Consumers buy unproven ESCO claims of cheap rates

 

Energy service companies are on a roll in New York — even though the only thorough study ever done of their pricing shows they cost consumers a lot of money.

The companies — known as ESCOs — have a 26.1 percent market share among residential electricity customers in Con Edison’s territory. As of last April, 730,997 Con Edison residential customers were buying ESCO electricity, according to data released Dec. 11 by the Public Service Commission. That’s a 12.4 percent increase over the 650,093 energy service company customers on Con Ed’s lines in April 2012.

The numbers are similar statewide: ESCOs have a 24 percent market share among residential customers of New York’s big electric utilities. They now serve 1.39 million residential electricity customers in the state, about 22 percent more than a year ago.

Some consumers might like such ESCO deals as level monthly electric and gas bills, or the chance to buy hydro or wind power. But ESCOs have achieved some of their growth with hard-core sales tactics carried out by telephone solicitors and teams of door-to-door sales people promising low prices. The state this year has investigated at least two, Buy Energy Direct and Liberty Power, for allegedly dubious sales practices. A release on the Buy Energy Direct probe is here; a release on the Liberty Power probe is here.

As for the prices: A Public Utility Law Project study completed in 2012 as part of a rate case for the upstate Niagara Mohawk/National Grid utility found that most ESCO customers had higher gas and electric bills. On average, electric customers using ESCOs paid an extra $413 over a two-year period; gas customers paid an extra $235.

Not everyone lost out — ESCOs lowered bills for 16 percent of electric customers and 8 percent of gas customers, PULP found.

To understand what ESCOs offer, you need first to understand your Con Ed bill. It’s divided into two parts — supply and delivery.

When it comes to delivery, you have no choice. Con Edison delivers your electricity and gas through its wires and gas mains. Delivery rates are set by the state.

You do have a choice on the supply sections of your bill, since Con Edison no longer generates electricity and does not produce natural gas. Since deregulation took effect in New York in 1999, dozens of companies have sprung up offering to supply gas and electricity to customers of Con Edison and other utilities.

If you decide not to choose, you’ll pay Con Edison’s default rates, which are at least competitive with ESCO prices. If you pick an ESCO, you’ll still get a Con Ed bill, with the ESCO charges on a separate line.

Some ESCOs guarantee rates month-to-month. That’s a good deal if energy prices are rising, but a bad deal if generated electricity and natural gas prices drop, as has happened over the last few years.

Others cash in on consumers’ sensitivity to the environment by offering “green” electricity. There’s a catch: Most of New York’s electricity is produced inside the city, by natural-gas fueled generators. The companies offering green electricity contract with upstate operators of wind farms or hydro plants, and then swap those contracts for deals with conventional generating plants nearer their customers. The state’s electricity transmission system simply isn’t capable of shipping green power from upstate all the way to the city.

So the reality is that if you buy green electricity, the electrons arriving at your electric sockets come from the same place as the ones used by your neighbor on the Con Ed default plan.

ESCOs’ price impact in Con Edison territory is an open question. PULP was unsuccessful in having a similar study done as part of Con Ed’s current rate hike request. The Public Service Commission is trying to figure out ways to improve ESCO pricing information.

 

 

About Bill Sanderson

I'm a New York-based journalist, and a former reporter at the Concord Monitor in New Hampshire, the Bergen Record in New Jersey, and the New York Post. My work has appeared in The Wall Street Journal, MarketWatch.com and Politico New York. Twitter: @wpsanderson.
This entry was posted in Con Ed, consumer advocacy, Deregulation, energy service companies, National Grid, Public Service Commission, PULP. Bookmark the permalink.

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