The advertising from Vectren states that "In these challenging economic times, it's a smart, practical decision to lock into this low rate because it is guaranteed for the next 12 months, regardless of what happens in the energy markets." The locked-in rate is $0.85 per therm.
The casual reader might conclude that it is "smart" and "practical" to buy from Vectren at a "low rate." They might not realize that 85 cents/therm is actually a very high price these days, significantly more than what National Grid is currently charging. Unfortunately, Vectren does not compare the current cost of gas from the utility, and does not provide a link to the Niagara Mohawk/National Grid gas rate chart so that customers can compare and make an intelligent price comparison.
Currently, Niagara Mohawk/National Grid is charging $0.66316 per therm. Thus, Vectren is charging 28% more than the utility. Put differently, a customer using 100 therms who switched to Vectren this month would pay more than $18 per month more.
How "Smart" is That?
Vectren does not share any information that might support its claim that it would be "smart" and "practical" for consumers to lock in Vectren's 85 cent/therm price now, paying 28% more.
Natural gas prices typically reach their peak in wintertime. Niagara Mohawk/National Grid gas prices have, in the past, exceeded the "low rate" offered by Vectren. For example, National Grid charged $0.90173 per therm in March 2009. On the other hand, Niagara Mohawk/National Grid's prices have held fairly steady in the low to mid sixty cents per therm range since October 2009. Prior to that, the rate in September was only $0.39238/therm, less than half the Vectren "low rate" of $0.85/therm
While it is always difficult to predict future energy prices, there are much larger than usual quantities of gas in storage, according to the EIA Natural Gas Weekly Update for February 4, 2010
Working gas inventories are 199 Bcf higher than year-ago levels and 150 Bcf above the 5-year average level (2005-2009). Working gas in storage continues to exceed historical levels and year-ago levels for this time of year in each of the three storage regions.It is true that current NYMEX Henry Hub natural gas futures prices are signaling higher wholesale natural gas prices by next winter, but if prices decline, as they usually do after wintertime, and if Niagara Mohawk/National Grid buys and stores significant amounts of gas in advance for next winter, it seems rather unlikely that even with higher wholesale prices next winter, Niagara Mohawk/National Grid's price for gas in the next twelve months would exceed 85 cents/Therm. With current Vectren prices at nearly 20 cents more than the National Grid February 2010 rate, wholesale prices would have to spike a lot more than markets are currently signaling before any savings will be found by switching to Vectren.
In its advertising pitch, Vectren does not tell consumers why it thinks locking in its 20 cent higher price now would be "smart" or "practical."
On top of that, should a customer realize they made a poor decision after the three day "rescission period," they will be hit by Vectren with a $125 early termination fee if they try to break their contract in the first year. Of course, the customer may not even know they have been overpaying for natural gas until they receive their first bill from National Grid with the Vectren charges included. The contract also automatically renews for additional 12 month periods, but the early termination fee does not go away or even get pro-rated. At the end of the one year period, the contract automatically renews at an unstated new price, a formula based on NYMEX market prices with an unspecified "adder." Moreover, should Vectren decide to sell its customers to another entity, they can do so for whatever reason without the customer's consent.
Perfectly Legal?
A story from Ohio illustrates a common experience faced by customers who switch to ESCOs:
Maury Nehr signed up for a fixed-rate natural-gas contract and expected his heating bills to drop. Instead, the Northeast Side resident found bigger bills.See Some Feel Scammed by Gas Contracts, Columbus Dispatch, March 15, 2009.
"They told me there were no extra charges," he said of the solicitor from Vectren Source, a gas marketing company.
Nehr says he was misled, and he has company.
**** Nehr, 54, can't afford to make the wrong choice for natural gas. His only income is his disability check, and he lives in a modest duplex.
His plan with Vectren costs about $20 per month more than he would have paid Columbia Gas of Ohio.
He didn't realize he faced extra charges, such as a gas transportation fee and sales tax -- and a $125 cancellation fee to withdraw before the term's end.
"I'm angry," he said. "I feel like I was deceived."
He filed a complaint with the PUCO and was told by the agency that Vectren had followed the law.
The New York PSC has specifically allowed ESCOs to impose early termination fees to deter disappointed from switching back to regular utility service. Thus, a challenge to the fee is unlikely to succeed.
Although some might think that an ESCO is engaging in fraudulent or deceptive practices when claiming that a fixed rate 28% higher than current rates is a "low rate," it is theoretically within the realm of possibility for the Vectren rate to be lower than the Niagara Mohawk/National Grid rate at some point in the next year. It might take hurricanes or energy market disruption, but it could happen.
Also, New York courts have held that the fraudulent and deceptive practices law, General Business Law § 349, is not meant to protect the gullible and uneducated. The PSC's "light" regulation of ESCOs may actually provide them with defenses when practices are challenged in court. Advertisers of utility service are allowed to engage in "puffery" in convincing customers to buy, so long as the terms of a contract are eventually divulged (in the contract boilerplate) and when the terms and conditions are on file at the PSC. See Using the ‘Reasonable Consumer’ Rule in Deceptive Practices Litigation, New York Law Journal, Dec. 28, 1998. As a result there is inadequate protection of consumers, particularly the elderly other vulnerable people desperate for energy bill savings who are preyed upon by ESCOs using high pressure sales tactics.
The Need for PSC Action
The New York PSC continues to tout shopping for competitive energy providers as a consumer remedy to high utility rates, without evidence that customers are better off over time when they switch to ESCOs. PULP has addressed the value of ESCO service in recent postings. See
- Value of ESCO Service Questioned,
- ESCO Advertises 9.75% Tax Savings on Delivery Service, and
- ESCOs Cost More -- A Familiar Experience.
The reality is that consumers cannot shop their way out of high utility costs, and their best option for saving money on natural gas is to try to use less, through conservation measures or greater energy efficiency.
Lou Manuta
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