Tuesday, October 28, 2008

PSC Issues ESCO Marketing Order

Background: Long-Awaited Action
On October 27, 2008 The Public Service Commission (PSC) issued an Order Adopting Amendments to the Uniform Business Practices, Granting in Part Petition on Behalf of Customers and Rejecting National Fuel Gas Distribution Corporation’s Tariff Filing in the ESCO (energy service company) marketing proceedings commenced in December 2007 by the City of New York Office of Consumer Affairs and the New York Consumer Protection Board (CPB). The petitioners alleged that ESCOs (energy service companies) engaged in deceptive and overly aggressive door to door marketing tactics to switch customers from traditional full utility service to take the "commodity" portion of service (as distinguished from "delivery" service) from ESCOs. Common complaints are that the door to door ESCO marketers promise savings that are not realized, "teaser" discounts are offered for a short period with no disclosure of future rates, customers are induced to switch without having seen the contract, prices cannot readily be compared with publicy filed utility rates, and contracts have onerous early termination provisions. See
National Fuel Gas Distribution Company (NFG) also sought PSC approval of new tariffs designed to safeguard customers from ESCO marketing activities.

Instead of issuing certificates or licenses to ESCOs, and promulgating regulations governing ESCO services, the PSC has issued a long set of governmentally endorsed unofficial "Uniform Business Practices" (UBP), intended primarily govern the business relationship between ESCOs and distribution utilities. The UBP generally did not provide for meaningful customer protections, and do not provide for remedies to customers if they are broken. The UBP were last revised in November 2006 and provided only a single, remedial step to curb ESCO customer abuses: revocation by the PSC of the ESCO's eligibility to market in New York. This, of course, only stops further customer abuse by an ESCO; it provides for no remedy to injured customers.

The October 27 Order
In its October 27,2008 Order, the Commission said it would retain the revocation sanction, and add a range of enforcement measures, including:
  • early release of customers from their contracts without termination fees;
  • a requirement that ESCOs who violate the UBP record all telephone marketing calls; and
  • reimbursing customers who did not receive the savings promised by an ESCO.
The Commission said its decision to adopt revised UBP “is a further signal that all provisions of the Public Service Law necessary to protect consumers will be enforced with regard to ESCOs.”
This phrasing suggests that the Commission claims power to disregard or not enforce provisions of the Public Service Law, enacted by the Legislature, which the agency deems not to be "necessary" to protect customers. Even this hedged recognition of responsibility for reasonable terms and conditions of all utility service, whether provided by full service utilities or ESCOs, however, stands in sharp contrast to the PSC's initial vision, in which ESCOs were to have been almost completely unregulated. See Retail Choice, A Race to the Bottom. For a decade ESCOs have run roughshod over consumers in the contract formation process, and since the 2002 legislative enactment that rebuked the PSC and clarified ESCO service is subject to HEFPA, the PSC still has yet to issue a complaint determination against an ESCO. Now, at long last, the PSC says it will “take a more active regulatory role in the more mature ESCO retail markets. . . ,” noting that it always has had “well-understood jurisdiction over ESCOs and their marketing practices” -- even if it failed to exercise that jurisdiction and looked the other way while ESCOs abused customers.

Among the revisions to the UBP are:
  • A requirement that a Customer Disclosure Statement be displayed on the first page of all ESCO sales agreement. The statement must include:
  • the price, terms and conditions of the sales agreement;
  • the duration of the agreement;
  • the terms for renewal of the agreement;
  • the process for canceling or terminating the agreement;
  • the amount of any termination fee;
  • the amount of any late payment fees;
  • a clear description of any guaranteed savings and what the customer must do to achieve such savings.
  • ESCO market representatives must receive training on the Home Energy Fair Practices Act;
  • ESCO market representatives must carry identification showing their full name, photograph, the trade name of the company and its logo and telephone number, and they may not represent themselves as being an employee or affiliated with a distribution utility;
  • Customers must be provided, upon request, with written information regarding the ESCO’s products and services, including the ESCO’s name and telephone number for inquiries, verifications and complaints;
  • ESCOs must investigate customer inquiries and complaints about marketing practices within 10 business days.
Early Termination Fees
The Commission will continue to allow ESCOs to charge early termination fees in “sky-is-the-limit” amounts, provided they are disclosed in the boilerplate Customer Disclosure Statement. Similarly, ESCO customers will not be given a 30-day grace period on early termination fees, allowing them to receive and review their first bill and decide to terminate their agreement without early termination fees. The Commission opined, rather unrealistically, that the Customer Disclosure Statement will fully inform customers and no further protections are necessary.

With respect to customer “slamming,” the PSC ruled that anyone in the household will be able to switch your account to an ESCO, regardless of the accountholder’s name on the utility bill. So don't let your barmy uncle answer the door when those attractive young ESCO representatives come around to sign up new customers for a high priced contract with a costly early termination fee. ESCOs must verify that every enrollment is requested by an authorized person. Records of these verifications must be retained by the ESCO for two years or the length of the sales agreement, whichever is longer.

Regulatory Assessment of ESCOs
The Commission will undertake a second phase of this proceeding, to deal with implementing PSL § 18-a assessments upon ESCOs. Under § 18-a, utilities receive an assessment on their gross operating revenues, which is used to fund the costs and expenses of the PSC and the epartment of Public Service. PULP raised this issue in its initial comments and supported the assessment of ESCOs, who are incurring huge regulatory costs without paying for them.

PSC assertion of jurisdiction over ESCO issues is, of course, long overdue and welcome. However, despite the heft of the 270 page document, there is not much new in the way of real teeth to enforce customer protection. Those with a cynical view might wonder if the PSC's new disclosure requirements will simply provide ESCOs with court defenses in cases where it is alleged they engaged in deceptive practices. For example, court cases are likely to fail if the ESCO can claim that the company practice is subject to PSC jurisdiction, or was disclosed in writing prior to sale, or is a matter of public record at the PSC. See Using the 'Reasonable Consumer' Rule in Deceptive Practices Litigation. Thus, high pressure telephone and door to door sales people may still be free to "puff" their services through oral misrepresentations, taking advantage of customers who are yearning for reduced energy burdens.

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