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"It's obvious that the consumers weren't first and foremost in the process" of bringing competition to the state's natural gas markets. Assemblyman Paul Tonko, D-Amsterdam, the chairman of the Assembly energy committee.
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By DAVID ROBINSON
News Business Reporter
5/12/01
State regulators, looking to protect customers against the risk of losing deposits and advance payments made to failed energy services companies, have proposed new rules that would require those funds to be kept in escrow accounts or be backed by other types of financial security.
The new rules proposed by state Public Service Commission staff members this week are designed to prevent customers from losing money when an energy marketer goes under, as happened last fall when consumers lost $1.8 million in prepayments and deposits after Iroquois Energy Management closed and filed for bankruptcy protection.
Ronald Cerniglia, the director of the PSC's Office of Consumer Education and Advocacy, said the commission is expected to make a decision on the proposed rule next month and, if approved, could be in place this summer.
Assemblyman Robin L. Schimminger, D-Kenmore, who has proposed legislation that would require energy services companies to establish financial guarantees that would ensure refunds for customers if the firm goes out of business, said he was pleased by the PSC staff's proposal.
"We must be mindful of the problems that arise and take the appropriate steps to protect consumers," he said.
But Assemblyman Robert Smith, D-Hamburg, said the PSC needs to be more vigilant about protecting consumers in the state's newly deregulated natural gas marketplace.
"Isn't a major charge of (the PSC) to protect consumers?" he asked. "I hope that you've learned from the Iroquois situation that you have to do a more strict job of reviewing this."
The PSC requires energy services companies to register with the commission, file a standard contract with the agency and set up a process for resolving customer disputes. The energy services company also must provide financial information to the local gas utility that shows their credit worthiness.
But even the proposed regulations still make it difficult for consumers to judge the financial health of an energy services company and the commission's existing rules offer no protection for consumers who pay in advance for their gas service.
"It's obvious that the consumers weren't first and foremost in the process" of bringing competition to the state's natural gas markets, said Assemblyman Paul Tonko, D-Amsterdam, the chairman of the Assembly energy committee.
Gerald Norlander, the executive director of the Public Utility Law Project in Albany, said the PSC has "very lax standards" that do little to protect customers. "It's encouraging they're thinking about it now. They were warned about it five years ago."
Still, Norlander said he did not like the provision in the proposed rule that would allow energy marketers to collect up to double the customer's average monthly bill as a security deposit. Utilities are barred from collecting deposits from customers, except when there is believed to be a credit risk or to facilitate balanced billing programs and estimated meter readings, and Norlander believes energy service companies should face the same standard.
The proposed rule would require that energy services companies hold any deposits or prepayments strictly for the benefit of those customers and take steps to ensure that the money will be returned to consumers if the company closes or goes bankrupt. To do that, the PSC's staff proposed that the marketer provide a letter of credit, keep the money in an escrow account or post a bond or other type of financial security, among other options.
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