Monday, August 18, 2008

PSC Makes ESCO Service Comparisons Difficult

How Can Customers Compare ESCO Prices?
With prices of electricity rising, consumers are looking for ways to economize. Recently PULP's website Help Center received this customer inquiry regarding ESCO service.
We are presently served for electricity by Orange & Rockland, and are trying to find an alternate supply company hoping to save some money, but, after making many phone calls, not a single company has mailed us their rates so we can compare.
Gateway Energy, a supplier we used in the past when they were known as Econergy, directed us to their web site ( to get rates, but there are none. It simply shows their electric rates vary by the month.
Can you direct us to some source that will supply data we can use to help us make a decision?
A basic question, which should be easily answered.

The simple answer is that there is no ready source of accurate public information on ESCO prices. A PSC website purports to show ESCO price comparisons but it is based on incomplete reporting of ESCO prices on only one day a month. The PSC allows ESCOs to change prices without notice and without publication. By the time prices are reported, they may have changed. There is no reliable evidence of any significant consumer savings over time for switching to service from ESCO gas and electric companies. Indeed, there is evidence that ESCO service may cost more. Also, slamming and deceptive practices to induce switching are common, as are one-sided terms of service. These include long term contracts with early termination fees to discourage customers from switching back to the traditional utility or to other ESCOs after they discover the ESCO is charging higher, not lower prices.

Over the past decade, the PSC at great expense -- estimated at more than $100 million -- has promoted the idea that customers should shop for electric service from alternative ESCO gas and electric companies, whose rates, terms and conditions the PSC largely chooses not to regulate. Apparently the theory was that if the PSC set the rates of the traditional utility, competitive companies would provide cheaper or better service in order to win and keep customers.

The PSC deliberately designed a system that frustrates meaningful ESCO price comparisons. To encourage customers to switch, the PSC promoted so-called "ESCO Referral Programs" promising minor short-term savings of $2 - $4 per month for two months for customers who switch to ESCOs. After that teaser rate expires, they get future service at the price, terms and conditions set by the ESCO in its contracts which are not reviewed for reasonableness by the PSC. Some of these contracts are for fixed prices while others have no price, and allow the ESCO to change prices at will. The fixed price contracts typically give the ESCO the option to change the price or cancel on one month's notice while locking in the customer for a year or more with monetary penalties for early termination. See PULP's webpage on ESCO Contracts.

In 2002, in a rebuke to the PSC, the Legislature clarified that the Home Energy Fair Practices Act (HEFPA) applies no matter which company provides electric or gas service to residential customers. See PULP's website page on ECPA 2002. A critical component of HEFPA gives customers the right to challenge ESCO bills and practices through the PSC complaint handling process. Previously the PSC Office of Consumer Services refused to accept and decide customer complaints against ESCOs.

Even after the 2002 statute, however, the PSC itself has not, to our knowledge, issued any formal decisions in ESCO complaint cases, even though there is a steady stream of PSC customer complaint decisions involving the traditional utilities, and PSC Complaint Statistics show there is a higher rate of initial customer complaints regarding ESCO service.

The PSC has been considering petitions of the New York City Office of Consumer Affairs and the State Consumer Protection Board to provide added consumer protections in light of questionable ESCO door to door marketing practices for months, but has made no decision. See ESCO Marketing Practices Subject of New PSC Proceeding.

The PSC Drops the Ball on ESCO Price Reporting
The PSC issued a Notice seeking comments in 2006 on a proposal to require ESCO price disclosure. The Notice stated:
residential electric and gas customers have come to expect that ESCOs will furnish the price information necessary for them to make intelligent decisions on retail market choices. To obtain that price information, customers rely on a variety of sources besides the ESCOs themselves, including the Commission’s Web site. Since October 2004, the Commission has listed, at its Web site, the ESCOs serving residential customers in the various utility service territories, along with additional information on those ESCOs. In October 2005, the Web site’s capabilities were enhanced to enable customers to make more meaningful price comparisons among ESCOs and utilities. That function, however, is dependent on the pricing information ESCOs submit, and not all ESCOs have been willing to furnish complete information voluntarily. Nor does it appear the complete price information customers have come to expect, when making price comparisons, is readily available elsewhere.
In its Comments, PULP supported full and timely public disclosure of all ESCO prices and price changes. In reply to ESCOs who opposed this, PULP stated in its Reply Comments:
in the absence of price reporting, effective price discovery by consumers is significantly less likely to occur. Where consumers cannot discover and compare prices for competing retail offers, they must act on less than complete information. When they do, they can only make a market optimizing decision by accident. ****
[I]f customers do not operate in a market with price transparency and they cannot discover the price of the competing offers, there is no assurance that the choice they make actually maximizes the benefits to them. If an incorrect choice is made, resources are drawn to an option which would not receive these benefits if all consumers could actually make the optimal choice. When the incorrect choice is made, the market theory on which policy arguments supporting retail access are based clearly shows that the social benefits from “market-based” retail access are lost.
In its Order, however, the PSC again yielded to the ESCOs and only required after-the-fact monthly "snapshot" price disclosure, i.e., posting of prices that were previously effective on just the first day of each month. The PSC deliberately allowed ESCOs to change the reported rate the next day without posting the change. The Commission stated
The Price Reporting Requirement
* * * * ESCOs shall report, by the 5th day of each month, for each generally-available service they were offering to eligible residential customers, the price they would have charged for each service as of the 1st day of that month. Those prices will then be posted to Power Choose, along with the disclaimer that the prices are illustrative, to alert customers that the Web site is only the starting point for price discovery and that an actual offer to provide service must be obtained directly from an ESCO. * * * *
ESCOs, after reporting the snapshots of their generally-available prices, may revise them at any time subsequent to their submittal without seeking regulatory authorization. * * * *

