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New York Cracks Down on Energy Service Companies

Michael Kelly — March 9, 2016

Gas turbineNew York is one of only 17 states that operate a deregulated energy market. Under this scheme, consumers have the option to choose their respective energy supplier rather than simply being locked into the local utility. While this idea of increased competition was initially embraced due to the prospect of lower costs and innovative new services, a review conducted by the New York State Public Service Commission (PSC) has found a variety of unfair business practices that could now threaten to shake up New York’s energy market once again.

In New York, energy service companies, or ESCOs, offer electricity and/or natural gas to customers but are separate from local utilities, which own and maintain the distribution and transmission infrastructure. The review conducted by the PSC found that multiple ESCOs were guilty of overcharging consumers and failing to meet promises on cost savings and clean energy. This prompted Governor Andrew Cuomo to introduce a comprehensive plan to tackle these corporate misdeeds.

Examples of Deception

These unethical business practices were not found to be small-scale, isolated incidents, but examples of a larger, statewide issue. One of New York’s largest ESCOs, Ambit Energy, has already shelled out nearly $1 million in refunds as a result of overcharging. In the Hudson Valley, four companies were found charging double the electricity rate of local utility Central Hudson Gas & Electric. A New York City company was found to be charging 3 times the rate of Consolidated Edison’s electricity, while several other ESCOs were found doubling the rates set by National Grid. Finally, a company in the Finger Lakes Region instituted a variable rate plan that was 8 times what Rochester Gas & Electric charged for electricity.

These deceptive practices are being increasingly felt by consumers, as the number of customer complaints regarding ESCOs to the PSC has doubled since 2013 and increased sixfold from 2010 to 2015. Per the U.S. Energy Information Administration, New York’s approximately 200 ESCOs account for around 20% of all New York customers, shedding a light on the sheer size of this lucrative and problematic market.

Solutions and Next Steps

As a result of these growing concerns, the PSC has enacted a series of changes that it hopes will remedy the current situation. This begins with an immediate audit of all of New York’s ESCOs and a prohibition on new residential and commercial ESCO contracts unless they can guarantee cost savings or prove that 30% of the electricity is derived from renewable resources. The commission will also strengthen the process for revoking ESCOs of their status should they fail to meet the state guidelines. Additionally, the PSC has introduced a “do not knock” policy similar to “do not call” provisions, which it hopes will deter unwanted intrusions and predatory marketing.

With 20% of New York residents currently enrolled with an ESCO, the industry maintains a significant portion of the state’s customer base. Since the industrywide audit is just underway, the overall level of malfeasance is still relatively unknown. The results of these company investigations will ultimately determine the severity of consumer reactions and the potential shift in industry market shares.

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