After Voice Investigation, Major Reforms Announced in Retail Energy Industry

After a Voice investigation earlier this month showed that energy retailers regularly bilk unsuspecting New Yorkers, state regulators took major steps on Tuesday to restrict the private utility companies’ activities in New York State.

Announced at a regular meeting of the Public Service Commission in Tribeca, the dramatic reform efforts could rein in the most serious abusers of the state’s regulatory loopholes. Energy services companies, commonly known as ESCOs, were created in the late 1990s amid a national wave of deregulation, with a simple goal in mind: to drive down prices. However, as we documented in our story earlier this month, ESCOs routinely overcharge customers, and critics say many of them frequently target elderly and non-fluent English speakers with predatory contracts. The state attorney general and numerous other watchdogs have described “widespread” abuses in the industry for years, but thus far, the PSC has done little to effectively curb those practices.

The commission’s order demands a virtually complete overhaul of the industry. In comments from the dais, the commission’s chair, Audrey Zibelman, an appointee of Governor Andrew Cuomo, acknowledged that the lax approach the commission had previously taken toward enforcement had failed.

“We may have been too tolerant,” Zibelman said. “We may have allowed people to say, ‘Oh, I’m really, really sorry. I promise I won’t do it again.’ And we let them go on. But we can’t do that anymore.”

Though a final draft is not yet available, commission staff outlined its basic terms:

• ESCOs will no longer be able to charge rates that exceed those of local utilities in most cases. This change would address one of the biggest problems the Voice found in its investigation — customers who were promised savings and instead saw their rates skyrocket. If ESCOs offer rates that do exceed those of local utilities, they’ll be required to offset those costs with “value added” products or services, or at least 30 percent renewable energy content.
• Contract plans with renewable terms will now be required to be “opt in.” One of the companies profiled in the Voice’s story, Ambit Energy, has drawn hundreds of customer complaints for its alleged practice of rolling customers into higher-priced plans without adequate warning. This proposal from the PSC would apparently halt that practice, requiring affirmative choice on the part of the consumer to stay in the company’s plan.
• The agency will consider shortening or even eliminating the current “cure” period, which allows companies to address problems before sanctions are put into place. The rule effectively let many ESCOs avoid any sanctions at all. As we documented in our story, only two companies that were actively serving customers in New York have ever had their ability to operate in the state permanently revoked. 
• The PSC will “explore” whether or not its financial penalty authority — which allows for fines of up to $100,000 per day for violations — should be applied to ESCOs. (Currently, that penalty can be levied only in other industries the PSC regulates, like telecommunications.)

Cuomo released a statement on the PSC’s action shortly after the commission’s meeting, calling it a strong move toward cleaning up a troubled industry.

“We have zero tolerance for these unscrupulous companies, whose business model is to prey on ratepayers with promises of lower energy costs only to deliver skyrocketing bills,” Cuomo said. “These actions will root out these bad actors and protect New Yorkers from these unfair and dishonest tactics.”

Richard Berkeley, director of New York’s Public Utility Law Project, a consumer advocacy group often critical of PSC’s oversight of ESCOs, said the action today seemed to represent a “new tone” at the commission.

“I think this is a very important step forward,” Berkeley said. “And we hope that this is just the first step in continued efforts to clean up this marketplace.”

The order doesn’t necessarily solve the problem with the industry, however.

The idea for opening the energy industry and inviting in new private players was always that introducing competition into a calcified industry would save consumers money. But that has not been the case so far. Federal and state data shows clearly that residential customers who sign up with ESCOs pay more, on average, than those who stay with their utilities. Berkeley said his organization would continue to push their view that ESCOs are not good for residential customers, period.

The PSC’s move comes after a number of elected officials in New York City and in the assembly told the Voice that they would be pushing for ESCO reforms along other avenues. In an interview last week, Public Advocate Tish James called the abuses some ESCOs engage in, and the victimization of low-income communities, immigrant communities, and the elderly, a “human rights” issue, saying she would push for even tighter sanctions at the PSC and potential legal actions against bad actors in the marketplace. Brooklyn Borough President Eric Adams said he too would be considering local action and was pushing state representatives for reforms.

State Senator Michael Gianaris, along with Assembly Members Jeffrey Dinowitz, and Amy Paulin told the Voice in recent days that they would be looking at new legislation to address ESCO abuses. (Paulin said she was considering holding hearings later in the session.)

During today’s meeting, Zibelman reiterated her support generally for the ESCO experiment but said something needed to be done.

“While I know this is disruptive, and I know that many of us would like to see the markets grow, we’d like to see the markets blossom,” Zibelman said, “sometimes you have to be a little bit disruptive.”

Correction: An earlier version of this article identified Michael Gianaris as an Assembly Member.