What is an ESCO and how does it work?

Maybe you’ve heard of Energy Service Companies (ESCOs) or ESCO scams. Maybe you’ve even been approached by one! Here’s what you need to know.

These schemes target individuals with promises of lower energy bills and other benefits. Unfortunately, many people fall victim to this scam and end up losing money. To protect yourself, it's important to understand how good ESCOs work, what an ESCO scam is, and what to look out for.

What are Energy Service Companies?

ESCOs basically act as middlemen between your utility company and electricity, gas, or renewable energy source. They buy energy from a utility company and sell it to customers below local market rate, making their rates highly competitive.

ESCOs provide energy solutions but also act as commodity brokers. They determine when they can buy energy in bulk at the best times and will pass these savings along to their customers who choose their energy plan.

Purchasing energy in bulk allows ESCOs to offer rates below utility market rate.

Can ESCOs be trusted?

The short answer is yes!

But not ALL can be trusted. Not every ESCO is built the same.

There are some out there working to save users money and help contribute to environmental sustainability, but there are also deceptive companies luring customers in with false promises of savings and hidden fees that cost people hundreds of dollars per year.

Don’t worry though, we’re here to help you navigate around ESCO scams!

So how does the scam work?

There are two main ways people are scammed by ESCOs

1. Customers can be coerced and manipulated into switching energy providers.
2. ESCOs representatives obtain personal information from utility customers and sign them up for their ESCO services without their knowledge, a practice known as “slamming.” Shady, I know.

In some cases, an ESCO representative will pose as a representative from a main utility company either knocking on your door or cold calling.

Let’s pretend we’re in New York and someone visits your home from so-and-so energy company or they’re pretending to be from Con Edison. The representative most likely obtained all your information before their visit, so they’ll greet you by name and you’re familiar with Con Edison so you don’t think much of it. Then they go on and tell you that you could be saving on your electric bill, all you have to do is sign right here…

If you haven’t already closed the door, you may be thinking this is a no brainer. I don’t have to buy anything, just sign up and I could save tons of money on my bill. It sounds enticing so you either sign up or you say no thanks have a good day.

But before you can turn them away, they may get pushy and sometimes aggressive. For some this isn’t a problem, but for elderly customers and those with limited English skills it may be hard for them to say no.

The cost of falling for an ESCO scam

If you signed up, you’ll soon realize there are hidden fees and you’re paying way more than you were before. Then when you call to cancel, you’re hit with termination fees.

Their deceptive marketing practices and predatory contracts lead to customers paying hundreds of dollars more per year. Customers are lured in by the false promise of savings and then charged significant termination fees when trying to get out of their contracts.

For some these fees can be detrimental and lock them into an endless cycle of debt.

In New York, Attorney General Letitia James secured $2.15 million in restitution from Family Energy for deceiving and misleading thousands across the state. Family Energy is required to take measures to prevent deceptive practices in the future.

Tips to protect yourself from ESCO scammers

Here are a few helpful tips to avoid getting taken in by ESCO scams:

• Do your own research.
• Determine if the offer for energy services is from your utility or an ESCO.
• Understand whether an ESCO contract involves an early termination fee and, if so, the fee amount and the length of your contract commitment.
• Remember you have the right to cancel an ESCO contract with no obligation within three days if you change your mind.
• Remember if you are uncomfortable with how a representative behaves, you can end the conversation with a request to look over their offer in writing.
• If you receive a notice that your service is being switched to an ESCO and you did not authorize the switch, contact the utility and the ESCO immediately to tell them to halt the switch.

Where to seek help if you have been scammed by an ESCO

Start by contacting your local Public Utilities Commission or Public Service Commission by phone or email. These entities are here to help you get access to safe and reliable utility services at fair prices!

So, now that you’ve made it to the end, we hope that we were able to shed some light on ESCOs and what they do.

Remember: not all ESCOs are bad, but you should definitely do your own research.