Friday, September 05, 2008

While the PSC Deliberates, Consumers Continue to be Hurt by ESCOs

Many ESCOs drum up unsuspecting customers for their utility service through mass mailings, high pressure telemarketing, door-to-door salespeople, and web sites. Now, the hard sell has been pushed up a notch.

An article in Monday’s New York Times (September 1st) regarding multi-level marketing practices engaged in by ESCOs reads like a wake-up call for the NYS Public Service Commission to take action. An Alternative to Con Ed Revs Up Its Sales Force. Ken Belson’s story described a recent meeting at a hotel in Yonkers where a “get-rich-quick” marketing scheme was discussed in great detail. But, instead of the object of the scheme being some tangible widget being sold to unwitting friends, family, and neighbors, this time the “product” is home energy. That’s right, buying and selling electricity and natural gas to power and heat your home has become the latest Ponzi scam to hit New Yorkers.

In recent years, the PSC has been bombarded with complaints against ESCOs, with customers questioning inflated potential savings and contracts terms (especially early termination fees), as well as aggressive marketing tactics towards vulnerable populations, including the elderly and non-English speakers. According to the Times article, "[s]ince January 2007, the state's Public Service Commission has received nearly 3,000 complaints" regarding ESCOs.

When the PSC first initiated its ESCO regime more than a decade ago, it refused to consider complaints against ESCOs, in an effort to deregulate them completely. See Retail Choice: A Race to the Bottom. The legislature rebuked that effort when it enacted the Energy Consumer Protection Act of 2002, which clarified that ESCOs are utilities subject to the Home Energy Fair Practices Act and its administrative complaint adjudication procedures. Despite the high rate of customer complaints against ESCOs, the PSC to our knowledge, in more than a decade, has never issued a formal consumer complaint determination in any case involving a consumer complaint against an ESCO.

In response to an urgent petition seeking PSC action to address ESCO marketing abuses filed in December 2007 filed by the state Consumer Protection Board (CPB) and the New York City Department of Consumer Affairs (DCA) , the Commission issued a SAPA notice in January. Interested parties responded in February, including PULP, whose comments supported the petition and urged additional measures. PULP urged timely approval of the CPB/DCA request, and pointed out that the ESCOs should be contributing to the running of the Commission (as every other utility does), especially considering the high level of ESCO complaints that are brought by consumers to the agency for adjudication.

On March 19th the PSC solicited additional public input on several issues, including assessment of ESCOs for regulatory costs. See ESCO Marketing Practices Subject of New PSC Proceeding. Additional rounds of initial and reply comments were completed in May. See PULP Files Reply Comments on the PSC's Proposed ESCO Marketing Standards.

Today, more than three months later, no action has been taken by the PSC on the CPB/DCA petition or on any of the other issues in the case.

As a result, ESCOs were able to continue questionable customer recruitment practices promising largely illusory savings during the summer New York City price spikes, see Excelsior! Excelsior! Con Edison Rates Peak Again: Bills Up 30% Since May, there are no rules or orders regarding their marketing practices, and ESCOs continue to be excused from paying any PSC regulatory assessments.

In the absence of timely and effective PSC action, some ESCO complaints have gone to the state Attorney General’s Office. One such complaint involved US Energy Savings, which sold 4 and 5 year “Natural Gas Price Protection Program Agreements” to Western New York and New York City residents door-to-door through independent contractors. According the the Attorney General's press release, while customers were promised immediate savings on utility bills, the price of natural gas actually turned out to be more than the price charged by the local utility. Also, US Energy Savings allowed consumers to cancel service within three business days, but that period expired long before consumers received their first bill, usually between 30 and 60 days. Often times, the early termination fee totaled at least $600.

The Attorney General’s investigation also uncovered multiple untrue claims made by US Energy’s independent contractor sales personnel, including that the company was affiliated with the local utility. Under a settlement agreement reached with the Attorney General’s Office, the ESCO agreed to waive early termination fees for over 300 consumers and allowed them to cancel their agreements. In addition to forgiving these fees and paying $100,000 in costs and $100,000 in penalties, US Energy Savings agreed to:
  • Provide every new customer a letter that clearly states the cancellation period and early termination fee and invites consumers to contact the company with concerns about sales practices;
  • Verify all details and qualifiers of its agreements with consumers either by recorded call or in writing;
  • Obtain background and/or reference checks for all potential sales contractors;
  • Review all consumer complaints and provide a response within 30 days of receipt;
  • Terminate any independent contractor who misleads consumers; and
  • Waive early termination fees for any consumer who cancels an agreement within 60 days of the settlement agreement.
The public cannot wait for the Attorney General to step in one case and one company at a time to correct wrongs such as those perpetrated by US Energy sales agents. It is incumbent upon the Public Service Commission, which has jurisdiction over all retail sales of natural gas and electricity, to issue enforceable rules and orders that prohibit the unreasonable marketing practices of these energy providers, instead of condoning them through a toothless set of unofficial PSC-endorsed "uniform business practices," and should make it possible for consumers, who the PSC exhorts to shop, to measure whether ESCO service is actually worth the trouble of being served by two utilities. See PSC Makes ESCO Service Comparisons Difficult: How Can Customers Compare ESCO Prices?

The PSC took an important first step by finally launching a proceeding to investigate unreasonable ESCO practices in response to the December 2007 CPB/DCA petition. Unless the Commission acts -- and soon -- to protect consumers, it will appear that the Commission is simply continuing to tolerate unjust and unreasonable ESCO sales tactics, leaving many New Yorkers who hoped to reduce their energy costs at the mercy of ESCOs who actually charge them more than the traditional utilities.

Lou Manuta

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