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PUBLIC UTILITIES FORTNIGHTLY, January 1, 1998
Retail Choice: A Race to the Bottom
BYLINE: Gerald A. Norlander, Esq., Deputy Director, Public Utility Law Project of New York Inc., Albany, N.Y.
A recent article laments the slow pace of retail competition for residential gas sales in New York ("Blue Flame Blues: Gas Pilots Sputter at Burnertip," Oct. 1, 1997, p. 22). Besides the meager financial incentive for a New York residential customer to switch gas companies, there is another factor contributing to the slow headway being made by gas marketers: The New York Public Service Commission failed to establish a level playing field with just and reasonable terms of sale. Instead, the commission built a two-tier system allowing degraded competitive service lacking in protection for customers.
In its March 1966 decision requiring LDCs to unbundle gas commodity sales from transportation service to residential customers, the New York PSC held that new competitors selling gas are free to ignore the customer protection statutes consolidated in New York's Home Energy Fair Practices Act (NYPSL §§ 30, et seq.). The commission allowed marketers to determine in their contracts what customer rights and remedies will be, and abdicated its customary administrative role to adjudicate individual customer complaints against the new gas companies.
What followed was a race to the bottom. One-sided boilerplate residential contracts allow gas sellers to reject customers for no reason, and permit sellers to demand unlimited deposits at any time during the contract. A customer withholding payment of a disputed gas charge could simply be terminated on 15-days notice by the seller, and the deposit liquidated to satisfy the disputed claim.
In contrast, the contracts often hold customers to a term of a year or more, with automatic renewal unless the customer provides written notice during an annual 15-or 30-day renewal window. Marketers are not certified, and none of their prices are filed with the commission to facilitate public review and comparison.
Customers enticed by "lower" monthly payment plans may see their credit balances evaporate in midwinter due to questionable floating price methods or dubious balancing assessments. Most marketers' contracts permit shifting of balancing charges to the residential customer. Customers attracted by promises of lower base charges will be quickly discouraged by the blank check provisions in the fine print, permitting after-the-fact balancing surcharges with few limitations. Some force majeure provisions are so vague a seller might breach for any reason outside his control, including market price swings.
The article correctly observes that, contrary to common assumptions, buying from a marketer or energy services company is no one-way street to residential customer savings. Customers can lose. Customers have a growing awareness and experience with rip-offs, scams and unscrupulous "slamming" by new competitors in the telephone industry and may be well aware that in the end they may pay more, not less, to a competitor. Not all customers have the financial means to write off their loss as a bad mistake, or pay another supplier or "provider of last resort" if deposits or customer credit balances in dispute are held by the marketer to satisfy a disputed claim. Few residential customers have the resources or ability to obtain redress or refunds of confiscated deposits and credit balances through the courts or expensive arbitration. Waiting for the "market" or lawsuits to weed out bad-apple marketers and unfair contract clauses is not an adequate remedy for the wronged consumer with limited means who has lost her money.
The New York commission's "let the buyer beware" policy signaled to New York 's 4.5 million gas consumers that they cannot shop for gas based on price and that they cannot assume the terms and conditions of sale will be fair. Indeed, one New York LDC in a bill insert advised its 400,000 residential customers to consult an attorney before signing any gas marketer's contract. As with all contracts and consumer credit transactions, residential customers would be well-advised to ignore television ads, telemarketers' promises, direct mail pitches and slick brochures. Read the contract carefully, and do not sign it unless you can afford to risk losing much more money than you are likely to save if all goes well.
The Public Utility Law Project of New York, which represents low-income customers, commenced a declaratory judgment action last year to determine whether gas marketers are "gas corporations" subject to New York's customer protection laws. Whatever the outcome of that litigation, now on appeal after the trial court dismissed it, penetration by new entrants in New York's residential gas market will be impeded until all companies selling gas provide, at a minimum, the level of customer protection, service and commission oversight to which residential customers are accustomed. Had the commission required all players to stick to the existing minimum standards of service, residential customers might be more willing to reward those marketers providing more attractive prices or a higher level of service with their business.
If you publish this letter, please indicate that I am counsel to PULP in the pending litigation mentioned above.
Note: Plaintiffs to the suit filed against the New York PSC are the Public Utility Law Project; David Hepinstall (director of a New York City nonprofit, low-income weatherization agency); and Sandra Myers (a PULP Board Member and citizen taxpayer). The chairman of the New York State Assembly Energy Committee, Paul Tonko, represented by other counsel, joined the case as a citizen-taxpayer plaintiff.
The Chairwoman of the New York Assembly Judiciary Committee, Helene Weinstein, in an amicus brief, criticized the New York PSC for refusing to provide customers of gas marketers access to the statutory administrative complaint resolution process and for requiring customers of marketers to use the courts or expensive arbitration.
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