The New York Public Service Commission’s tighter limits on the activities of independent energy service providers threaten to undermine a robust competitive residential energy market that has delivered cleaner energy and a healthier environment despite declining complaint rates.
In 2016, the New York Public Service Commission prohibited most independent energy service companies (ESCOs) from selling electricity and natural gas to low-income customers unless they can guarantee savings.
The change requires service providers to guarantee their customers won’t pay more than buyers who stick with their incumbent utility. There’s an exception for electricity generated from renewable energy, however, with the added stipulation that at least 30 percent of the power comes from renewable sources.
The Commission argues that the restrictions are necessary because many ESCOs have been overcharging customers and using high-pressure and deceptive sales tactics that target low-income and other vulnerable populations. If the Commission determines a service provider has engaged in deceptive practices or overcharged, its low-income customers are reconnected to their local utility.
Service providers challenged the market restrictions to the state Supreme Court. But this past summer, the high court upheld the Commission’s authority to protect consumers from being overcharged.
The Public Service Commission deserves credit for seeking to improve protections for consumers, especially for low-income households who can least afford unexpected increases in energy costs. Unfortunately, instead of protecting consumers from deceptive marketing or overcharging, the new rules threaten to push third-party service providers out of the market, leaving consumers with fewer options for clean energy.
Independent service providers have been central to New York’s efforts to transition to a lower-carbon power grid by encouraging energy efficiency improvements and responding to consumer calls for more renewable energy generation.
Mandating price guarantees distorts the benefits of a competitive market. It exposes service providers to risks when costs increase suddenly and artificially, and to consumers who can be overcharged when market-conditions cause prices to drop suddenly.
Regulators are not able to respond quickly enough to fluctuations in market prices to mitigate those risks. A properly functioning market based on supply and demand is far more efficient at determining the true cost of electricity than government regulators. Independent service companies provide fixed-price hedging alternatives to the local utilities’ variable pricing, which places the risk of price fluctuations on the service provider where it belongs instead of on consumers.
The Public Service Commission’s assumption that customers are being overcharged is also based on faulty data analysis. Complaints against service providers have fallen since 2016. New York customers filed 468 complaints about deceptive marketing practices and advertising in 2017 compared to 257 claims in 2018 – a decrease of 45 percent, according to Commission data. Initial complaints against service providers also declined significantly, from 2,195 in 2017 to 1,684 in 2018.
The number of new complaints filed this past June fell to the lowest level since 2011, according to the Commission. Initial claims in June totaled 79 compared to 103 in the same month the previous year. Of those, only 16 complaints were deemed severe enough to be escalated compared to 28 for June 2018.
In every market, there will, unfortunately, be a few bad actors. But the statistics show that existing rules and the ability of consumers to switch providers, which is inherent in a competitive market’s design, are working.
New Yorkers can and should be able to choose the energy products that work best for them and their families. Efforts to restrict the number of companies participating in the open market, however, reduces the effectiveness of competition.
Independent service providers understand they must deliver services that consumers want at prices that are competitive, or else their customers will choose a different provider. Rules that restrict the number of competitors in the market limit the ability of consumers to vote with their feet.
Instead of limiting the ability of service providers to compete, consumers would be better served by an update to the state’s Power to Choose website, which allows comparison shopping between the services of hundreds of independent providers and incumbent utilities. Ensuring the website’s pricing information is accurate would go a long way to improving consumer satisfaction with the market.
The Commission should also focus on getting bad actors out of the market by insisting on price transparency and the right of consumers to change service providers with minimal notice and without financial penalty. Variable pricing offers should be clearly labeled, so consumers understand what rates will be once any initial limited-time price offer ends. Energy brokers should also be required to disclose hidden fees that can be rolled up into the price consumers pay.
After 15 years of competitive markets, New York residents have the benefit of choosing among approximately 200 energy service providers. Independent service providers have proven that a market exists for cleaner energy and energy efficiency. Competition has benefited New York in terms of a cleaner and healthier environment, as well as lowering the amount consumers pay for electricity. It has also made New York’s power system more flexible and able to respond to spikes in energy usage during extreme weather. Those are benefits regulators should preserve.
Protecting consumers from deceptive marketing practices is a laudable goal. The New York Public Service Commission should make sure that in strengthening consumer protections, it doesn’t unintentionally limit their energy freedom.