New Rules Mean Shady Energy Companies Have to Stop Scamming Low-Income New Yorkers

The Ambit Power Trip Fall 2015, where consultants and would-be consultants for the “energy services company” drink in promises of boundless wealth. Ambit and other “ESCOs” have been the target of thousands of complaints in New York State, charged with bilking unwitting consumers. New regulations were announced last Thursday.
The Ambit Power Trip Fall 2015, where consultants and would-be consultants for the “energy services company” drink in promises of boundless wealth. Ambit and other “ESCOs” have been the target of thousands of complaints in New York State, charged with bilking unwitting consumers. New regulations were announced last Thursday.

The New York Public Service Commission (PSC) issued an order Thursday that will keep New York’s hundreds of shady private utility companies from preying on low-income customers, as they’ve done for many years.

The order issued on Thursday will enact an open-ended moratorium barring private utility companies — known as energy services companies or ESCOs — from signing up any customer who qualifies for public assistance on their energy bill. According to the PSC, that amounts to about 400,000 New York households. After reams of data showing that ESCOs offer, in the PSC’s own words, "little more than higher prices," the order is an acknowledgement that low income customers are virtually guaranteed to get taken advantage of when they shift away from their local, regulated utility.

The ESCO industry was the subject of a Voice investigation in February, which revealed how state regulators had been falling down on the job for nearly two decades. Governor Andrew Cuomo’s PSC, we found, had not only failed to adequately regulate an industry rife with fraud and abuse, but was continuing to actively promote its growth, despite being fully aware of systemic problems.

More than 200 of the often murkily incorporated firms operate in the state today, selling gas and electricity as an alternative to regulated utilities like Con Ed. About 20 percent of New York households use one ESCO or another, making it a multibillion-dollar industry.

Our reporting in February found that ESCOs in New York City often target elderly, immigrant, and low-income customers, offering up byzantine contracts that can end up doubling or tripling a customer’s energy bill. It’s the kind of spike that can be devastating for people on a fixed income.

If you’ve ever had someone knock on your door with an aggressive pitch for cheaper energy, you’re familiar with the industry. Pitches are often made in person with high-pressure techniques. As one former ESCO salesman told us, the objective is often to deceive: "We kind of pretend that we're associated with Con Edison," a man going by the pseudonym Michael told us, describing an approach he claims was common among his co-workers. "Like we're their power supplier.... [Prospective customers] think that there's some kind of procedural mistake going on with their power supply and we're there to actually fix the problem."

Advocates greeted the newest order with open arms. The Public Utility Law Project (PULP), one of the few organizations in the state that advocates for low-income energy users, told the Voice that the new rule was a step in the right direction. In a joint statement with the AARP, which along with PULP has been sounding the alarm on ESCOs for year, the organization said the moves would help provide some protection for vulnerable people while the court battle stretches on.

"State regulators have taken an important stand for energy affordability in New York," the organizations said in a joint statement. "The Public Service Commission’s new order will protect New York’s low- and fixed-income utility consumers from the overcharges endemic to the ESCO industry while a court battle threatens to leave those consumers vulnerable."

The measure is something of a stopgap while a high stakes legal battle between ESCOs and the PSC plays out. After the Cuomo administration issued sweeping new orders against ESCOs in February, three weeks after our story was published, the industry turned around and sued the state. The companies argued that the administration, spooked by bad press, had hastily tried to regulate prices, a power the ESCOs argue is beyond the PSC’s mandate.

"Approximately three weeks ago, a news article was published heavily criticizing the commission and the governor for allegedly allowing certain ESCOs to engage in deceptive marketing practices and unfair business practices," a consortium of ESCOs wrote in a legal filing, as relayed in the Times Union. "Either the commission was so fixated on taking swift action with respect to the bad press coverage that it failed to recognize it lacks authority to regulate ESCO prices or it is attempting to stealthily expand its authority."

The ESCOs successfully secured a court order halting the PSC’s reforms shortly after they were issued, and ever since, the industry has continued operating more or less as it always has. With lots of money at stake — the ESCOs argue that the PSC’s February order would effectively put them out of business — they’re not going down without a fight. The order last week will achieve some of the goals of the original order temporarily, and provide some relief for those who need it most.

The PSC’s order this spring represented a virtual 180 turn from their previous public position. As we reported our story in late 2015, top PSC officials offered up nearly unqualified praise for the industry’s business model in two hour-long interviews. Yes, some customers might pay more for electricity or be the target of aggressive sales practices, they said. But those higher prices were worthwhile, they argued, because of promotions that some companies offer, known as "value added" services. Examples offered by a top official included airline miles and gift certificates to fast food restaurants.

After our story ran, the agency announced new regulations as Cuomo played the hero, and neglected to mention the years of lackluster enforcement by state agencies. The administration didn’t seek to roll back any of the advantages ESCOs enjoy under state law, like tax exemptions, state-imposed advertising requirements, and the potentially corrupting ability of ESCOs to write off their bad debt. These officially sanctioned advantages for ESCOs remain in place. Despite what is portrayed as vigorous action, the Cuomo administration remains committed to allowing ESCOs to serve residential customers, a posture that seems at best misguided after twenty years of overcharging and deceptive practices.

Bryan Lee, a spokesman with the Retail Energy Supply Association, which represents ESCOs, said his organization was still reviewing the newest order, and didn’t have a statement at press time. A call to Cuomo’s office wasn’t immediately returned.


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