ESCOs Claim their Prices for Electric and Gas Utility Service are “Trade Secrets” that Can’t be Revealed by NY PSC

Right now, there is a quiet battle occurring out of the sight of most energy consumers in New York. The battle is between the Energy Services Company (ESCO) industry, and the Public Service Commission’s (PSC) Records Access Officer (RAO), over whether or not ESCOs can keep their price information secret and out of the public eye. It may seem odd that an industry that insistently trumpets it saves customers money would want to keep the actual prices they charge secret — could anyone imagine Wal-Mart keeping its prices secret? — but that is the reality of the ESCOs’ position, a position the PSC’s RAO has decided is legally indefensible.

On March 16, 2016, the Public Utility Law Project filed comments supporting release of the historical pricing data collected from ESCOs by the PSC, pointing out that one of the basic characteristics of a competitive market is price transparency, and agreeing with the RAO that ESCO prices are not “trade secrets” that can be exempted from disclosure under New York’s FOIL law.  A decision of the appeal by the PSC Secretary, who extended the time for a decision on the appeal , is expected by April 7, 2016.  Decisions of the Secretary on FOIL appeals are appealable directly to court, without a decision by the Commission.

I. The Reality of ESCO Pricing

Many customers often find to their regret that ESCO promises of bill savings are hollow — a “bait and switch” — with tiny savings for two months, or a similarly brief period, followed by a shift to uncapped variable rates.  These variable rates may change monthly and are difficult for customers to compare with rates of the traditional utility, whose rates now fluctuate monthly under PSC policies that make the utility’s prices volatile and unpredictable.  However, the available evidence shows that, in general, residential ESCO customers pay more for ESCO service, notwithstanding claims of savings or short term small discounts.

Residential customers are not alone in losing instead of saving money when shifting to an ESCO for purchase of electricity or gas.  URAC, a consultant to nonresidential customers, generally advises business customers not to switch to ESCOs:

SHOULD I PURCHASE FROM AN ESCO?  Purchasing from an ESCO has its pluses and minus’s. Knowing exactly what the LDC charges for commodity is almost impossible to decipher. Therefore, it is extremely hard to compare costs. ESCO’s use this to their advantage by claiming that you will save. In addition, we find that ESCO billing is often problematic and their customer service departments are not consumer friendly. ESCO’s, unlike a LDC, do offer fixed pricing which many properties like because they can fix their budget. However, that does not mean you will save money.**** For the most part, URAC does not recommend that the average client purchase from an ESCO. We have found that, in time, over ninety percent (90%) of ESCO billing has resulted in the customer paying more for service. “Buyer Beware” is good to remember if you are considering this option. [Emphasis added.]

Generally, and except for the brief introductory pricing plans that may last for only two months, the federal Department of Energy’s Energy Information Agency (EIA) data shows that residential customers are paying considerably more for electric and gas service from ESCOs than they would pay had they not switched from full utility service.    This is consistent with evidence obtained by the Utility Project in Niagara Mohawk electric and gas rate case discovery, which found that from 2010 to 2012 Niagara Mohawk’s customers who switched to ESCOs paid $128 million more for ESCO service.

II. The 2014 Requirement for ESCOs to Report on Prices Including Average Historical Prices

In a 2014 review of ESCO service, the PSC directed more price reporting by ESCOs, including summaries of their average historical charges for electric and gas service. Most of the ESCOs began filing their reports with the PSC under claims that the information about the prices they charged consumers are confidential or “trade secrets” that cannot be revealed to the public by the PSC.  The PSC initially did not rule on requests for confidential treatment when the data was filed by ESCOs, and so the price histories of the ESCOs claiming they are “trade secret” are not publicly available in the online case file for PSC Case 12-M-0476 .The information gathered by the PSC in these price surveys is only as good, and useful to consumers, as the accuracy of the data reported by ESCOs.

Another way to check on ESCO prices is to compare whether customers who take ESCO service are paying more for the ESCO portion of utility service than they would have paid if they had not switched. Utilities generally purchase the receivables of ESCOs and collect ESCO charges the same as charges of the utility for its own utility services.  Thus, the billing utility has both the data of what the ESCO charges are and what their own charges would be.  Indeed, under a provision of the 2002 amendments to the Home Energy Fair Practices Act, utilities in some circumstances are required to calculate the lesser of  ESCO charges or what the utility would charge, when customers face termination for nonpayment.

