Battle Brewing Over Consumer Protections Legislation

By DAVID ROBINSON - News Business Reporter - 9/14/2002

The battle lines are being drawn in Albany over legislation that would require energy services companies to offer the same consumer protections to their customers that the state's utilities must provide.

Legislation that would extend those protections to consumers who buy their electricity and natural gas from independent marketers unanimously passed the state Assembly and Senate in June. But the bill has yet to be sent to Gov. Pataki's office for action and the governor has not indicated whether he will approve or veto the legislation.

Consumer advocates are pushing for Pataki to sign the bill, arguing that it would provide consumers with much-needed protections against being burned by financially shaky marketers and set important limits on the deposits and fees that customers might face.

Supporters also say the bill would protect consumers against being burned by a marketer like Iroquois Energy, which caused Western New York consumers to lose $1.8 million in prepayments and deposits when it went bankrupt in October 2000.

"If this bill was in effect, an energy services company couldn't require prepayments for their service," said William Ferris, a lobbyist for the American Association of Retired Persons, which supports the bill.

But opponents say the bill would stifle the state's fledgling competitive market for electricity and natural gas by making it more expensive for marketers to operate and limiting their ability to offer innovative services and products.

"I don't believe the bill offers consumers any additional protections," said Donna L. DeCarolis, vice president of National Fuel Resources, which is the energy marketing division of National Fuel Gas Co. "It would just increase the cost of doing business."

Critics also expressed concern over provisions that would give marketers the ability to shut off service to customers who don't pay their bills under the standards set by the existing consumer protection legislation, known as the Home Energy Fair Practices Act. Marketers now are able to turn delinquent customers back to the utility, which then is responsible for deciding whether to shut off service according to the existing guidelines.

"This will increase the number of service terminations," said David F. Smith, the president of National Fuel's utility business in a letter to the governor's office opposing the legislation. "To be blunt, an energy "consumer protection' law that authorizes an increase in service terminations is an illusion."

Ferris, however, said he doubted the legislation would lead to an increase in terminations because the existing consumer rules regarding utility shutoffs would have to be met before service could be discontinued.

The legislation would also make marketers subject to the same fee limits that utilities now face, capping late payment charges at 1.5 percent of the balance.

They also would be required to offer budget billing programs to all customers. While many marketers now offer deferred billing programs, they currently are not mandated.

Marketers also would be barred from collecting deposits unless a consumer has a history of delinquent payments. Prepayments, which allow marketers to collect from customers in advance, would not be allowed, eliminating the ability of independent suppliers to offer products like the one that caused Iroquois customers to lose hundreds of dollars when the company failed.

"The state is encouraging consumers to switch to energy services companies, but no one's telling anyone that they don't have the same rights that they had with the public utility," Ferris said.

If the bill becomes law, DeCarolis said marketers may have more difficulty crafting fixed-price offers, which now typically run for one- or two-year periods, because the legislation would allow customers to cancel their contracts with an independent supplier at any time without being subject to the termination fees that now are common.

But Gerald A. Norlander, the executive director of the Public Utility Law Project, an Albany-based advocacy group for low-income residents, said making marketers subject to the same consumer protection requirements as utilities helps level the playing field in the competitive energy market.

"If marketers really believe they can do better than the utilities, they should be able to comply with HEFPA better than the utilities," he said.

National Fuel's Smith, however, said the main threat to consumers are financially weak marketers, whose fiscal position could be further eroded by the extra costs imposed by the proposed legislation.

"If there is a consumer protection flaw in the current model of competition, it is that energy services companies are held to a much lower financial creditworthiness standard than utilities," Smith wrote. "To improve consumer protections, creditworthiness requirements should be raised so that energy services companies are held to the same levels traditionally maintained by utilities."

The state Public Service Commission in January adopted new rules requiring marketers to have an investment grade credit rating before they can collect prepayments or deposits from customers. Marketers also have to meet certain credit standards with the utility, as well as gas supply and service quality standards.