Retailers – Watch Your Business Practices

Utility bills always seem to be among the most hated, frequently engendering comments – often based on no or at best limited insight of the input costs – of overcharging or profiteering or in worst cases resulting in lost customers.

In some cases, of course, the comments are valid. But that doesn’t mean the energy retailer is in any way acting improperly. Indeed, the vast majority of them don’t, despite it being the nature of business to seek the loopholes and push boundaries in order to maximize their profits. However, there are always a minority who will go a step too far.

Such has been the case in New York, with what Governor Andrew Cuomo calls “unfair and dishonest tactics” by “unscrupulous companies, whose business model is to prey on ratepayers with promises of lower energy costs only to deliver skyrocketing bills.”

ESCOs overcharging

A review conducted by the New York State Public Service Commission (PSC), apparently on the basis of an earlier press investigation, found that multiple energy services companies (ESCOs) in the state were overcharging for electricity and gas service, as well as failing to deliver on promises for savings and clean energy.

Among the examples:

• Four companies in the Hudson Valley charged more than double what Central Hudson charged for electricity and another charged triple the utility rate for natural gas

• A New York City company charged more than triple Con Edison's rate for electricity and several companies were charging more than double the utility rate for natural gas 

• Several ESCOs in upstate New York charged more than double the National Grid's electric rate

• A variable rate plan of a company in the Finger Lakes region was eight times what Rochester Gas & Electric charged for electricity.

Furthermore, the review found several instances where companies were blatantly misrepresenting themselves, such as pretending to represent the local utility in order to trick customers into signing costly and harmful contracts. While these practices violate state rules, many consumers were simply unaware that they were being defrauded.

Zero tolerance response

The “zero tolerance” response from the PSC will effectively overhaul the sector with enhanced consumer protections and rules to ensure that violators of the regulations will not be allowed to operate in the state.

An immediate audit is being conducted of these companies and new ESCO contracts with residential or small commercial customers are prohibited from taking effect unless they provide guaranteed cost savings, or at least 30% of the supply comes from renewable energy. These will be determined on the basis of a review.

Additionally, the PSC will consider whether its financial penalty authority, which allows for a penalty of up to $100,000 a day per violation, should be applied to ESCOs. The PSC also is strengthening the process for revoking ESCO eligibility to do business in the state. A "do not knock" rule has been instituted and if local solicitation rules regulating door-to-door selling at a residence or place of business are ignored, the company's ability to do business in New York will be revoked.

The CEO of each ESCO, or designated officer, will also be required to submit a statement affirming that the company is in compliance with the new rules.

"The record is clear that residential customers have not benefitted from electric and gas supply services from ESCOs when that’s all that’s being purchased,” commented PSC chair Audrey Zibelman. “We know there are companies that can bring real benefits to customers, such as energy efficiency services and clean energy supply, but we are concerned that the bad actors are souring customers and spoiling the market."

ESCOs in New York

Local utilities in New York are responsible for operating the distribution and transmission systems and also can provide electricity and natural gas supply. ESCOs are able to compete with the utilities to supply electricity and natural gas as well as other benefits such as energy efficiency services and renewable energy supply.

There are currently about 200 eligible ESCOs in New York, which supply more than 20% of the state’s residential and small commercial customers.

The ESCOs are viewed as an important component in New York’s energy sector with a potentially expanding role under its reformed energy vision. Rooting out the bad apples now can only be beneficial.

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