Some utilities are now making bill calculators for their full bundled service available at their websites, though access may be limited only to current ESCO customers. It is thus possible for an ESCO customer, by putting in the dates and amount of service used, to compare her bill with what the utility would charge a customer who has not switched to ESCO service.  Such data compiled by the utility based on actual charges paid by ESCO customers may be more timely and more accurate than the average historical data prepared by ESCOs which is the subject of the FOIL “trade secret” dispute.  Indeed, Con Edison has a publicly available online bill calculator for its bills for use by tenants whose landlords sell them electricity which is not supposed to cost more than what Con Edison would charge. It appears  that the same calculator which tests whether a landlord’s bill for submetered service is more than Con Edison would charge its residential full service customers could also be used to compare an ESCO bill with what Con Edison would have charged for the same amount of service over the same period of time.

Because the utilities buy ESCO receivables and collect the ESCO bills from customers, it is also possible through discovery of utility data in rate cases to ascertain with precision the differences between ESCO bills and what a customer would have paid had she not switched. An analysis of two full years of such data obtained by the Public Utility Law Project in a Niagara Mohawk d/b/a/ National Grid rate case found that customers paid $128 million more for ESCO service.  See ESCOs Oppose Release of Electricity and Gas Bill Comparisons, NYUP March 14, 2014.

III. RAO Decision 16-01 Removes “Trade Secret” Protections from ESCO Pricing – Making Them Publicly Available

Prior to the 2014 decision requiring ESCOs to report their price filings, rather than require ESCOs to make public price filings of rates and rate changes with the Public Service Commission, the PSC allowed ESCOs to communicate a price  to a PSC sponsored a  “Power to Choose” website, which may not actually have been the price charged by the ESCO to its current customers.  Additionally, despite a 2010 law requiring affirmative customer consent to material changes in ESCO service agreements, the PSC has determined that a change is price is not material.  Thus, ESCO customers who start out with small savings may over time be migrated to much higher rates later on.

This conjunction of unreported prices and unchecked ability to change prices during a customer-seller relationship generated thousands of unresolved complaints to utilities, the PSC, and other public officials.  However, when customers complained about thos excessive prices, the PSC apparently did not decide the matter, even though the complaint adjudication process of the Home Energy Fair Practices Act, contained in Section 43 of the Public Service Law, was extended to ESCOs in 2002.

Due in part to the tens of thousands of customer complaints, and the PSC’s February 25, 2014 Order, the Department of Public Service Records Access Officer (RAO) eventually issued a FOIL decision on Feb. 1, 2016, RAO Decision 16-01, in which it ruled that data provided under claim of confidentiality by ESCOs in response to the PSC directive to report their prices is not a genuine trade secret, and that the pricing information filed with the Commission by the ESCOs should not be sealed and should be open to the public.

In response, ESCOs are appealing the RAO determination. See for example the Comments of the Retail Energy Supply Association (RESA). A trade association of some ESCOs, RESA includes holding company ESCO affiliates of New York utilities such as Con Edison (Con Edison Solutions), NRG, and Constellation. It is anticipated the appeal will be decided in early April, at which point the ESCOs will no doubt head to court to attempt to overturn a decision supporting the requirement that their price filings be transparent to the public and their customers.

IV. The Legal Status Quo Up to Now

For many years, the New York State Public Service Commission (PSC) has allowed alternative energy services companies (ESCOs) to avoid public filing and regulatory review of their rates and contracts for the sale of “unbundled” electricity and natural gas utility service.   Instead of the long-established statutory scheme for file rate regulation designed to assure that all rates, charges, terms and conditions of service are “just and reasonable,” which remains on the lawbooks, the PSC administratively substituted its system in which ESCOs set and change their prices and rules and contracts at will, without notice, without advance filing, and without PSC review for reasonableness and approval of rates, rate changes and contract provisions. With the PSC’s February 23, 2016 Order and subsequent activity, it is hoped this situation may be trending back toward consistency with State law and the duty to provide service at just and reasonable rates.