Stop Unauthorized Utility Switching

The PSC currently requires Energy Service Companies (ESCOs) to establish procedures to obtain authorization of customers for a change in gas and electric service and for the verification of such change, as a condition of eligibility to serve customers in New York State. Such eligibility may be revoked by the PSC if the ESCO fails to comply with service requirements. Natural gas local distribution companies require a written authorization or a verified oral declaration by a customer prior to a change in supplier and may deny transportation of gas on their systems to a marketer that fails to obtain the necessary authorizations.

Justification

The deregulation movement of the 1980's included the banking, airline and telecommunication industries. The next logical step was to deregu- late the energy industry. By allowing new companies to enter in to the energy retail market, competition would increase. The result would be lower prices and improved service. In 1996, New York deregulated its energy market by removing those barriers to economic competition. Utili- ty companies would give customers the freedom to choose alternative Energy Service Companies, or ESCOs, with what was called the Power to Choose Program. ESCOs were private utilities which were to provide elec- tricity and natural-gas services, savings and green energy options. They were the alternatives to the traditional utility companies, which would still be in charge of distributing power. There are now over 200 alter- native ESCOs as well as traditional suppliers in New York. In the course of introducing this business model, prices were supposed to be driven down and service was supposed to become better. That didn't happen for New York. Although the drawbacks of deregulation in other industries have by and large resolved themselves, the ESCO market has gone unad- dressed. ESCOs came under fire in 2016. A review found that multiple ESCOs were jacking up bills resulting in overcharging for electric and gas service, failing to deliver on promises for savings and clean ener- gy, and were unscrupulously preying on low-income, senior and limited English speaking consumers. Customer reviews written for New York's database of ESCOs display phrases like 'excessive telemarketing calls', 'unpredictable variable and high rate Contracts', 'earl y cancellation fees,' non-transparent door to door sales tactics,' poor Better Business Bureau rating' and 'widespread customer complaints'. ESCOs have notori- ously been cited for using deceptive sales tactics. 'Consultants' misrepresent themselves by pretending to be employees of the local util- ity company. The consultants push consumers into signing predatory contracts often by cold-knocking at a home or apartment door. These exchanges result in new contracts being signed, which is called 'slam- ming.' Eventually, unaware consumers discover that their rates have increased dramatically. Rates are as much as triple the amount of what they would otherwise be paying with Con Ed, National Grid or other util- ity providers. Data suggests that New York customers pay as high as 17% more for utility fees under ESCO contracts compared to the rates typi- cally charged with their local utility. Under the current regulatory climate, it is very difficult for ESCOs to face any regulatory penalties for these unscrupulous practices.

The worst offender of all of the ESCOs operating in New York is Ambit Energy, who claims to be the largest ESCO in the state. They have over 300,000 customers and account for about one fifth of PCS complaints; seven times the complaints of Con Edison. Automatic enrollment in vari- able rate plans without notification to the consumer are the basis for a number of class-action suits against Ambit. ESCOs function like a network marketing firm, which illustrates the level to which the organ- izations operate. They don't generate or deliver the energy. They have consultants that act as 'entrepreneurs' rather than 'employees'. Many ESCOs also exist just on paper, indicating how easy it is to set the business model up in New York State.

In 2016, the PSC estimated that there are about 281,000 low-income customers getting gas or electricity from ESCOs. The commission said that over a 30 month period those individuals paid approximately $96 million more than they would have paid if served by their own utility. In December of 2016, the state PSC approved a prohibition on ESCOs sell- ing to low-income customers unless they get special dispensation from the regulator. Building on that PSC decision to crack down on ESCOs, this amendment to the Public Service Law to prohibit unauthorized chang- es of suppliers of natural gas and electric service would further strengthen consumer protections for all New York State residents from unscrupulous behavior such as 'slamming'.

Legislative history

2019 Amended to correct effective date

2017-18 S5023/A5235 Dinowitz - passed in Assembly, died in Senate

2015-16 S2557/A1903 Dinowitz - passed in Assembly, died in Senate

2013-14 S3442-A/351-A Dinowitz - died in committee

2012 S6455 died in committee

Fiscal implications

Increased revenue to general fund resulting from administrative and judicial penalties.

Effective date

This bill will take effect 120 days after it shall have become law.