Energy companies with variable rates look to refunds to keep customers

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As variable rate electricity bills soared through the frozen roof this bitter winter, companies that sold those rate plans came under scrutiny. In response, some of them are now offering refunds and rebates, and installing rate caps to help their customers — and to keep them from bolting for another electricity supplier.

IDT Energy, a subsidiary of Genie Energy Ltd. of Newark, N.J., has paid more than $2.5 million in rebates to its 427,000 customers as a goodwill gesture for the unprecedented high bills. The company did not gouge customers, said IDT Energy spokesman Bill Ulrey. Instead, the high rates reflected the prices it had to pay to supply electricity in the middle of a particularly cold winter.

“We voluntarily decided to cushion the impact of this winter’s spike in energy costs by offering goodwill rebates to customers who called or emailed us,” Mr. Ulrey said in an email.

The company anticipates refunding more customers as it works through its backlog of complaints.

About one-quarter of IDT Energy’s customers are Pennsylvanians, and most of the rebates went to customers from Pennsylvania. More than 10,000 customers contacted the company to complain about high bills this winter.

Pennsylvania’s Public Utility Commission received more than 1,500 billing complaints about competitive electricity suppliers in January and February, about 200 more complaints than it received in all of 2013. The complaints stemmed from abnormally high electricity bills — some three times larger than normal — as a result of a polar vortex that drove up prices on the electricity spot market.

Variable rates, unlike fixed rates offered by default electric utilities such as Duquesne Light and West Penn Power, rise and fall with the daily energy market. Often, this results in savings for customers, as companies with fixed rates tend to recoup high costs in the winter with higher rates in the off-season.

But this winter, customers with variable rate plans got frostbite.

At the time, PUC vice chairman John Coleman expressed concern that the well-publicized problems could hurt the competitive marketplace.

"We pride ourselves in having a strong, robust marketplace," Mr. Coleman said last month. "These situations, real or perceived, really don't bode well for us."

And the marketplace has indeed suffered as many customers are leaving to return to their default utility providers.

In the beginning of March, 39.3 percent of Pennsylvania electricity customers had chosen an electricity supplier.

In less than a month, that number has dropped to 38.8 percent, the largest such decline since Pennsylvania’s electricity marketplace was deregulated in 2010. About 10,000 customers have abandoned the competitive marketplace in favor of their default utility.

The number of consumers who have dumped variable rate plans may be much higher, as many likely have switched competitive suppliers and adopted a fixed-rate plan. The PUC keeps track only of the number of customers who have switched to a competitive supplier, not the balance between fixed and variable rates.

Companies such as IDT Energy are taking steps to stem the tide.

PUC spokeswoman Jennifer Kocher said the commission has heard from a number of customers that they have received refunds from their suppliers.

“Varies from supplier, the consumer and the bill,” she said.

Direct Energy, a Houston-based energy company owned by British energy conglomerate Centrica plc, has introduced rate caps that prevent electricity rates from climbing above 14.5 cents per kilowatt-hour. This past winter, some rates climbed well over 20 cents per kilowatt-hour.

The company, which offers only fixed-rate plans in Western Pennsylvania but has variable rate plans elsewhere, also has created month-to-month contract terms that gives consumers more flexibility.

IDT Energy also has pledged to review its policies in light of the high complaint volume.

“We have heard our customers loud and clear, and learned from our experience this winter,” Mr. Ulrey said. “Based on the input they offered, we are working on new programs that will enable us to better protect customers from sudden increases in wholesale costs.”

NRG Energy, based in Princeton, N.J., absorbed a lot of the rising costs during the spike in the spot market to prevent its customers from experiencing high bills, said spokesman Dave Knox. The company also is working with consumers to make sure they have the best plan to fit their needs, whether that's a fixed or variable rate.

Even if companies voluntarily adapt, more regulations are likely.

The PUC and Pennsylvania Attorney General’s office are investigating the high variable rates, and the Pennsylvania General Assembly has held a number of hearings about the electricity bills.

Some representatives have proposed rate caps for all variable suppliers.

The House Consumer Affairs Committee will hold a hearing in Pittsburgh next Thursday to continue its investigation of variable rate hikes.

Michael Sanserino:, 412-263-1722 and Twitter @msanserino.

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