PSC Issues Order Modifying ESCO Regulatory Regime to Address Lack of Small Customer Benefit and Abuses

It is said that “The arc of the moral universe is long, but it bends toward justice.” At the New York State Public Service Commission (PSC)  the arc may be at least 15 years longer than elsewhere, but at last it appears to be bending toward  just and reasonable terms and conditions for ESCO customers.

In 1997, the PSC began allowing alternative energy services companies (ESCOs) to sell the “commodity” portion of electric and gas service separately from the “delivery” portion provided to all customers by the utilities that operate the wires and pipes.  Customers who remained with the utilities for full “bundled” service continue to receive commodity service from the utility at regulated rates which must be “just and reasonable.”

Just as dangerous conditions result when electricity is separated from wires and natural gas from pipes,  trouble followed when ESCOs began to sell “commodity” separate from “delivery.” A myriad of problems surfaced, ranging from lack of HEFPA protection (until 2002 when the legislature corrected that PSC omission), customers being switched to ESCOs without knowing and willing consent, fraudulent and deceptive ESCO practices, lack of ESCO price transparency, “bait and switch” marketing, higher ESCO bills, higher complaint rates regarding ESCO customer service, and more shutoffs by the distribution service utilities when customers did not pay high ESCO charges purchased by the utilities and collected under threat of service termination.

For further background, see some of our prior posts on ESCO issues

 

In a long-awaited Order issued February 25, 2014, the PSC  issued a major order in its proceeding to assess the functioning of the retail energy markets.  The Order will reform the regulatory regime for retail electric and gas services provided by energy services companies (ESCOs) and is a major step forward, and may go far in righting some of the worst aspects of the ESCO regime that have harmed customers, particularly vulnerable low-income customers recruited to shift to ESCO service with false claims of savings, with harsh consequences.   The Commission found that

[C]ompetitive retail energy markets are functioning well for large commercial and industrial customers, including providing these customers with a wide range of energy-related value-added services.3 Conversely, the investigation reveals that with few exceptions, the retail energy markets serving residential and small non-residential customers have failed to provide similar energy-related value-added products or services to these “mass market” customers.  Significantly, the residential and small non-residential markets have also generated a number of complaints concerning ESCO marketing practices.

 In light of the apparent scarcity of energy-related value-added products and services available in the residential and small non-residential markets; the high complaint rates; and what appears to be a large number of active ESCOs generating revenues by offering consumers little more than higher prices, it is apparent that these markets are not providing sufficient competition or innovation to properly serve consumers.

* * * * We find that as currently structured, the retail energy commodity markets for residential and small non¬residential customers cannot be considered to be workably competitive. Although there are a large number of suppliers and buyers, and suppliers can readily enter and exit the market, the general absence of information on market conditions, particularly the price charged by competitors, is an impediment to effective competition (i.e., neither buyers nor sellers have good information about prices). Additionally, Staff’s review shows a large variation in the price charged for energy commodity services with no value-added attributes, a result that is inconsistent with a workably competitive market. Despite the large number of ESCOs, there seems to be almost no competitive pressure to innovate and provide value-added services or products to residential and small non-residential customers.

Staff’s investigation also showed that, with the exception of electricity from renewable sources, energy-related value-added products or services were generally very limited. Several ESCOs offer loyalty rewards, such as a cash rebate for customers who purchase service for a full year. Other ESCOs offer products with a price fixed for more than 12 months, which may provide important customer benefits. Very few ESCOs offered energy-related value-added services to mass market customers such as demand management programs or tools, voluntary dynamic pricing programs or tools, or energy efficiency measures.

* * * * [T]he data we have reviewed show that residential ESCO customers in New York State, as a group, have not benefited in recent years in comparison with what they would have paid if they were full service customers of the utility.

Reforms adopted in the ORDER TAKING ACTIONS TO IMPROVE THE RESIDENTIAL AND SMALL NON- RESIDENTIAL RETAIL ACCESS MARKETS  include:

ESCO referral programs will be halted.  For many years, at the PSC direction, utilities were required to run “ESCO referral programs” to encourage customers to switch to ESCO service.  ESCOs offered slight price reductions for two months and then shifted customers to new rates not disclosed when the switch to ESCO service was authorized.

No shutoff for nonpayment of higher ESCO charges.  Many low-income customers desperately seeking relief from New York’s high utility rates were induced to switch to ESCOs, which ultimately added to their financial problems and increased terminations when the utilities collected the higher bills.

ESCOs selling commodity only must guarantee savings to low income customers.

Utilities required to create online bill comparison calculators on their websites.  This will enable ESCO customers to compare what they pay for ESCO service with what they would have paid had they not switched to an ESCO.  Customer bills containing charges collected for ESCO service must include information about the bill comparison calculator.

Historic price reporting of actual charges to be posted at PSC website.  This would facilitate comparisons of various ESCO company rates based on their past price performance, if they are providing commodity only, without value-added services.  This is a major improvement.  It could, however.  encourage companies that mark up commodity prices to offer some inducement to avoid the price reporting requirement.

ESCOs required to provide service at the actual prices they post at the PSC website.   Under traditional utility regulation, all prices must be filed, no price other than the filed rate can be charged, and under PSL § 75. no charges can be collected that are not approved by the PSC.  It has never been finally resolved in the courts whether the ESCOs that sell gas and electricity are gas corporations or electric corporations whose facilities are their contracts.  Currently the PSC websites posts prices given by ESCOs regarding their reported rates on the first day of the month.  The ESCOs had been allowed by the PSC to charge other prices and change their posted prices from those reported.

Marketing reforms including third party verification of customer switching of service to ESCOs.  This was in response to many customer complaints that their service was switched without their knowing and willing agreement.

The PSC also initiated a new phase of the case to explore ways to encourage the ESCOs to provide “value-added” energy services to customers  instead of simply remarketing  gas or electric commodity supply.  The Commission issued a Notice Seeking Comments in response to that initiative and a number of follow-on issues.

AARP and the Utility Project submitted comprehensive comments and reply comments in early 2013, urging the PSC to address these issues.

 

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