The state just made it easier for marketers to sell high-priced heat
By Steve Daniels, Crain’s Chicago Business. January 28, 2017.
The state has made it far easier for natural gas suppliers, often criticized for practices that lead to higher-than-necessary home heating bills, to sign up customers in Chicago and the northern suburbs.
The Illinois Commerce Commission in November granted suppliers the privilege to cede billing and collections to Peoples Gas and its sister utility, North Shore Gas. That shields the unregulated marketers from risks of customers who stop paying their heating bills, forcing the utilities to try to collect overdue bills. If they can’t collect, ratepayers throughout the service territories must absorb the collective costs of bad debt through their bills.
The move came over the strong objections of consumer advocates. They worry that firms signing up customers to contracts that lock in higher prices than what they’d get from the utility will pursue lower-income customers because they no longer have to worry about forcing deadbeats to pay up. “We think that’s a time bomb waiting to explode,” says David Kolata, executive director of the Citizens Utility Board in Chicago.
Peoples and North Shore Gas asked the Illinois Commerce Commission in late 2015 for approval of the “purchase of receivables” program for suppliers after agreeing to do so as a condition for winning support from the supplier industry for the acquisition of their parent, Chicago-based Integrys Energy Group, by Milwaukee-based Wisconsin Energy in 2015. With little discussion, the ICC voted 4-1 to approve it despite rejecting a similar request by suburban gas utility Nicor in 2013. Nicor, too, made the request as a condition for supplier backing of its 2011 sale to Atlanta-based AGL Resources.
The about-face comes as consumer complaints about gas utilities and their marketing and billing practices remain stubbornly high. One of the most common complaints relates to fixed-price gas deals that seemingly without notice morph into contracts with prices changing each month. Gas under these variable-price arrangements can cost three times as much as fuel sold by utilities. The Citizens Utility Board, a consumer watchdog, says for the past year it’s been getting about 20 complaints monthly on this practice alone.
Susan Johnson, a 40-something former physician and stay-at-home mother in Lincoln Park, signed with Houston-based Spark Energy in mid-2014. The following year she noticed her gas bills were far higher than they’d been before. She called Spark and was told her fixed-price deal had been automatically renewed as a variable-price contract. She moved to terminate and go back to Peoples Gas. But it took her seven months to finalize the transition, and only after she’d called Spark Energy three times, she says.
During those seven months, she calculates she paid about $760 more than she would have with Peoples. Spark agreed to reimburse her more than $500, she says, which didn’t make her whole, but she was tired of fighting. “It was just like the worst nightmare,” she says.
Suppliers are required to notify customers when their contracts are automatically renewed, but that amounts to a mailing and two attempts to call. Often consumers ignore the mailings, thinking they’re junk mail and don’t answer the phone from an unfamiliar number.
A Spark Energy representative didn’t respond to attempts to seek comment.
But the company’s CEO, Nathan Kroeker, makes it clear how much he likes variable pricing and markets where ratepayers bear the cost of uncollectible accounts, as will be the case in Chicago. In a Nov. 10 conference call to discuss Spark’s rising earnings, he said, “Seventy percent of our revenues are in (purchase of receivables) markets. So we don’t carry any consumer risk on 70 percent of our revenues. I would like to see us have a little more variable in the portfolio over time, but that’s really a function of our renewal strategy.”
The New York Public Service Commission on Jan. 25 asked Spark to justify being allowed to continue marketing in New York state. The agency cited evidence of signing up customers without authorization and misleading marketing.
In the third quarter of 2016, Spark accounted for 10 of 67 complaints to the ICC about gas marketers, the highest of any marketer. In the second quarter, it accounted for 17 of 101 complaints, again the highest share. And in the first quarter—the coldest—Spark had 46 of 146, nearly a third of the total.
Spark has about 52,000 natural gas customers in Illinois, Michigan, Indiana and Ohio.
Even without the aid of risk-free consumer deals, gas suppliers are making inroads in Chicago. They supplied 119,709, or 16 percent, of Peoples’ household customers in Chicago at the end of 2015, up 163 percent from 45,571 two years before, according to the ICC.
With more than a third of Chicagoans living at 150 percent of what the federal government considers poverty level, consumer advocates fret that Peoples’ already high percentage of delinquent customers will grow.
Industry representatives argue that allowing suppliers to push collections to utilities reduces their costs and enables them to pass the savings to customers. Under the new ICC policy, the gas utilities also aren’t obligated to take responsibility for supplier-generated heating bills where there’s a customer dispute, at least until the dispute is resolved.
“There may be a few problems in the retail natural gas market, but it is due to marketing behavior and contractual issues that have no connection to the availability of (purchase of receivables),” Kevin Wright, president of the Illinois Competitive Energy Association, writes in an email.
Now that the commission has endorsed risk-free merchant gas sales in Chicago and the northern suburbs, will the policy be coming soon to the western and southern suburbs? Not if suburban utility Nicor has anything to say about it.
“Currently it is not in our plan to request approval of” purchase of receivables, a Nicor spokeswoman writes in an email.
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