Will the New York PSC Assure Just and Reasonable ESCO Service

According to a news report, the New York Public Service Commission (PSC) is investigating alleged deceptive practices of an energy services company, Ambit Energy.  See Larry Rulison,    State regulators launching investigation into Ambit Energy’s tactics, Albany Times Union, May 3, 2015.  The investigation is being conducted by the Department of Public Service, the operating agency of the PSC, through the newly filled Consumer Advocate’s office.

The general thrust of many Ambit customer complaints received by the PSC, which prompted the investigation, is that customers were promised savings or rebates on the electricity or gas portion of their electric or gas service but claim they did not receive rebates promised in an original contract, or were unknowingly switched to a monthly variable rate plan which exposed them to prices much higher than what they would have been charged if they had not switched to ESCO service.  In a September 2013 federal complaint against Ambit in the Southern District of New York, it was alleged that around January 31, 2012, Ambit required all customers in a guaranteed savings plan to affirmatively elect to remain in that plan, and otherwise they were defaulted into the variable rate. The Second Amended Complaint alleged

[three violations of] the Energy Services Company Consumers Bill of Rights, N.Y. G.B.L. § 349-d, a relatively recent New York consumer-protection law targeting abuses in the energy services market; one under New York’s general consumer fraud statute, N.Y. G.B.L. § 349; and one under New York common law. In particular, Plaintiffs allege: (1) violations of Section 349-d(6)’s requirement that all material changes in contracts for residential energy services be expressly consented to by consumers …; (2) violations of Section 349-d(7)’s requirement that all variable charges in contracts and marketing for residential energy be clearly and conspicuously delineated …; (3) violations of Section 349-d(3)’s prohibition of deceptive acts in the marketing of residential energy services …; (4) violations of Section 349’s general prohibition of deceptive business conduct …; and (5) unjust enrichment ….

The case was dismissed for lack of federal jurisdiction in September, 2014.  Simmons v. Ambit Energy Holdings,  LLC, No. 13-CV-6240 (JMF) (S.D.N.Y. Sept. 30, 2014).

Three years after that original complaint, and almost nine months after the case was dismissed, a Commission inquiry is now underway into the alleged practice of switching customers automatically from a guaranteed savings plan to a variable rate plan without affirmative consent.  It  may focus on whether customers were adequately notified they would be switched to a monthly variable rate plan which stated no price at all for the ESCO service, or whether the transfer of customers into the variable price plan required more than mere notice, i.e., express affirmative consent.  Judging from past practice however, it is unlikely the inquiry of the PSC will decide whether the rates and charges of Ambit Energy were unjust or unreasonable. 

I. Why Were Customers Told To Switch to ESCOs?

The PSC at great expense — estimated at more than $100 million — promoted the idea that customers should shop for presumably less expensive electric service from alternative ESCO gas and electric companies, whose rates, terms and conditions the PSC largely chooses not to regulate. Apparently the ideology was that if the PSC set the rates of service from the traditional utility, competitive companies would need to provide cheaper or better service in order to win and keep customers.  When that did not work, and customers did not switch, for many years the Commission promoted ESCO service and actually required all the utilities to have and advertise “ESCO referral programs”, under which ESCO rates were set to be slightly less for a two month period before switching the customer to other rate options.  See Ken Belson, An Alternative to Con Edison REVs Up its Sales Force, The New York Times, August 31, 2008 (“ESCOs — eager to capitalize on fears over high fuel prices — use mass mailings, Web sites and door-to-door salespeople to recruit customers from Con Ed by promising they will save 7 percent on their supply cost for the first two months, and avoid taxes on the delivery of that supply.”)

II. The Results of Switching

Generally, and except for the brief introductory pricing plans, residential ESCO customers have paid considerably more for electric and gas service than they would have paid had they not switched.  According to federal EIA data, New York ESCO customers paid 20.7% more for electric supply in 2013 (the latest data available) than they would have paid had they not switched.  This is consistent with other findings based on the Utility Project’s Niagara Mohawk electric and gas rate case discovery.

III. A Marketplace Without Effective Regulation

The Commission relaxed its regulation of new utility companies in its 1996 “Vision Order” and generally has not exercised its regulatory power to determine whether all rates, charges, terms and conditions of ESCO service contracts are just and reasonable.  One notable exception to this regulatory forbearance was to direct ESCOs to comply with the Uniform Business Practices, at page 18 of the 2010 Order adopting them.  However, the PSC has never levied monetary penalties under Section 25 of the Public Service Law for any ESCO violation.  Also, in the Order adopting the “Uniform Business Practices” the PSC did not require express consent of the customer to an ESCO renewal contract that changes the rate, apparently not deeming a rate change to be “material” under the “ESCO customer bill of rights.”

Sadly, New York courts have held that the fraudulent and deceptive practices law, General Business Law § 349, is not meant to protect the gullible and uneducated. See Using the ‘Reasonable Consumer’ Rule in Deceptive Practices Litigation, New York Law Journal, Dec. 28, 1998. In fact, the PSC’s “relaxed” regulation of ESCOs may actually provide ESCOs with defenses when practices are challenged in court, because the PSC in general has “primary jurisdiction” over disputes involving charges for electric or gas service.  Also, the Commission’s “ESCO Referral Program” was itself likened to a “bait and switch” in which customers desperate to save money on utility bills signed up for the PSC sponsored program, only to be switched to higher priced service after the “bait” of an introductory price lapsed.  Based on this history, it is unlikely the PSC would crack down on ESCOs that continue to do this consumer-unfriendly switching on their own, so long as there is some notice regarding changes in rate plans.  And, remember — notice that your future rates are “variable” is not notice of what the rate will be.

IV. A Marketplace in Need of Cleansing and Accountability

In the absence of effective PSC regulation, ESCOs are allowed to engage in “puffery” in convincing customers to buy, so long as the terms of a contract are eventually divulged (in the contract boilerplate) and when the terms and conditions are on file at the PSC.  As a result there is inadequate protection of consumers, particularly the elderly or other vulnerable people desperate for energy bill savings who respond to ESCO telephone or door to door or mail solicitations which typically invoke support of the PSC and  utilities for shopping. See ESCO Claims Locking In Its 28% Higher Rate Is “Smart” And “Practical”, NYUP, February 11, 2010.

Utility service is not just some other commodity where “let the buyer beware” is the rule

The bills for ESCO service are sold by the ESCOs to the utilities at a slight discount to face value.  The utilities then collect the receivables as their own, under threat of termination of service as a bill collection measure.  When high charges for ESCO service  lead to threats of service shutoff and actual shutoffs, the public interest in continued electric service at just and reasonable rates is adversely affected. Accordingly, the Commission should look beyond whether customers get notices they are being shifted to a new rate plan which does not say what the price will be, and determine whether charges have become unjust and unreasonable, and based upon fraudulent and deceptive sales practices.  

It will be interesting to see if the PSC will scrutinize whether Ambit Energy’s rates and charges were just and reasonable, or will focus only on a much narrower inquiry, whether customers received adequate notice they would be shifted to an unspecified monthly variable rate if they did not affirmatively object.

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



Larry Rulison, Blindsided by Energy Rate Hikes, Albany Times Union, May 5, 2015.

Ambit Energy under investigation,  13WHAM ABC, Rochester NY, May 5, 2015.

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