Fed up state regulators end energy service companies’ ripoffs

 

Say goodbye to the energy service companies that promise a deal on your home’s Con Edison bill: New York regulators say they’re a ripoff, and will effectively shut them down.

It’s a big move by the state Public Service Commission. A commission order issued February 23 bars energy service companies from signing up new customers unless they guarantee their prices are equal to or lower than utilities’ full-service plans, or guarantee that 30 percent or more of their product comes from renewable sources like wind and solar.

The new rules mark the failure of the state’s two-decade old policy of offering consumers choice in their electric and gas bills. Having a choice of electricity or gas suppliers was supposed to save everyone money. Instead, study after study shows that energy service companies – ESCOs, for short – cost consumers big bucks.

ESCOs simply can’t compete with the default plans of Con Edison, National Grid and other utility companies. PSC Commissioner Greg Sayre explained why: “Both the ESCO and the utilities are buying the energy in the same wholesale market.” Con Ed resells the electricity or gas to its full-service customers without markup. But ESCOs have marketing costs and other overhead, Sayre noted. That’s why ESCOs almost always charge more.

Sayre said letting ESCOs continue to sell if they guarantee lower prices leaves an opening if some company really does have a better deal. “Maybe somebody has got a secret sauce,” he said. But he and other PSC commissioners expressed doubt the ESCO industry can promise lower prices.

“The market is simply not a competitive market,” said PSC chair Audrey Zibelman.

New York law requires the commission to assure consumers just and reasonable utility rates, Zibelman noted. “When people are paying two times, four times, as a much as eight times more than they would if they bought it from the retail utility, that’s not just and reasonable,” she said. “We can’t tolerate that kind of behavior.”

The commission’s move comes as New Yorkers have finally wised up to the ESCO ripoff. Electricity ESCOs lost 6.1 percent of their residential market share in Con Ed territory from May 2014 to May 2015, state data shows.

There’s ample evidence that ESCOs charge more. Federal data released last October shows that in 2014, electric customers who signed up with ESCOs paid 14.7 percent more for electricity than if they stayed with the plans offered by their local utilities. The higher prices have been an issue for years. A Public Utility Law Project study completed in 2012 as in the upstate Niagara Mohawk/National Grid territory found that on average, electric customers using ESCOs paid an extra $413 over a two-year period; gas customers paid an extra $235.

In a news release issued after the February 23 vote, the PSC cited several examples of ESCO ripoffs:

  • A New York City company charges more than triple Con Edison’s rate for electricity, and several companies charged more than double Con Ed’s rate for natural gas.
  • Four companies in the Hudson Valley charged more than double what Central Hudson charged for electricity. Another charged triple the utility rate for natural gas.
  • Several upstate ESCOs charged more than double National Grid’s electric rate. And in the Finger Lakes region, one company’s variable rate electricity plan charged eight times more than Rochester Gas & Electric’s prices.

Since ESCOs charge higher prices, it seems no surprise that they did not cooperate with a state effort to make their pricing more transparent. Unfortunately, that effort was a flop.

A bit more from the state’s news release:

[A state review] found several instances where companies were blatantly misrepresenting themselves, such as pretending to represent the local utility in order to trick customers into signing costly and harmful contracts. While these practices violate state rules, many consumers are simply unaware that they are or have been defrauded, and so are unable to protect themselves.

In December, Governor Cuomo announced that a separate investigation by the Commission’s Consumer Advocate resulted in 1,566 consumers receiving $950,700 in energy refunds from Ambit Energy, one of the largest ESCOs in the State. Customer complaints related to issues like predatory sales tactics and higher-than-expected prices have more than doubled since 2013 and today’s action is the latest effort to put an end to these dishonest business practices.

And:

Furthermore, the review found several instances where companies were blatantly misrepresenting themselves, such as pretending to represent the local utility in order to trick customers into signing costly and harmful contracts. While these practices violate state rules, many consumers are simply unaware that they are or have been defrauded, and so are unable to protect themselves.

Want to read some harrowing tales about ESCO cheating and ripoffs? Check out this piece posted February 2 in the Village Voice. More than 5,000 people complained to the state about ESCO ripoffs last year, the commission says.

Of course, there’s fine print to the commission’s order. ESCOs have 60 days to show the state that their products are worthwhile, “such as aggregating customers or providing energy efficiency services.” If services like that will save people money, the commission says, it may let ESCOs sell them.

ESCOs may find some wiggle room in the state’s tax code. In some counties — not in New York City — ESCO customers get a break on sales taxes. Some ESCOs might leverage that break in a way that keeps them in business.

The state’s move has no effect on ESCO services provided to big energy users like factories and office buildings. ESCOs save money for big electricity and energy users. But those of us who struggle to pay our household Con Ed bill every month don’t have enough pull in the marketplace to get an energy deal any better than our neighbor’s.

Update: The Retail Energy Supply Association, an ESCO trade group, issued a news release February 23 denouncing the commission’s decision. The association says New York is “effectively eliminating retail choice for residential and small commercial customers.”

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.
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