Choosing an ESCO

Energy Tips For the Post-Deregulation Era

By Stephanie Mannino

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Saving money is always a top concern of any co-op or condo board, so when energy deregulation first offered customers the opportunity to choose their energy provider in 1998, it seemed that lower energy bills were on the way. But in the time since deregulation first came into effect, many companies have not survived, and many customers have not realized the savings they'd hoped for. So what's the best way to choose a new energy service company (ESCO) and find a good deal, if you're still looking to switch?

Doing the Research

If you're just starting out in the process of researching ESCOs, Larry Kurtz, president of Accurate Energy Group in Bellmore, N.Y., suggests visiting the New York State Public Service Commission's (PSC) Web site at www.dps.state.ny.us or go to Con Edison's at www.poweryourway.com. There you can find a listing of current ESCOs that are eligible to sell energy in New York. It's a good idea to check prices with several companies you may be considering. Vincent DiCeglio, a utility rate analyst for Utility Check, Ltd. in Rockville Center, N.Y., suggests calling the various companies and asking for their price per kilowatt hour. This will give you a beginning basis for comparison. See if there are any current incentives the ESCO is offering to new customers, and if the prices quoted include taxes.

Stephen Galowitz, president of Utilisave, LLC, in New Rochelle, N.Y., says it's important to keep in mind that there aren't differences in the actual product you're buying, no matter who you buy it from. That is, you're not buying the molecules; the energy, whether it is gas or electric, is the same product. Only the actual companies differ, and that's how you will make the distinction between ESCOs. At the beginning of your ESCO search, consider three things:

" Price

" Service offered

" Financial stability

Although price and service are features you're likely to consider, the financial stability of your chosen provider should be equally important, says Galowitz. Look for a company that's doing well, and possibly one that has been around for a while.

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Pricing Options

There are a few different options when deciding on the price you're going to pay for utilities. According to Kurtz, you may opt for a bill with a fixed price, or a specific rate for a specified period of time. For example, an ESCO may give you a quoted price of eight cents per kilowatt for a period of one year. That price won't change for the entire length of the contract. This is beneficial if prices elsewhere are increasing during the year. On the other hand, if prices drop, you're still locked into the now-higher rate, and you must honor your contract at that price. However, if you've chosen the fixed rate, your ESCO may give you the option to renew at a more favorable rate. DiCeglio suggests that, if possible, see if you are able to negotiate the price before committing to a utility company.

Another option, according to Kurtz, is paying the "index price," which is a discount off the current Con Ed rate. For instance, you may find an ESCO that will give you a one percent discount off the rate Con Edison charges. The index price will give you the ability to enjoy the downs of the market while still being open to exposure if prices rise. How much you pay is dependent on what the market does. Many ESCOs won't guarantee that you'll save money unless you buy at an index price, says Kurtz.

Kurtz recommends that you let the season help determine what type of a rate you should choose. In summer months, go with a fixed price - with air conditioners and other appliances in frequent use, a fixed price can help keep bills under control. In the winter, however, buying power at an index price will help you take advantage of the fluctuations in the market.

Another option is to consult your building's management company, which may be looking to aggregate some of their buildings under the same ESCO. A third-party aggregator may be able to negotiate better terms of service with 20 buildings versus your one building. A downside to this is that your building would be lumped together with several others, and may not enjoy such specialized service.

Your Bill

Switching ESCOs will usually result in a change in the billing process. Now, instead of receiving one bill from Con Ed, you may receive two bills: one from Con Ed, and the other from your new provider. This is not a mistake: Con Ed will still read the meter and charge for delivery. The third-party ESCO supplies the power and also bills you. On your electric bill, about 25 percent of your bill is for the supply. For gas, about 60 percent of the bill comprises the supply portion.

A point to consider is that although you're getting a specific rate from your new ESCO, you may not be able to tell if you are actually saving money, according to DiCeglio. With two bills instead of one, someone will have to add the two together to see the total energy bill. Your savings may also be in the form of sales tax on the delivery portion of your bill, which you may not even notice unless you know to look for it.

Not everyone who looks to switch ESCOs is looking for outright savings, however. Sometimes, a customer is in search of stability in his or her bill. Some customers may be paying more than market rate, but knowing approximately how much they're going to spend each month helps keep a budget in check, and may help avoid surprises, such as unexpectedly-high bills during those hot summer months.

DiCeglio is quick to point out that one of the risks in choosing a new ESCO is that the PSC does not regulate ESCOs, or resolve consumer complaints against them. Although the PSC monitors these complaints, if you have a problem with your ESCO, you'll have to confront the ESCO rather than the PSC. However, it is important that you do make the PSC aware of any major problems or complaints you have, because if enough complaints are lodged against an ESCO, the PSC can take away its ability to do business in the state of New York. Of course, since the delivery portion of your utility bill is still regulated by the PSC, you can contact it with any complaints on that end.

