N.Y. Consumer Protection Board Opposes Auto-Renewals of ESCO Fixed Contracts with Price Changes

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January 18, 2011

Exempting New York ESCOs from obtaining new customer authorizations for fixed rate contract renewals with no material changes, with a change in rate not constituting a material change, "is not in the best interest of New York State Consumers and should be modified," the New York State Consumer Protection Board (CPB) said in supplemental comments to the New York PSC (98-M-1343).

As only noted in Matters, while the PSC held in its ESCO Consumer Bill of Rights order that fixed rate renewals whose only change in terms is a modified price do not require a new customer authorization, the PSC expressed concern with this process and sought further comment (12/20).

The CPB reiterated that not requiring a new customer authorization for a rate change, "could bind a customer to a contract with significant change in rates through inaction".

"The CPB opposes automatic renewal of fixed price contracts and supports a requirement that ESCOs' obtain a customer's express consent for contracts with price changes before renewal is allowed.  Customers purchase a fixed rate product primarily to avoid or manage potentially volatile market rates.  To allow a fixed price contract, to automatically renew at the end of the original term without expressed customer permission is not in the public interest and contrary to the volatility avoidance strategy that is a main driver motivating many customers to seek out a fixed-rate product," CPB said.

However, the National Energy Marketers Association noted that customers are, "afforded multiple notices and layers of protection to ensure that they understand the nature and terms of the contract and its renewal."

"First, the original fixed rate agreement that the consumer enters into makes clear the terms and conditions, including the length of the initial term, renewal terms - including that it is a fixed rate contract and that the rate is subject to change upon renewal, and the contract termination process, etc.  Second, the consumer will receive a renewal notice informing them of the new fixed rate," NEM said.

Perhaps most importantly, the PSC's recent Consumer Bill of Rights order provides that the consumer is provided with a three business day window after receipt of their first billing statement under the renewed agreement in which they can end the contract without a termination fee, NEM noted, providing an additional layer of protection.

Energetix argued that customers would become frustrated with having to repeatedly provide new authorizations for fixed rate contracts, and that the process would also add costs that would be reflected in retail rates.

"Our experience tells us that customers prefer and generally expect continued service under the terms of the original agreement, provided the renewal price is furnished in advance of the renewal date," Energetix said.

"Customer feedback has informed us that a perpetual cycle of product re-evaluation is unwelcomed.  To repeatedly invest hours of research and to perform evaluations on energy products year in and year out is more commitment than most customers are willing to make.  Under this strategy, a fixed price product becomes a high maintenance agreement from the customer's perspective.  Our experience is that this increased and unwelcomed customer burden results in heavy customer attrition beyond the initial term.  Energetix at one point employed a fixed price renewal policy which required re-affirmation by the customer.  The problem we experienced with this policy is that if the customer takes no action, we as the Supplier must default them to something.  The only option is to default them to a month-to-month market rate.  During that timeframe we received several PSC complaints by customers who were not happy with the fact that they defaulted to a product they never chose," Energetix noted.

Although not part of the PSC's request for additional comments, the New York State Energy Marketers Coalition asked the Commission to reconsider its policy for renewals of variable rate contracts.  The PSC held that ESCOs must send a renewal notice for the expiration of any variable rate contract, except a variable contract with a term of only one month that renews on a monthly basis.

NYSEMC said that the PSC should not require renewal notices for variable rate contracts of any length so long as the contract provides for monthly variable rates, and allows the customer to terminate the contract at any time without a termination fee.

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