A lawsuit that could eventually include thousands of New Jersey residents as plaintiffs is charging an alternative electricity provider with consumer fraud for allegedly luring customers by promising low electricity rates, then dramatically raising prices following the bitter winter cold snap.
Fairview-based Systrum Energy devised a "classic bait-and-switch scheme," according to the lawsuit, which was filed last month in Superior Court in Bergen County. Chris Lauver of Mercer County and Bruce Yabko of Monmouth County filed the lawsuit, which seeks class action status and possibly a multimillion-dollar claim, their attorney said.
Monetary damages in New Jersey are not determined until after a verdict.
The lawsuit alleges that Systrum exaggerated claims of energy savings "in addition to falsely representing (that) customers do not have a contract with defendants when, in fact, they do." Customers who wanted to switch back to their traditional utility were told the process takes up to 30 days.
Alex Tully, a Systrum owner, said he could not comment but maintained prices were low for nearly two years before the polar vortex sent them shooting up. In a recent interview, he said the price spike was sudden and unavoidable.
The suit also names as a defendant Keil & Sons, which it claims is doing business as Systrum Energy.
As one of many alternative suppliers in New Jersey, Systrum purchases electric on the volatile spot market, which is vulnerable to market fluctuations. It offers variable rates in contrast to the fixed rates state-regulated utilities offer, which are generally higher but protect consumers against fluctuations.
Systrum has been in business since 2006 and until recently advertised that its customers could save up to 20 percent off what the utilities charge. The company'swebsitenow says it has stopped accepting enrollments "due to the volatility being experienced in the current energy market."
Last September, third-party supplier Energy Plus was ordered to pay $14 million in a federal lawsuit in New York involving similar claims. In that case, Energy Plus which has a New Jersey affiliate allegedly tricked thousands of customers into signing contracts by luring them with promises of rewards.
More than 500,000 New Jersey residents have switched from their regulated gas and electric utilities to the many licensed but unregulated third-party providers for what had been modest monthly savings. Companies like Systrum can replace New Jersey's four major utilities only when it comes to supplying the electricity. The large utilities still maintain the infrastructure needed and respond to outages and emergencies.
The frigid winter sent energy prices soaring, leaving thousands of third-party provider customers with bills that are two and three times higher than what one of the major utilities would have charged.
Lauver, one of the plaintiffs in the case, had switched to Systrum from Public Service Electric & Gas in late 2012. Systrum had been saving him about 10 to 20 percent on his electric bills, according to the suit. But Lauver's late January bill erased all that. It showed a 70 percent increase in the kilowatt per hour price from the previous month, translating into a $532 bill. It was more than 50 percent higher than what PSE&G would have charged, the suit said.
Since December,hundreds of complaintshave streamed into the state Board of Public Utilities about third-party providers. Systrum had by far the most with 211, said BPU spokesman Greg Reinert.
Matthew Mendelsohn, one of the attorneys for the plaintiffs, said it was Systrum's deceptive advertising, not its business model, that led to legal action.
"If there was a full disclosure and people knew what they were getting into ahead of time, then it's their risk," said Mendelsohn, of the Roseland firm Mazie Slater Katz & Freeman.
"In this case, people did investigations, they contacted the company directly. They were doing their due diligence and were just taken."
Mendelsohn estimated Systrum has several thousand customers, who may be eligible to receive damages if a judge accepts the class action filing.