PSC to Look at ESCO Service Issues (New York’s Utility Project)

The New York Public Service Commission (PSC) announced on October 18, 2012 that it will begin an assessment of retail natural gas and electricity markets. The Commission Press Release noted concerns regarding energy services company (ESCO) value, pricing and customer information, and said it would be inviting public comments on how to improve the situation.

In a pending Niagara Mohawk rate case, the utility, in response to discovery requests by PULP, disclosed that ESCO cstomers had paid approximately $130 million more for deregulated ESCO service than they would have paid for regulated utility service had they not switched. See ALJs Rule that Differences Between ESCO Charges and Niagara Mohawk Charges are Not Trade Secrets Requiring Confidential Treatment.

ESCOs have been allowed to market electricity and natural gas to retail utility customers for approximately 15 years during which it has been heavily promoted by the PSC. For example, in the early years, customers who switched to ESCOs were given direct subsidies, paid by utility ratepayers, and utilities were given additional ratepayer money – “incentives” – based on how many of their customers “migrated” to ESCO services. Such direct subsidies at the expense of ratepayers were phased out, but indirect subsidy and promotion continues, for example, through PSC publications urging customers to switch to ESCO s, PSC-approved “referral” program offering introductory price discounts, a PSC – funded website, “Power to Choose.” Promotion of ESCO service by utilities through their websites, ultimately at the expense of ratepayers, includes advertising for the ESCO Referral Programs, competitive supplier lists and contact information, and the purchase of receivables and provision of billing and collection services to ESCOs.

In the “ESCO referral programs,” customers are encouraged by utilities to switch to ESCO service with “guaranteed” savings. For example, National Grid urges customers to try its version of a “referral” program, “New Choices”:

New Choices®: A Brief Summary

You can receive a guaranteed 7% discount on your gas or electric supply costs for a two-month introductory period.

If you are a dual-service customer (both electricity and gas), you can receive the discount on each service (7% off electric and 7% off gas). You can enroll for both services at the same time, or you can enroll in one service now and one later.

You can choose a supplier yourself or let us randomly choose one for you.

* * * *

Can I drop out of the New Choices® program?

During enrollment: After you receive the sales agreement, you cancel your participation in the program within three days of receiving the sales agreement by contacting us at 1-800-642-4272 or by contacting your supplier directly.

After enrollment: To end participation in New Choices® after you are enrolled, contact us at 1-800-642-4272 or contact your supplier directly.

There are no penalties or fees for cancellation.

The reduced prices in the New Choices program, however, may only last for the two month discount period. After that, customers receive service under the terms of ESCO contracts, at prices then in force. After that, if they do not quit the program promptly, they may face early termination fees if they switch back to Niagara Mohawk for full service later, for example, after discovering they are paying much more for ESCO service. Although the PSC generally does not set ESCO rates and charges, it issued an order in 2008 approving ESCO charges of up to $150 for early termination.

Also, some ESCO contracts have automatic renewal provisions which give the customer a limited time to switch before a a contract for another term is renewed. At that juncture, for example, near the end of a one or two year contract period, customers may have difficulty comparing what they have been paying for ESCO service with what they would have paid for full service from the utility.

The PSC has a “Power to Choose” website which posts a monthly “snapshot” of ESCO prices. ESCOs report on the 5th of the month what their prices were on the 1st. Under a 2008 PSC order, ESCOs are allowed to change prices without public notice or filing with the Commission.

The PSC press release issued October 18, 2012 states

In the current retail market, ESCOs can compete directly with the utility or can offer options for

consumers that traditional utilities do not offer. These options include products with less price

hedging or certainty than the utility offering, products with more hedging or price certainty than

the utility offering, electricity reflecting a greater percentage of renewable resources than the

utility offering, and value-added services such as home heating equipment repair and

maintenance, airline miles or similar rewards. The Commission does not regulate prices charged

by ESCOs.

While it is possible that some ESCO customers knowingly choose a more expensive option, it appears that many ESCO customers are having difficulty paying their bills. Of the approximately 90,000 final notices of termination sent each month to Niagara Mohawk customers who have arrears, approximately 30,000 are ESCO customers. Also, many low-income customers who are very seriously constrained in their finances are ESCO customers, who are often signed up in door to door solicitations in low-income neighborhoods.

Updates

The PSC issued an Order on October 19 explaining its reasons for considering changes to its rules and policies regarding alternative retail suppliers of electricity and natural gas. The Order annexed a Notice inviting Public Comments and questions to be addressed by the public and interested parties:

 

These questions are designed to elicit comments on each of the concerns identified in this Order, namely: (1) Information for Current ESCO Customers; (2) Data for Potential Customers; (3) ESCO Referral Programs; (4) Low Income Customers; (5) Door-to-Door Marketing; (6) ESCO Contracts; (7) Purchase of Receivables; and (8) Other Proposals. The questions also seek comments on actions this Commission could take to improve the operation of the retail energy markets in New York for the benefit of customers. We encourage Staff to engage consumers in order to seek input on these issues and to consider whether additional public input, including through public hearings, is necessary.

 

The Notice inviting comments requests the filing of initial comments by December 27, 2012, with replies due January 13, 2012.

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