Residents shocked by retail energy contracts

A special report
Part One
A knock at the door leads to long term commitment

When Linda Barrett signed a contract with Universal Energy she hoped to insulate her family from rising electricity bills.
Instead, she unknowingly agreed to pay more for hydro service and she’s now locked into a five-year contract.
Today Ms. Barrett is calling for government action to protect consumers from so-called price-protection plans that can often result in dramatically higher energy costs.
An independent study shows that since 2005, Ontario consumers who have opted to purchase electricity from a retail supplier have paid more than the regulated rate available from the local public utility.
Last year, Ms. Barrett was sitting down for dinner when she was summoned by a knock at the door. A salesperson from Universal Energy began discussing the rising costs of electricity and told Ms. Barrett she could protect herself from the higher rates.
“I remember thinking what a fool I would be to not protect myself from the rising rates so I signed a five-year contract to purchase my electricity from Universal Energy at a rate that would be guaranteed not to increase for the next five years,” Ms. Barrett said.
On May 22, she was shocked to see her bill jump from about $185 to $293.
She called Hydro One and was told the increase was due to the fact she buys her electricity from a retailer instead of a local distribution company.
Although her bills are still issued by Hydro One, Ms. Barrett pays a locked-in rate of 8.69 cents per kilowatt hour that has so far resulted in higher costs.
“My rate with Universal Energy is $115 per month more than what I would have been paying with the government supplier, Hydro One,” Ms. Barrett said.Ms. Barrett said she received a follow-up telephone call after signing the contract. She said the caller asked whether she had read the fine print.
“I informed the caller that I had not read over the small print of the entire contract because I was satisfied with the salesperson's answers to my concerns,” she said.
When Ms. Barrett called Universal to terminate the contract she was told she must pay a fee of more than $1,000. Today she’s calling on the government to do more to protect consumers. She’s also filed a letter of complaint with the Ontario Ombudsman.
“At this point I kind of feel that I’ve been duped,” Ms. Barrett said. “But it may have been my own fault because I didn’t read the fine print.”
Ontario has had a competitive, deregulated market for electricity since May, 2002. The natural gas market has been deregulated since the mid-1980s.
Today, instead of purchasing electricity or natural gas from a local public utility, consumers can sign up for a locked in rate with an energy retailer, such as Universal.
Universal Energy vice president of marketing Jan Nybida said door-to-door salespeople do not guarantee savings.
“Purchasing your energy from us is very similar to locking in your mortgage rate - some months you may save money and others months you may not,” she stated by e-mail. “There is no guarantee of what the rates in (the) market will do - there are historic figures that we reference; however, much like a fixed rate mortgage, the market over the length of your contract will dictate whether you save money or not.”
According to statistics from energyshop.com, Universal Energy currently offers a five-year fixed rate of 7.88 cents per kilowatt hour for residents of Ancaster’s L9K 1P7 postal code. The current regulated price from the local provider is 5.7 cents per kilowatt hour for the first 1000 kilowatt hours per month during the winter, and the first 600 kilowatt hours during the summer.
Ms. Nybida said Universal must collect cancellation fees because the company buys energy from a wholesaler up-front once a customer signs the contract.
“On the contract and in the terms and conditions we clearly state that we are securing their energy for a specific term (typically 5 years) and that we pre-buy this energy on their behalf. Similar to a mortgage, there are penalties for cancelling the contract early and those penalties are assessed based on length of term left and any set early termination charges that are in the contract,” she stated.
When Stoney Creek resident Holly McGilvery called to cancel her natural gas contract with a retail provider back in 2002, she believed everything was in order. But as the months and years went by, Ms. McGilvery realized she was still getting significantly higher gas bills than her neighbours.
She recently called Union Gas and was shocked to discover the retail contract she signed five years ago with Direct Energy had been renewed without her knowledge.
The company claimed it never received a written cancellation notice. Since then, Ms. McGilvery has paid 49.9 cents per cubic metre for natural gas. According to energyshop.com, most residential customers in Southern Ontario are currently paying about 24 cents per cubic metre under the regulated Union Gas cost structure.
Ms. McGilvery has another opportunity to cancel her contract on Oct. 31. This time, she plans to fax a copy of the cancellation notice, place a recorded call to the company’s office and send a registered letter.
“I don’t know what else I can do,” said Ms. McGilvery, who estimates she has lost $7,000 to $10,000 by purchasing natural gas from an independent retailer.


