jersey are imposed on a case-by-case basis but can include suspension or revocation of license and a civil penalty of $10,000 for the first offense and $25,000 for subsequent offenses, according to the New Jersey Board of Public Utilities.

Despite consumer protections and the potential for penalties against suppliers found guilty of fraudulent marketing, the industry still must stand vigilant against potential increases in the practice of slamming. Veilleux said he believes that as retail competition progresses in more states, wholesale electricity prices decrease, and profit margins increase to a point where a larger number of electric power marketers enter the fray, slamming could rear its head in the electric power industry in much the same way it did in the competitive telecom industry.

“Eventually, the dynamics of the market will become attractive to a substantial number of marketers,” Veilleux said. “It’s just a matter of time.”

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