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Direct Energy Proffers Consideration Of Limits On Variable Rates, If New York PSC Feels Market Intervention Is Needed

Proposes New ESCO Eligibility Requirements, Up To $5 Million In Security, Including $1 Million Additional Security For Door-to-Door Sales

September 19, 2017

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Copyright 2010-17
Reporting by Paul Ring •

In testimony in the New York PSC's evidentiary review of the retail energy mass markets, Direct Energy, through its witness John Hanger (former Pa. PUC Commissioner), proposed several retail energy market changes. While not the company's preferred solution, Direct Energy said that if the PSC feels intervention in the market is necessary with respect to variable rates, the Commission could impose, for a trial period, "guardrails" that limit how much a variable rate can increase in any one month.

Hanger testified, "The Commission should provide reasonable reforms to prevent unforeseen consequences to customers who may not fully understand the characteristics of variable service."

Hanger then listed several potential options, though Hanger did not endorse all of the discussed options

Hanger said that reform options for variable rate products in New York potentially include:

• Requiring ESCOs to disclose the price of any variable rate product before the beginning of the month in which the price applies

• Establishing ESCO price 'guardrails' for variable rate products that limit how much an ESCO variable rate product can increase from month-to-month;

• Banning the sale of variable rate products to customers who are Assistance Program Participants (which has effectively occurred already, with the Commission’s December 16, 2016 Order, unless the variable products comes with a guarantee of savings versus default service and the ESCO has received a waiver to provide it); or

• Prohibiting their sale to any residential customer.

"[R]estricting variable rate products in their entirety is a draconian and ultimately harmful step, and should not be pursued," Hanger said

"From the options above, I would recommend enhanced education about variable rates and variable rate products, prior to sale, through Commission approved marketing and consumer education materials," Hanger said

"While my preference would be to not intervene in any manner in ESCO pricing, if the Commission disagrees, the Commission could impose, for a trial period, guardrails that limit how much a rate can increase in any one month. A possible starting point for the maximum amount a variable rate could increase in any one month could be 30%, a potentially large substantial increase, but it is a limiting guardrail; ESCOs could of course decide to limit any month-to-month variation less than the 30%. Having a limit on month-to-month adjustment provides time so that the consumer could receive a monthly bill and could prevent any further increase by either switching to a fixed rate product, or switching to another product offered by a competing ESCO, or by returning to the utility default rate that is a variable rate itself. If the Commission implements a variable rate guardrail or monthly increase cap, the Commission should test that cap in the marketplace. After testing in the marketplace a guardrail rule for perhaps six to twelve months, the Commission should review whether the rule has been effective in reducing complaints and increasing customer confidence in the market," Hanger said

Hanger also proposed an assessment be levied on ESCOs to increase PSC staff dedicated to the oversight of retail energy markets and enforcement of consumer protection rules. "I recommend that the Commission impose an assessment to help pay for this effort. This assessment could be imposed on a customer-count basis and collected from ESCOs as a condition of obtaining and or maintaining one’s eligibility to do business in New York. An initial budget of $500,000 to $750,000 should allow for a significant increase in oversight of the retail market and enforcement of regulations," Hanger said

Hanger proposed stricter eligibility requirements for ESCOs

"I recommend three specific ways in which eligibility requirements to serve be raised: (1) posting financial security; (2) demonstrating necessary expertise; and (3) operating a robust compliance program to comply fully with regulatory requirements," Hanger said

"Every ESCO should be required to demonstrate financial viability by requiring each one to post financial security of up to $5,000,000 and no less than $1,000,000, depending on the number of meters served. This amount of financial assurance could be met through a performance bond, letter of credit, or a corporate guarantee," Hanger said

"ESCOs should be required to demonstrate expertise in energy operations like supervision of sales and marketing activities, finance, supply hedging and customer service such as responding professionally to customer inquiries 1 or complaints. I should also be clear that by demonstrating expertise I mean more than simply listing a name with a title that corresponds to one of the core areas of expertise mentioned above. ESCOs seeking eligibility should be required to provide background information showing the experience of those who will hold positions of responsibility in the company, and make those individuals available to answer questions from DPS Staff," Hanger said

Hanger also proposed new conditions on door-to-door sales

"I further recommend that (1) an additional $1,000,000 in financial assurance be required of any ESCO engaged in door-to-door selling; and (2) the Commission issue twice a year 'Best Practice Guidelines' for door-to-door sales, such as regular background checks for all sales agents, geo-location tracking of all sales agents, and voice-recorded verification of all sales with updates to the Uniform Business Practices ('UBPs'), to establish the most current and best practices for door-to-door sales," Hanger said

Hanger said that all outbound telemarketing calls should be recorded and that those recordings be preserved for enough time to help solve any customer problems and to ensure regulations are being followed

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