NY’s Parasitic Private Energy Scammers Are Digging In Their Heels

New York’s private energy retailers — the sometimes predatory, often annoying companies many New Yorkers know from late-night phone calls and persistent door-to-door sales pitches — are locked in an increasingly desperate fight with regulators, one that saw a major escalation in the final week of May.

After months of deadlock, on May 25 New York State’s Department of Public Service (DPS) took the highly unusual step of issuing subpoenas to more than 170 “energy service companies,” more commonly known as ESCOs. It was the most aggressive move yet in a campaign targeting an industry long rife with fraud and abuse.

The aim of the subpoenas is to shed light on ESCO financial practices, and especially on their pricing structures. While there has long been substantial evidence that ESCOs engage in rampant overcharging, the state is seeking much more detailed numbers as part of an overhaul that has been moving in fits and starts for over a year.

“The Department of Public Service is gathering facts to be used in an evidentiary hearing,” the agency said of the subpoenas, “to determine whether consumers are paying fair prices for ESCO products and services. Unfortunately, too many ESCOs have refused to participate in this fact-gathering process and have repeatedly rebuffed Department efforts to obtain necessary information, delaying this important public investigation.”

The state’s move was greeted enthusiastically by some members of the New York legislature, advocates for low-income ratepayers, and the City Council’s Black, Latino, and Asian Caucus.

Others were not as enthusiastic. At a state senate hearing on Tuesday to confirm a new member of Public Service Commission [PSC,] DPS’s governing body, Republican deputy minority leader John DeFrancisco invoked the “F” word to characterize the state’s actions against the industry.

“What I’m concerned about,” DeFrancisco told the nominee, John B. Rhodes, “is the almost — I don’t want to use the word fascist, action of the PSC, but clearly an action that was overbearing to say the least.”

As the conflict intensifies, it’s clear the PSC’s proceedings won’t wrap up anytime soon. That’s partly because the ESCOs have a financial incentive to drag the process out as long as possible, according to Richard Berkley, director of the Public Utility Law Project (PULP), a nonprofit focused on safeguarding low-income utility customers. In fact, that incentive is the very problem the PSC is trying to address: a pattern of ESCO overcharges.

Berkley estimates those overcharges generate between $30 and $40 million — each month. “That $30 or $40 million in overcharges pays for a lot of high-priced attorneys,” Berkley says. “Every time they delay this a month, they’re winning.” Their attitude, he says, is likely, “What the hell, make the money while you can.”

By the time the PSC fully institutes the controls it has been seeking, Berkley says, many ESCOs, simply unable to meet the new standards, are likely to be forced out of New York. Knowing this, of course, the ESCOs have no reason to do anything but dig in their heels.

Last year the Voice reported, as part of a lengthy investigation, on the predatory practices of the more unscrupulous ESCOs, including targeting people with limited English-language proficiency and preying on low-income communities and the elderly. Ambit Energy, a company that emerged as a focus of our story — and one of the recent subpoena recipients — has been the subject of class-action lawsuits in New York and New Jersey and accounted for nearly a fifth of the more than five thousand ESCO complaints to the PSC in 2015.

Operating on a multilevel-marketing business model that makes accountability difficult, Ambit has been accused by some customers of a kind of bait-and-switch attack that lured clients with low rates, then raised them up to fourfold. The Voice spoke with former employees who worried that the company was duping its customers; we attended a company conference where a speaker openly mocked Ambit’s own clients. The company did not respond to a request for comment.

Created during a nationwide deregulation frenzy in the late 1990s, ESCOs were supposed to bring the “magic” of the free market to the utility industry, lowering costs through competition. But it has become increasingly clear in recent years that, even aside from their predatory marketing practices, they weren’t accomplishing even that goal; ESCOs on average in fact charge more than traditional utilities. As part of a lawsuit involving ESCOs last year, it was revealed that New Yorkers who used an ESCO paid $820 million more over a thirty-month period than they would have with their local ConEd or equivalent.

Despite widespread abuses and the failure at their primary purpose, our reporting found, the more than 200 ESCOs in New York State had escaped serious sanction by regulators who were fully aware of the problem. Even as they drew thousands of complaints a year, and while they operated under a business model that “creates and too often relies on customer confusion,” as it was characterized by the PSC’s own 2014 report, the ESCOs had seen, over a span of twenty years, just two active companies barred by the agency. Watchdog groups characterized the PSC as being asleep at the switch.

Since our report, regulators under Governor Andrew Cuomo have done a dramatic about-face. In February of last year, a few weeks after our story was published, the PSC issued a sweeping order to dramatically scale back ESCO operations. Unless companies could prove that they either saved customers money or provided some other benefit beyond price, the PSC ordered, they would have to cease recruiting customers in New York State. Since many ESCOs charge significantly more than traditional utilities, and since the order would thus have driven many companies from the market, a fight ensued, both in court and in the regulatory arena, and the PSC’s most consequential actions have been on hold since last spring.

The PSC has since opened the evidentiary hearings, and it has signaled in recent months that it would like to all but eliminate the industry in New York State. The result is a state of open war. The industry’s main trade group, the Retail Energy Supply Association (RESA), has fought the new regulations at every turn. A spokesman for RESA declined to comment on the most recent move by regulators.

The subpoenas are the latest salvo in this war. Executed through the agency’s own administrative law judges, they demand a raft of financial information, from the number of customers each ESCO serves to audited revenue statements.

Maybe most importantly, the subpoenas require that companies disclose exactly how much they charged for their various plans for a five-year period between 2011 and 2016. Information about ESCO charges — and what many critics believe is rampant overcharging — has until now come only piecemeal, if at all. Regulators need more individualized data about the rates charged by various companies, PSC spokesman Jon Sorensen said in a statement, to “fully and fairly evaluate the market to make sure consumers are protected from unreasonable prices.”

Even as the proceedings have dragged on, ESCOs continue their high-pressure tactics. “It’s an issue that has not gone away for us or our members,” says Bill Ferris, legislative director in New York for the AARP. The group has for years been raising concerns about the ESCO industry, due to the particularly pernicious effects on seniors.

Ferris applauded the PSC’s most recent effort, underscoring just how unusual it is. “It’s our understanding that the PSC has not issued subpoenas like that in over ten or fifteen years.

“We hope that this evidentiary hearing will close the book on the ESCO fiasco in New York State,” Ferris added.

Correction: An earlier version of this article misidentified the law firm representing the Retail Energy Supply Association. Boies Schiller Flexner represents the National Energy Marketers Association, not the Retail Energy Supply Association.