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New York PSC Sets Evidentiary Hearings For Total Ban on ESCO Service Mass Market Customers

Price Caps, Prohibiting Door-to-Door And Telemarketing, And Adding Recourse To POR Other Potential Outcomes

Void Of Existing ESCO Contracts Under Consideration

December 5, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The New York PSC has established an evidentiary hearing process to consider whether to adopt a complete prohibition on ESCO service to mass market customers, or other market, "reforms."

Such other "reforms" under consideration include requiring that ESCO bills be no greater than utility bills, and requiring the tariffing of ESCO service, including the potential for the PSC to, "void existing ESCO contracts if it tariffs ESCO services."

Also under consideration is whether door-to-door and outbound telemarketing should be prohibited, and whether the purchase of receivables system should be changed to "purchase with recourse" or tiered discount rates so that ESCOs bear more financial risk from such practices

The PSC is also considering the extent to which ESCOs should be subject to Article 4 of the Public Service Law, which sets forth the PSC's authority to establish rates to ensure that they are just and reasonable rates and to accordingly regulate such rates

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"After considerable experience with the offering of retail service to mass market customers by ESCOs, the Commission has determined that the retail markets serving mass-market customers are not providing sufficient competition or innovation to properly serve consumers. Despite efforts to realign the retail market, customer abuses and overcharging persist, and there has been little innovation, particularly in the provision of energy efficiency and energy management services. Commodity price differentiation has not worked, and the market for differentiated services is immature or non-existent. If ESCOs were truly living up to the promise of their function as innovators, it is expected that there would be much greater variety and transparency in the market for goods and services that supply real consumer energy value, insistence from serious participants on rules that govern against consumer fraud, maturity beyond door to door selling, and a consumer base with a much greater degree of satisfaction. While a well designed market could offer these consumer opportunities, it simply does not exist today. Accordingly, the Commission continues to examine measures that must be taken to ensure that these customers receive valuable services and pay just and reasonable rates for commodity and other services," the PSC said in a notice

"Among the measures to be considered are: (a) whether ESCOs should be completely prohibited from serving their current products to mass-market customers; (b) whether the regulatory regime, rules and Uniform Business Practices (UBP) applicable to ESCOs need to be modified to implement such a prohibition, to provide sufficient additional guidance as to acceptable rates and practices of ESCOs, or to create enforcement mechanisms to deter customer abuses and overcharging, including whether the Commission decision not to subject ESCOs to Article 4 of the Public Service Law should be revisited; and (c) whether new ESCO rules and products can be developed that would provide sufficient real value to mass-market customers such that new products could be provided to them by ESCOs in the future in a manner that would ensure just and reasonable rates," the PSC said

"Please take notice that in furtherance of these efforts, two procedural tracks are established in these proceedings for the consideration of measures '(a)', '(b)' and '(c)' described above. Track I shall be for the consideration of measures '(a)' and '(b)' and shall include an evidentiary hearing at which sworn testimony and exhibits will be subject to cross-examination, followed by the filing of post-hearing briefs prior to Commission action. Track II shall be for the consideration of measure '(c)' and shall include collaborative meetings of interested parties, collaborative or party reports or proposals, and the opportunity to comment in writing prior to Commission action," the PSC said

Track I initial pre-filed testimony and exhibits must be filed on or before April 7, 2017.

All parties to the proceedings may be subject to discovery regarding Track I issues. The PSC said that parties submitting Track I testimony and exhibits should address the following topics where relevant to their positions:

1. Whether ESCOs should be prohibited in total or in part from serving their current products to mass-market customers, or whether ESCOs should be required to offer value-added energy efficiency and energy management services as a condition to offering commodity services.

2. Whether the regulatory regime of how the Commission applies the Public Service Law to ESCOs should be modified to ensure that customer abuses and overcharging by ESCOs is deterred. In particular, the Commission has not applied Article 4 to ESCOs, based on a construction that Public Service Law §66(1) only applies to utilities with plant in public streets. Is that construction justified today? Would it be appropriate to revisit that construction in light of subsequent events, such as the adoption of the 2002 amendments to the Home Energy Fair Practices Act? If the construction is revisited, would it be appropriate and beneficial to customers and in the public interest to apply the restrictions of Public Service Law §65 to ESCOs?

3. Whether the regulatory regime of how the Commission applies the Public Service Law to ESCOs should be modified to ensure adequate enforcement mechanisms, including penalties, to deter customer abuses and overcharging. In this regard, please comment on whether it is possible for the Commission to seek penalties against ESCOs under the current regime, pursuant to which they are only regarded as "gas" and/or "electric" corporations under PSL Article 1, or if it is necessary to also regulate ESCOs under Article 4 to seek penalties against ESCOs? If Article 4 regulation is deemed necessary, then what burdens would such regulation impose? For instance, would it be possible for ESCOs to obtain "incidental" regulation under Public Service Law §66(13) and would such "incidental" regulation serve the public interest? Would ESCOs also be subject to undue burdens if they needed to obtain approval for stock issuances under Public Service Law §69 or the transfer of stocks, plant or franchises under Public Service Law §70? Should ESCOs be further regulated as to credit worthiness?