Savings, Advice, and Signing the Contract

While the idea of saving money by switching your ESCO is appealing, the administrative headache it may cause is not. Galowitz says you should ask: Is it worth my time to be focusing on this? If the task of switching your ESCO seems like more trouble than it's worth, you may want to speak with a consultant. Finding someone who can provide you with a monthly or quarterly analysis of your bills can give you insight into the bigger picture: Are you saving money? Are you currently utilizing the best type of service for your building? Says Galowitz, it's hard to envision what's going to be happening a few months down the road, "unless you have great knowledge of the market." And once you are a customer, it's not guaranteed that your rates will stay the same from year to year, cautions DiCeglio. That's why it's best to compare rates before signing a new or initial contract, and talk to a consultant if you need clarification.

A consultant can help guide your board toward the best option, while continuously monitoring the market for savings opportunities. Consultants bring their expertise to bear and look for situations where customers won't lose money - something that may be difficult to do for those unfamiliar with the market.

Not every building will save hundreds of thousands of dollars. "The savings to be realized are not tremendous," says Kurtz. However, it all depends on how you look at it - saving two percent on your bill is better than having a higher bill and owing that two percent to the utility company or the city, he adds.

When signing any kind of a contract, it's wise to have it reviewed by a consultant, although it's not always necessary. Kurtz points out one problem that has arisen with gas ESCOs: sometimes, when the ESCO delivers gas to Con Ed, there is a loss between the city supply source and Con Ed of about three percent of the gas volume. Therefore, a customer may end up paying for this three percent shrinkage, even though that amount of gas was never used. Having someone review your contract can help bring these types of nuances to your attention, as well as steer you toward a better provider.

If you're unsure about switching to an ESCO, have the contract reviewed by someone who understands the terminology of the contract and the ins and outs of the billing process. "Some switching can involve traps for the unwary, and quoted discounts are not what they appear to be," says Galowitz. "If someone suggests you're going to save a tremendous amount, be wary."

It all boils down to awareness and comparing options. If you think you might be able to save your building a substantial amount of money by switching ESCOs, then it's well worth the effort of researching different suppliers and deciphering two monthly bills. If the savings are negligible, or if you think the paperwork and extra vigilance may offset the benefits of saving a little money, you might just be happier staying put.

Stephanie Maninno is a freelance writer specializing in real estate.

Comments

Cynthia

Thank you for the information. Your article has answered many questions I have about switching my energy company.

Winston

My fiance and I are moving to NYC and will be renting. As renters, do we have the option of choosing an ESCO?

COSTANZA BAIOCCO

Thank you for a most informative article. Although I am a single consumer -- not a building-- your information is applicable and most helpful. What I do not yet understand is why Con Ed assesses a fee for its customers who DO NOT shop for energy elsewhere. Can you enlighten me?Thank you.

max potts

I feel that we are being charged two rates when dealing with two power companies, and to have the right to charge for two months after you cancel is outrages, when you first move to an area there is no one to talk with about power or gas because you are in the middle of moving. these issue should be address.

Bianca

The ESCO model has been around for a long time, and jungidg from the relatively profitable outcome for the companies involved, it certainly delivers savings somewhere. The problem with this model is that it inherently focuses only on the most significant potential gains, at the expense of all the other upgrades that should be undertaken simultaneously. For example, an ESCO might see that a quick lighting retrofit consisting of better lamps would have significant immediate returns, and implement this. But really, a longer term perspective would suggest that it would be better to upgrde the whole lighting fixture and control system to generate better savings over the longer term. This kind of retrofit is too expensive for the short term payback sought by the ESCO, so these potential savings will be left on the table every time. And once the potential savings stream from the lamp component is captured by the ESCO, the rest of the upgrade will never again be cost-effective.In the article above, the school district achieved energy savings of about 11%. This is the right direction, but the kinds of performance improvements being discused nationally and locally for codes and voluntary programs are in the neighborhood of 30-50% energy use reduction, increasing to net zero energy performance for buildings within about 20 years. Unless we focus on programs that deliver these kinds of deep energy savings now, we're just rearranging the deck chairs.

ed marmol

so where r u saving if ur paying 2 bills. Sounds like a scam to me. I know someone with such a problem. He didnt even sign a contract yet the esco charged the same amount con ed did.

Lisa

I switched to an ESCO, Amplified Power and Gas and was promised a low rate for 3 months. After the first month they charged me double. A $191 bill was $495!!!! I switched back but for this month they are still my supplier and charging me outragous amounts of money. Dont switch its not worth the hassle and money.


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