Because the prices reported are snapshots of what was offered on a particular day, ESCOs are not bound to offer them to new customers after that date, enabling them to modify their prices rapidly in response to new market circumstances. * * * *

it is not necessary to go further at this time by burdening the Web site with the additional functions of quoting current prices or identifying price availability.
Under the PSC's regime, an ESCO could offer a low rate on the first day of the month for five customers, stop taking applications that day (because the PSC does not enforce the duty to serve on ESCO gas and electric companies), raise the price on the second day of the month, and report the low price on the fifth of the month. The PSC then posts that price on its PowerToChoose webpage which encourages customers to rely on the dubious price reports. The disclaimer mentioned in the PSC Order is not prominently disclosed on the webpage, which basically provides free advertising for ESCO service and encourages customers to switch. If you can find the disclaimer, please let us know.

Thus, a consumer seeking to compare ESCO prices is not likely to find meaningful price comparison information at the PSC "PowerToChoose" website or from the ESCO, if the ESCO chooses not to publicize fully what it charges.

Due to the limited "snapshot" data publicly available, it is not possible to compare historical prices actually charged by ESCOs with those of the traditional utility. Traditional utilities that bill on behalf of ESCOs will have such information, because the ESCO prices are needed to formulate the bills. The PSC allows this information to be treated as confidential trade secrets. This flies in the face of a century of policy favoring publicly filed rates for electricity. PULP proposed that Central Hudson conduct a study, based on the billing information it has in its possession regarding what ESCOs have charged for their service, but that was refused. Utilities are now purchasing ESCO receivables at a discount and stand to earn additional revenue from ESCO charges, essentially sharing in their mark up of the cost of energy.

Some Utility Rates are Hard to Find
Even if accurate ESCO prices were available, it can be very difficult to compare them with the prices of the traditional utility. The PSC allows some electric utilities, including Con Edison, Orange & Rockland, and Central Hudson, to adjust their rates monthly. The rate adjustment formulas are so complicated they make it very difficult for customers who switched to ESCOs to know, after they have switched, whether they would have been better off staying with the utility and whether they should switch back.

Other utilities, such as NYSEG and RG&E have fixed rate options that make it somewhat easier to compare that service with ESCO service.

In essence, the PSC created a system in which prices for ESCO electric and gas service are not transparent and cannot readily be compared. This favors sellers who induce customers with hype, teaser rates, and high pressure telephone or door to door solicitation, only to be followed by higher prices and onerous conditions of service ostensibly agreed to in the boilerplate of one-sided contracts.

This is contrary to the elements of a competitive marketplace in which customers have reliable information about prices that would facilitate easy comparison and price competition.

PULP's Utility Bill Calculator
As discussed above, no one, not even the Public Service Commission, knows the prices actually charged by ESCOs. At best we might know, after the fact, the price charged on just one day a month. In contrast, the traditional utilities still follow the statutory requirements to publicly and timely file all rates and every rate change, so it is at least possible to calculate what they would charge based on accurate information in the public domain.

PULP has developed a Utility Bill Estimator that could be used by electric customers to compare ESCO rates with those of the traditional utility. Currently it is available for Con Edison customers and Central Hudson customers. It takes into account variations in billing cycles and locational tax differences. A customer who has switched to ESCO service should be able to readily compare whether her total bill is now higher or lower than it would be if she received full service from the traditional utility. See PULP's Con Edison Bill Estimator.

The Best Way to Lower Your Electric Bill is by Conserving, Not ESCO Shopping
There is no reliable evidence to show that customers seeking to lower their electric bills can do so by shopping for ESCO service. After a period of minor savings with teaser rates they may pay more.

Customers are far more likely to achieve bill reductions by reducing their consumption of electricity, by shutting off devices or installing more efficient appliances. See NYSERDA's GetEnergySmart webpage. Improving energy efficiency can be a difficult problem for low income consumers who, due to their high energy burdens in relation to their incomes, are conserving already but lack the money needed to invest in more efficient refrigerators and other major energy consuming appliances.

For further information, see PULP's website page on ESCO service issues.

1 comment:

Andrew said...

Thanks for the posting. It was highly informative. Obviously, fundamental rate lowering cannot be achieved through ESCOs alone, but ESCOs could have been a vehicle to encourage alternative energy in a more fundamental way by allowing end users to gamble on a wind power supplier or something of that sort.