PULP Files Comments on Regulation of ESCO Sales Practices

Background
Beginning in 1996, the PSC began to "unbundle" residential natural gas and electric service in order to deregulate the so-called "commodity" portion of service. In the PSC's "vision" the "commodity" would be bought by customers from deregulated pipeless and wireless gas and electric companies, which the PSC labeled "energy services companies" (ESCOs). As we predicted in 1998, the effort to deregulate led to a Race to the Bottom

[T]he contracts often hold customers to a term of a year or more, with automatic renewal unless the customer provides written notice during an annual 15-or 30-day renewal window. Marketers are not certified, and none of their prices are filed with the commission to facilitate public review and comparison. * * * * Customers attracted by promises of lower base charges will be quickly discouraged by the blank check provisions in the fine print * * * * Customers have a growing awareness and experience with rip-offs, scams and unscrupulous "slamming" by new competitors in the telephone industry and may be well aware that in the end they may pay more, not less, to a competitor. Not all customers have the financial means to write off their loss as a bad mistake, or pay another supplier or "provider of last resort" if deposits or customer credit balances in dispute are held by the marketer to satisfy a disputed claim. * * * * Waiting for the "market" or lawsuits to weed out bad-apple marketers and unfair contract clauses is not an adequate remedy for the wronged consumer with limited means who has lost her money.

Many Buffalo area customers were bilked when they paid in advance and an ESCO failed to provide service, requiring them to pay twice. See State Forgot Consumer Protections in Deregulating Gas. In reaction, the Legislature enacted the Energy Consumer Protection Act of 2002, which made ESCO service subject to the Home Energy Fair Practices Act (HEFPA) and which made ESCO customer complaints subject to adjudication by the PSC. Prior to that time the PSC had refused to decide bill and service disputes between ESCO customers and ESCOs.

Even though HEFPA protections have been available to ESCO customers since the 2002 amendments, major problems remain with ESCO service. Many of these problems arise from switching to ESCOs and switching back to the old utilities.

High pressure door to door sales, or ESCO referral programs authorized by the PSC may give consumers the false impression that they are likely to save money. While they will save small amounts on delivery service (due to a tax law flaw and PSC reduction of certain charges) the (truthful) promise of these reductions can be far outweighed by more expensive charges for the commodity portion of service now sold by the ESCO.

Customers who switch to gas or electric service from ESCOs thinking they would save money may discover, to their dismay, they "agreed" to very high prices. Then, the fine print in one-sided contracts foisted upon them may purport to make it very expensive for them to switch providers, due to costly early termination charges, or due to prepayments that are likely to be forfeited if they choose a new ESCO or return to conventional full service from the distribution utility. See Think Twice Before Switching Utilities, and PULP's web page on ESCO Issues.

The PSC has continued its practice of not overseeing the reasonableness of all terms and conditions of ESCO service. Indeed, to our knowledge the PSC has never issued a formal decision in a customer complaint case involving ESCOs, even though PSC Consumer Complaint Statistics show that complaints against ESCOs comprise a disproportionate share of the total complaints.

The CPB/DCA Petition
The news media continue to report numerous incidents involving ESCO customer dissatisfaction. Often, these stories focus on exorbitant ESCO prices, high pressure or deceptive recruitment tactics, and onerous terms and conditions that work to frustrate corrective action by the consumer. For example, prepayment for service and termination charges raise the cost of switching away from an ESCO to more reasonably priced service. See PULP's web page on ESCO Issues.

In December 2007 the Consumer Protection Board (CPB) and the New York City Department of Consumer Affairs (DCA) filed a petition with the PSC to address certain sales practices of ESCOs. According to the Press Release

The PSC has worked with ESCOs to develop a “Statement of Principles for Marketing Retail Energy to Residential and Small Businesses in New York State,” but there is no mandate that ESCOs follow those principles.... [P]ersistent allegations that some ESCOs or their representatives have misrepresented themselves as agents of distribution utilities, have made other false and misleading statements and have engaged in extreme marketing practices continue to surface. Both Agencies have received complaints about ESCOs, ranging from misrepresentation to undisclosed charges, and attempt to either resolve the complaint or refer it directly to the PSC. This type of conduct confuses and harms consumers and also damages the reputation of utilities and reputable ESCOs.

The CPB/DCA Petition filed with the PSC December 17, 2007 states that

[T]he CPB and DCA are concerned that the marketing practices of some ESCOs deny customers the accurate information which is necessary for well-functioning markets, and may result in consumers paying unreasonable rates. * * * * Based on complaints . . . it appears that problems with abusive, misleading and deceptive marketing tactics used by ESCOs in their contacts with residential and small commercial customers are persistent and disruptive. * * * *

In recent years, Staff of the Department of Public Service ("DPS") has worked with ESCOs to develop a "Statement of Principles for Marketing Retail Energy to Residential and Small Business Customers in New York State." * * * * Clearly, an entirely voluntary approach to preventing misleading marketing practices is unworkable.

The CPB/DCA Petition asks the PSC to

• Develop and adopt new marketing standards for ESCOs selling electricity and natural gas services to residential and small commercial consumers;
• Require ESCOs and their representatives to clearly identify themselves upon contacting a consumer;
• Compel ESCOs to clearly explain that they are not associated with the regulated utility; and,
• Give the PSC clearly defined legal authority to sanction ESCOs whose marketing practices are deemed to be detrimental to consumers.
  

PULP Comments: Broaden the Scope of ESCO Issues Under Review
PULP filed comments supporting the CPB/DCA petition, and asking the PSC to broaden the scope of an investigation into ESCO issues beyond door to door sales practices. Such issues could include ESCO practices that discourage further customer choice, such as demands for prepayment, and one-sided arrangements which prevent unhappy customers from switching providers without significant extra costs.

Customers enticed by PSC supported promotions to switch to an ESCO at no cost, or with a teaser rate, often find it very expensive to switch again when they are unhappy with ESCO service. PULP noted that after more than a decade of service the PSC has not issued a body of decisional law regarding reasonableness of ESCO service, despite many customer complaints. Indeed, as noted above, we are not aware of any PSC decisions arising from ESCO customer complaints, even though ESCOs account for 20 - 25% of all initial complaints and there is a steady stream of PSC consumer complaint decisions involving non-ESCO utilities.

PULP urged the Commission to take penalty actions in situations where an ESCO has violated Commission rules or orders, or the Public Service Law. PULP also pointed out that although ESCO matters consume considerable resources of the PSC, the PSC is not requiring ESCOs to support the cost of the agency's regulatory services allocated to ESCO matters.

NFG Issues Tariff Regulating Door to Door Sales of Natural Gas Service
In the aftermath of publicity regarding practices of door to door sellers of natural gas service, NFG issued a tariff that would apply to such sales, effective April 25, 2008. Compliance with a code of conduct would be made a condition of ESCO eligibility to sell gas or electricity in cooperation with the distribution company, whose services are needed by the pipeless and wireless ESCOs to facilitate their sales. See National Fuel Targets Door-to-Door Marketers. It is unclear how violations of the tariff conditions by ESCOs would be sanctioned, if at all, by the PSC, and how consumers would obtain timely remedies if the ESCO violates the conditions. The tariff is subject to PSC review and approval before it takes effect.