Beware offers from power retailers

That's what Shelley Pidhirney did, and it has proved to be a terrible financial mistake.

A month after she banked that $25, she noticed that her hydro bill had doubled, to $160 from $80. That's because her rate - the amount she paid for each kilowatt-hour - was twice what it had been.

The local hydro utility told her to talk to the energy retailer, the third-party distributor that had actually sent her the cheque. It turns out that by depositing it, she had opted into a five-year, fixed-rate contract with the company. Not only is the practice legal, it's far more widespread than most consumers realize.

It has become a hot topic on the Internet. Google any independent energy retailer on Facebook - be it Direct Energy, Summitt Energy or Just Energy - and you'll be sure to find Facebook groups and forums full of irate customers.

That Ms. Pidhirney's surprise cheque had strings attached was apparently explained in fine print on the back, which she says she never read.

That makes her one of many Canadians suffering from energy-bill shock after unwittingly signing up with an independent energy retailer.

Some are approached by door-to-door salespeople others receive prepaid credit cards where the first transaction is the equivalent of signing a contract or, as in Ms. Pidhirney's case, cheques.

Customers are promised fixed rates that are usually lower than their local utility's market rates. The problem is, even if the market rate drops substantially, people are stuck paying their fixed rate - for the entire length of the contract. If they try to cancel, they are told that they must pay a cancellation fee, ranging from a few hundred dollars to upward of $1,000.

After fielding hundreds of complaints from customers each week about the practices of energy retailers, Energy Minister Brad Duguid announced a change to the Ontario Energy Board's rules that will take effect on January 1 to protect consumers, including easy ways to cancel contracts without paying exorbitant cancellation fees.

But there is a fair chunk of winter to get through before then and thousands of customers in British Columbia, Alberta, Saskatchewan, Quebec and the Maritimes who feel duped.

Some grudgingly keep paying. Others cut loose, and stomach the penalty. And still others fight it in court. Your best bet? It all comes down to number crunching and how much you care about your credit record, experts say.

Ms. Pidhirney, who has a tight monthly budget, had to ask her mother for help when she saw her summer hydro bills double. She paid the third-party rate for more than two years, before making a concerted effort to cancel the contract. The company told her that she would have to pay a $700 penalty.

"I was so stressed out all the time that [they were] going to shut off my power," she says.

It was not until she complained to her local MP and had him call the energy retailer that she was finally free - without having to pay a cancellation fee - though she had paid almost $2,000 above the local utility's rates along the way.

Sungwon Jang, a 26-year-old customer-service administrator in Ottawa, was fine with the rates he was paying after he got into a contract with an independent retailer - he had never paid for hydro before he had moved to Canada from South Korea in 2004 so there was no point of comparison for him.

He made all his payments on time and then, when his housing lease was up, he cancelled his service with the local hydro company and flew home for a few months.

He returned to Ottawa a few weeks ago to find a letter from a collections agency. It explained that he owed an independent energy supplier $655 as a penalty for canceling his fixed-rate plan before the five-year contract was up.

The cancellation fee was never explained by the door-to-door salesman who told him about the plan, Mr. Jang says. And he says no one ever called him to follow up on the deal after the visit.

"I won't pay the penalty," he says. "I'll argue that contract is null and void because there was no confirmation."

Mike Holman, who runs the personal finance blog Money Smarts moneysmartsblog.com, recommends against Mr. Jang's move to hold off on payments - even if you plan to fight the charges. "I wouldn't advise it because it will affect your credit score," he says. "They're eventually going to send it to collections. It's not a very good solution."

Mr. Jang says he may hire a lawyer to fight the fee - but even that could be tough.

Though Don Revoy, a Guelph, Ont., paralegal, has handled hundreds of legal cases against energy retailers in the past two years, he says the legal fees aren't worth it.

In some cases, he has spent months fighting retailers in court on his clients' behalf, but only when fraud is involved such as forged signatures on contracts.

Since the way the energy retailers operate is legal - at least for now - Mr. Revoy says it's usually cheaper to just cough up the cancellation fee.

Not to mention liberating.

A year ago, Colin Crawford's wife answered the door when representatives from an energy retailer came knocking at their Barrie, Ont., home.

They told his wife that "the energy rates are going up" and that with their fixed-rate plan, "they'll be a lot cheaper."

Not so.

"I just got the [hydro] bill in. My wife said, 'You're going to want to get jumper cables for your heart.' "

He was used to bimonthly bills of about $450. His latest charged him $957.

While he would like justice, Mr. Crawford says his next call to the company will not be to complain, but to make arrangements to pay the cancellation fee. Now, when a salesperson comes to his door, he threatens to let the dog out on them.

"The bottom line is you shouldn't sign anything at the door. Whatever the deal is, you can get it tomorrow or the next week once you've researched it," Mr. Holman says.