Part 2
Government response and ways to shield yourself

They were promised “price protection” from rising electricity and natural gas rates. But Linda Barrett and Holly McGilvery ended up with skyrocketing energy bills after signing a contract with a retail energy company.
Today they want governments to do more to protect consumers. And help from the province appears to be coming.
A new bill aimed specifically at energy retailers recently passed second reading in the provincial legislature.
Private member’s Bill 131 by Liberal MPP David Ramsay seeks to amend the Ontario Energy Board Act to ensure contracts are worded in plain language. The proposed legislation would require the energy retailer to state on the first page of the contract that the company is not affiliated with the government or a local distributor. The contract would also indicate the agreement only covers the cost of the electricity or natural gas and that other costs, such as delivery, are not included.
Retailers would be required to list cancellation fees should the consumer request to terminate the contract early. The price per kilowatt hour for electricity or per cubic metre of natural gas would also be required on the contract’s first page.
The bill, if passed, would require energy retailers and marketers to provide a reaffirmation letter to the consumer that must be signed and returned to the retailer.
Michael Wilson, parliamentary assistant to MPP David Ramsay, said Bill 131 is currently under review by parliamentary committee.
“We had quite a few complaints in the riding that dealt with misconduct at the door,” Mr. Wilson said.
Mr. Wilson said he anticipates a comprehensive bill from the Ontario Ministry of Energy and Infrastructure that will adopt some of Mr. Ramsay’s recommendations later this fall. Mr. Ramsay represents the Northern Ontario riding of Timiskaming-Cochrane.
Residents, including Linda Barrett of Ancaster, have complained about unfair marketing techniques used by door-to-door agents. For Ms. Barrett, promises of “price protection” led to a 63 per cent increase in monthly electricity costs after she signed a contract with Universal Energy.
Universal Energy vice president of marketing Jan Nybida said the company has specific training that all agents must pass before being dispatched into the field.
“As well we have OEB regulations that heavily influence any kind of guarantees or promises made at the door to customers,” Ms. Nybida said.
Since 2005, anyone who has signed up for a retail electricity contract has ended up paying more than the regulated rate from a local distribution company, according to figures from energyshop.com.
Energyshop.com founder Ian McClellan said weather patterns and a sagging economy have combined to reduce demand for energy. Subsequently, homeowners who continued to buy energy from a regulated public utility enjoyed stable rates, while those who used an energy retailer paid more.
“For the last three years, the market price for electricity has been gradually declining,” Mr. McClellan said.
Demand for energy spikes during periods of intense heat or extreme cold.
“We haven’t really seen that over the last three years,” Mr. McClellan said.
Mr. McClellan co-founded energyshop.com in 1999 as an independent database of energy rates comparing local distribution companies and retail suppliers. By submitting a postal code, visitors can instantly compare all the available rates in their area.
Universal Energy has continued to grow despite the economic downturn. Operational revenue from natural gas and electricity has grown from $69 million in 2006 to $406 million in 2008 according to the company’s 2008 annual report.
Universal Energy is a licensed member of the Ontario Energy Board and a publicly traded company.
Universal Energy also has a history of consumer complaints and administrative penalties levied by the Ontario Energy Board.
As part of a formal review initiated in September 2007 the board found that in 57 recorded calls with low volume electricity consumers, Universal contravened section 88.4 of the Ontario Energy Board Act, by engaging in an unfair practice as defined by regulations, by making false, misleading or deceptive statements to consumers. According to the board, Universal representatives indicated that the government is cancelling the regulated price plan in May 2008. Universal representatives also said consumers will become subject to the true cost of power and will pay market prices for electricity starting in May 2008.
In January, 2009, the OEB issued a motion for an administrative penalty of $200,000 against the corporation.
Paul Crawford, an OEB spokesperson, said Universal Energy agreed to pay a penalty of $127,500. The company voluntarily agreed to re-train its customer service representatives and entered into a voluntary compliance agreement with the OEB.
The OEB issued a second $60,000 administrative penalty against Universal on April 23. Mr. Crawford said Universal agreed to pay the fine one day later. He said the second penalty came as a result of a CBC Marketplace documentary which recorded door-to-door salespeople using hidden cameras.
Universal Energy says it’s taking provincial regulations seriously.
Ms. Nybida stated Universal currently participates in an agent registry set up by the Ontario Energy Association. The registry tracks agents and allows Universal to record any agent conduct in the field.
“We have very strict training and testing that every agent must take and also pass. We are regulated by the OEB and are also active members of the OEA. Recently the OEA has provided optional training to its members and also additional testing that we participate in as well,” Ms. Nybida stated.
In a January 7, 2009 Toronto Star article, Universal Energy Corporation President and Chief Operating Officer Nino Silvestri downplayed claims of wrongdoing made by the OEB.
"They reviewed about 450,000 calls between 2007 and 2008 and over that period they found 57 were inappropriate," Silvestri is quoted as saying in the Star article. He also noted that of the 57 inappropriate calls, only seven contracts were set up.
While many consumers are calling for tighter regulations, Mr. McClellan said consumers can safeguard themselves by taking the time to understand their contract.
“Any time you sign your signature on anything, you should read everything,” he said. “People don’t realize they’re making about an $8,000 commitment when they sign up.”