State Issues Rules to Rein In Electricity Marketers

The California Public Utilities Commission, criticized for allowing suspect electricity marketers to invade the state’s fledgling free market for electricity, on Thursday issued broad regulations intended to clamp down on fraud and market abuses.

The rules, which take effect immediately so that consumers will be protected when the market opens to competition Tuesday, require electricity service providers to prove they have the technical, operational and financial ability to provide electricity.

The rules also require them to post a bond of at least $25,000 to operate in the state, propose a standard billing format, establish fines for marketers who contact customers against their will, and set up a system for tracking, investigating and publicizing complaints against electricity marketers.

Calling the rules “tough and tight,” Commissioner Jessie J. Knight Jr., who led the effort to draw up consumer protection measures as mandated by last year’s state Senate Bill 477, said the extensive regulations demonstrate that “we have shown our resolve in this industry, as we have in others we regulate, to take immediate and effective action to punish providers who violate our rules.”

Consumer advocates said the PUC’s regulations fall short.

“It’s a dramatic improvement over having no rules,” said state Sen. Steve Peace (D-El Cajon), coauthor of California’s electricity restructuring plan, who had criticized the PUC’s method of certifying the marketers who will be selling electricity to business and residential customers starting Tuesday. For decades that job has belonged to a set of regulated monopolies.

(Only the territories of Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric are being opened to competition on Tuesday. Customers of municipal power companies will not get to choose their providers for a few years.)

The issue of consumer protection was highlighted in February when the PUC revoked the registration of Boston-Finney Inc., a Pennsylvania-based firm that sold electricity dealerships through a multilevel marketing structure that California Atty. Gen. Dan Lungren said was an illegal pyramid scheme. Boston-Finney and other marketers were able to register with the PUC by merely paying $100 and filling out a form.

The PUC, under pressure from Peace and others, subsequently tightened the registration procedures, requiring a 30-day wait and a background check, among other things.

“I think it’s a genuine effort on the part of the PUC to do better,” said Peace, who wanted stiffer bonding requirements, among other things. “I think these rules can work if the commission and the staff are aggressive in enforcing them.”

Michael Shames, executive director of the Utility Consumer Action Network in San Diego, said some of the rules are inadequate--the required disclosure documents are written in dense, bureaucratic language, for example--or are too focused on punishing companies rather than preventing them from doing business in the first place.

Knight said the decision “strikes the proper balance and provides significant consumer protections without unduly burdening providers.” The rules that were adopted on Thursday apply both to new entrants and to companies that have already registered with the PUC.

Now electricity service providers, as the companies that sell electricity are known, must demonstrate their credit-worthiness and expertise to sell power in California. A provider cannot market electricity until it has a valid agreement to receive electricity from the three investor-owned utilities, which will continue to own the electricity transmission grid.

The marketers must also provide customers with uniform information so that customers can comparison-shop. Customers cannot be switched to a new electricity provider without written permission that has been verified by an independent third party.

Providers will be fined $25 each time they solicit by telephone any consumer who is on the PUC’s “Don’t Call Me” list. To get on the list, consumers must write to the PUC Consumer Services Division at 505 Van Ness Ave., Room 2003, San Francisco, CA 94102-3298.

Complaints will be posted on the PUC’s Web site at https://www.cpuc.ca.gov so that consumers can check out potential power suppliers.

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COMING TUESDAY: On the day electricity deregulation begins in California, Business will feature a special report on what consumers need to know.