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State regulators change rules for energy marketers

State regulators, in a sweeping change to New York’s energy market, issued new rules Tuesday requiring that energy marketers guarantee that their residential and small commercial customers will save money. If not, the marketers must offer electricity from renewable sources.

The state Public Service Commission’s new rules result from a rising tide of complaints from consumers that some marketers are charging much more than the local utility for natural gas or electric service.

“The record is clear that residential customers have not benefitted from electric and gas supply services from energy services companies when that’s all that’s being purchased,” said Audrey Zibelman, the PSC’s chairwoman. “We have heard from too many consumers that they were unfairly lulled by aggressive and dishonest marketing into believing they were getting savings that they did not receive.”

The new rules will bring a significant change to the way energy marketers price their services. Most marketers currently offer consumers a choice of either a fixed price or a variable rate that fluctuates with changes in natural gas or electricity commodity costs. While marketers frequently offer short-term teaser rates that guarantee savings for a couple of months, few offer long-term contracts with guarantees of cheaper prices than the local utility.

That will change under the new rules.

Beginning on March 4, energy marketers will only be able to enroll new customers or renew existing contracts if they offer guarantees that those consumers won’t pay any more than they would if they were a customer of their local utility. The only way marketers can charge more than the utility is for consumers who sign up for an offering for electricity where at least 30 percent comes from renewable sources.

“What started out as a discussion on how to protect low-income customers from deceptive business practices and has now evolved into price regulation for marketers,” said Bruce Heine, senior vice president of National Fuel Resources, the Amherst energy company’s unregulated energy marketing business.

“National Fuel Resources has always offered fair and reasonable pricing including fixed-price options which provide customers with price certainty,” he said. “Under this new legislation, we will be limited as to the guaranteed price offerings, which is unfortunate as that is what certain customers are looking for.”

Gary A Marchiori, the president of EnergyMark, an Amherst energy marketing company, called the changes “significant.”

“This is a positive change for the industry,” Marchiori said, although he also said natural gas pipeline capacity rules need to be changed to make it easier for marketers to purchase and move gas into the state.

“Keep in mind, utility costs are lower, because of the existence of a competitive market place,” he said.

More than 20 percent of the residential customers throughout the state buy electricity or natural gas from energy suppliers other than their local utility – a level that has been fairly stable since the state deregulated its energy markets in the late 1990s.

PSC officials said it has been difficult for energy marketers to compete with the prices charged by utilities.

That’s because energy marketers have higher operating costs than utilities in several ways. It’s more expensive for marketers to sign up customers compared with utilities, which still deliver energy to those customers regardless of where they purchase their energy. The rates that New York utilities charge their customers also require that they sell energy to their customers at cost, without any mark-up. And utilities also have the advantage of economies of scale over most marketers.

“Experience shows that, with regard to mass market customers, ESCOs (energy services companies) cannot effectively compete with commodity prices offered by utilities,” the PSC order said.

The lack of savings for ESCO customers has been known for years. A 2012 analysis of two years worth of National Grid bill data found that roughly six of every seven customers who bought their electricity through an energy services company paid almost $21 a month more than they would if they had continued to buy their power from the utility. Roughly 10 of every 11 National Grid consumers who switched to an energy services company for their natural gas service paid an average of almost $11 a month more.

An analysis by AARP late last year found that the state’s energy marketers charged an average of 14 percent more than utilities in 2014.

The commission said it would review the rules after 60 days, possibly to consider adding additional rate options for marketers that create bundles of energy-related services to encourage energy efficiency or help consumers create “smart home” systems that allow them to better manage their energy use.

“What’s not going to change is the commission’s stance that they want to see guaranteed savings or green power,” said James Denn, a PSC spokesman.

Consumers who buy energy from a marketer through a month-to-month agreement with variable rates must be enrolled in a program that offers guaranteed savings or uses renewable energy at the end of the current billing cycle or have their service switched back to the utility, the PSC said.