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Retail Choice: A Race to the Bottom

Fortnightly Magazine - January 1 1998

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