PSC Reinforces Consumer Protections in ESCO Services Market Through Moratorium and Program Restructuring

October, 21, 2016
Roni Epstein
Legal Policy Advisor

Low-income customers are particularly vulnerable to energy costs and price gouging. As we first reported in our July 29, 2016 blog post on this matter, the New York Public Service Commission (Commission) continues to take steps to strengthen protections for low-income customers from energy service companies (ESCOs) that attempt to provide electric and gas services at higher rates than utilities. Ultimately, New York’s Reforming the Energy Vision (REV) proceeding envisions an electric system where all customers, including low-income residents, will be empowered to control their electric and gas bills through distributed energy resources and innovative rate design. As New York makes this transition, however, the Commission continues to ensure that low-income customers are protected from predatory pricing.

The Commission first took action to protect low-income assistance program participants (APPs)in July 2016 after receiving excessive complaints concerning ESCO behavior by establishing an abbreviated deadline for compliance with a newly established moratorium.

Rehearing and clarification requests of the July 2016 Order were filed by the Retail Energy Supply Association (RESA), National Fuel Gas Distribution Corporation (NFG), and National Energy Marketers Association (NEM). One complaint was the shortened compliance period, which NEM claimed violated the State Administrative Procedures Act (SAPA) notice requirement.

The Utility Intervention Unit of the Department of State (UIU) and New York State Attorney General (NYAG), as well as the Commission argued that the July 2016 Order complied with SAPA.  The Commission noted that given its continuing concern with complaints and attempts to curb the predatory behavior, ESCOs were effectively on notice of the moratorium.

The State Supreme Court ultimately found the compliance period too short and remanded the proceedings back to the Commission on this limited issue. 

On September 14, 2016 in a 3-1 vote, the Commission again ordered a moratorium on ESCO activities citing the continued need to protect customers from predatory pricing methods and price gouging used by ESCOs (September 2016 Order).  This Order follows a series of Commission orders in which the Commission has expressed continued concern with ESCO activities.

Importantly, left in place is the Commission’s requirement that ESCOs, as a condition of serving APPs, either guarantee that the customer will pay less than would be paid to the utility, or offer energy-related value-added services or products (ERVAS) that would reduce the customer’s overall energy bills. The Commission addresses this in the September Order: “[I]ndeed over two years ago, the Commission clearly expressed its concern ‘about the use of ratepayer and taxpayer funds intended to assist low-income customers instead paying ESCOs for higher priced commodity without a corresponding value to the customer.’” The Commission believes that the moratorium is a logical outgrowth of their well-articulated concerns.

Chair Zibelman stated: “The record is clear that low-income customers have not benefited from electric and gas supply services from ESCOs when that’s all that’s being purchased. The commission is taking steps to ensure energy affordability for low-income customers. Unless and until these guarantees can be made, it is critical that we ensure that low-income customers are not paying any more than necessary for gas and electricity.”

Several ESCOs acknowledged that they have neither the ability nor the desire to guarantee prices equal to or less than utility commodity prices.  In fact, there is evidence that ESCOs are charging mass-market customers, including APPs, significantly more money for electricity and gas than utility customers.  The Commission reasoned that, given the established inability or unwillingness of ESCOs to comply with the directives to protect low-income customers, the moratorium to stop the dissipation of ratepayer and taxpayer dollars should have come as no surprise.

The Commission “seeks to ensure that the ratepayer and taxpayer supported utility low- income programs are not frustrated by ESCOs through a premium charge to customers above the utilities’ rates that can exceed the State subsidy provided pursuant to the utility low-income program.” Further restructuring the ESCO market and establishing a moratorium is “necessary to further protect consumers, particularly those enrolled in utility low-income programs.”  

The September 2016 Order suspends the Collaborative established in a prior Order and orders a moratorium on APP enrollments and renewals, effective 60 days after the effective date of the Order, which is to remain in effect until lifted by the Commission. The moratorium is necessary to ensure financial benefits provided to APPs are not absorbed by ESCOs via comparatively high gas and electricity prices with no added value. 

Within 60 days of the effective date of the Order, utilities must communicate to each ESCO which accounts the ESCO is no longer eligible to serve.  In addition, within 2 weeks of ESCO contact regarding the accounts, the utility must send a letter to the ESCO customer, informing them: (1) that they are enrolled in the utility’s low-income program; (2) of the moratorium on ESCO service directed in the Commission’s Order; (3) the reason for and protections provided under the moratorium; and (4) that they will be returned to utility service at the expiration of their existing ESCO agreement.

The Commission estimates that there are more than 400,000 low-income customers served by ESCOs representing about 25% of all electric customers in the state.  Low-income customers currently served by an ESCO that are participating in low-income assistance programs will revert to the host utility’s default service when their contract expires and remain there until the commission has lifted the moratorium.