4. Whether the regulatory regime of how the Commission applies the Public Service Law to ESCOs should be modified to guide ESCOs toward acceptable rates and practices and deter customer abuses and overcharging. In particular, if the Commission decides that Public Service Law Article 4 applies to ESCOs, should the Commission use the discretionary authority of Public Service Law §66(12)(a) to require filing of tariffs by ESCOs in order to ensure that ESCO bills be no greater than utility bills? If so, should the Commission require filing of tariffs by all ESCOs, just ESCOs offering commodity-only service, or just ESCOs that have been determined to charge prices in excess of utility bills? Should the Commission take steps to void existing ESCO contracts if it tariffs ESCO services?

5. Whether the rules applicable to ESCOs should be modified to ensure that customer abuses and overcharging by ESCOs are deterred. If so, then should the authority be imposition of Public Service Law Article 4 and/or other requirements created by Public Service Law Article 6?

6. Whether the Uniform Business Practices (UBP) applicable to ESCOs should be modified to ensure that customer abuses and overcharging by ESCOs are deterred.

7. Whether door-to-door and outbound telemarketing practices of ESCOs to mass market customers should be prohibited, and whether other ESCO marketing practices should be prohibited?

8. Whether the purchases of receivables system regarding mass market customers should be modified in any way, including but not limited to imposing "purchase with recourse" provisions or tiered discount rates so that ESCOs with abusive practices bear more financial risk from such practices?

9. The prices for retail gas and/or electric service charged to and paid by mass-market customers of ESCOs in the recent past, including, at a minimum, calendar years 2014 and 2015 and as much of 2016 as may be available, and the prices those customers would have paid for comparable utility service. If different products are offered (e.g., fixed vs. variable), the prices by product offering. In addition to annual data, seasonal (summer and winter) and monthly data should be provided where possible and relevant. Data for residential and small commercial customers should be provided separately. Data for electric and natural gas products should be provided separately. Where an ESCO product has been offered for more than five years, the last five years of historical data should be provided. Parties providing significant quantities of data should consult with Staff as to providing the data in a useful electronic format.

10. Data setting forth the number of customers served by ESCOs, by ESCO, for 2014, 2015, and so much of 2016 as is available.

11. Data setting forth the volume of sales in total dollars and in kWh, by ESCO, for 2014, 2015, and so much of 2016 as is available.

12. Evidence that an ESCO has, in fact, in recent years offered or is currently offering lower prices on an annual basis compared to the incumbent utility consistently, including number of customers served and total volume of sales in both dollars and kWh. Such evidence should also include an analysis of whether that price offering has been profitable or resulted in a loss to the ESCO.

13. Whether, given the current retail market structure, it is possible for an ESCO to profitably offer lower prices on an annual basis compared to the incumbent utility consistently and, if possible, how it can be done.

14. The number and nature of customer complaints regarding i) retail prices and bills and ii) sales and marketing practices from a) customers directly to ESCOs, b) from customers to utilities about ESCOs, by ESCO, and c) customers to the Commission about ESCOs, by ESCO during calendar years 2014 and 2015 and as much of 2016 as it is available.

15. ESCO marketing and sales practices, including printed materials, customer contracts, scripts for telephone or door-to-door solicitations, and other training materials for ESCO sales people for practices in effect during calendar years 2014, 2015, and 2016. Such evidence should include all efforts by ESCOs to ensure that they and their personnel comply with the Uniform Business Practices (UBP) and that they otherwise avoid any deceptive marketing practices.

16. The ability of mass-market customers to obtain information about relative prices and offerings of ESCOs and regulated utilities and to understand such information, including evidence regarding the transparency of the retail market for mass-market customers and the level of knowledge in that market.

17. Tools that are available in the public domain that customers can use to do comparison shopping.

18. Specific customer surveys that shed light on customers’ understanding about retail choices available and how to make informed choices.

19. Actions by state agencies or consumer advocacy groups to protect customers, to monitor the state of the retail market customers, to provide information, or to lodge complaints or impose discipline in the case of improper ESCO practices, including specific concrete steps the group has taken and any results obtained from those actions.

20. Actions that have been taken or that could be taken to strengthen the retail market or otherwise to provide consumer protections sufficient to protect mass-market customers from overcharges or deceptive marketing practices. For instance, if the Commission decided to subject ESCOs to Article 4 of the Public Service Law would it be appropriate to require ESCOs to obtain Certificates of Public Convenience and Necessity under Public Service Law §68 in order to provide commodity service?

Track II activities shall be initiated by Staff of the Department of Public Service upon notice to all parties in these proceedings.

The PSC issued the following statement, "For too long, DPS has seen substantial overcharges and deceptive practices by the ESCO industry harming New York consumers. As part of these hearings and by obtaining testimony under oath, we will give ESCOs the opportunity to explain their pricing practices and to hear from consumers who have been harmed by these practices. We will then push ahead with reforms to ensure that ESCOs provide useful, value-added, economical services to New York consumers particularly as part of our efforts under Reforming the Energy Vision."

Case 15-M-0127 et. al.

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