5 min read

What's Going on Behind the Curtain?

July 18, 2017


The Wizard told Dorothy and her friends many tales of his amazing powers, but a strong breeze blew away his credibility when it pushed aside the curtain, revealing those tricks as little more than noise and smoke. Such may be the case with energy account auditors, they may claim savings based more on a customer’s misplaced trust of the auditor than on any real financial wizardry.

Long before the pursuit of dollar savings from energy efficiency became a business, a cottage industry existed that focused on finding errors in utility billing. While some have estimated that up to 2% of bills contain errors, much of the savings may instead derive from fixing inadvertent errors made by customers, such as taking service under a sub-optimal rate, failing to pursue available economic development rate options, or misunderstanding how rate-making proceedings work.

The typical pitch of auditors goes something like this, “At no charge, I will review your utility bills for the last two years. If I find a way to save you money, I will pursue it and split the savings with you. It is a no-lose proposition. If I find nothing, you pay me nothing. Whatever I recover for you is “found” money. If a mistake was never uncovered, you would never have received that refund on your own. Just sign here, and I will get started right now identifying the errors and obtaining refunds.  ”

Many facility managers jump at such an opportunity without realizing just how much they could be giving up. Some auditing contracts take 50% of the savings from one-time refunds, and a like amount for costs that would have been incurred had the mistakes never been corrected, for up to five years.

A nationwide clothing chain that was expanding rapidly, opening a new store almost every day,  had a deal with an auditor whose primary trick was finding better rates shortly after each new store opened. In such cases, the auditor merely switched the customer to better rates and took 50% of the rate difference for five years, creating a cozy little cash flow for himself.

In essence, the auditor was depending on the ignorance of store managers rushing to open their doors, never looking to see if the rate offered by the utility was the best option. Recall that, when a new account is opened, many a utility need not offer the best option, only one that’s appropriate to the customer’s rate class. In Con Edison’s service territory, the utility is required to help the customer pick a rate that is, “most favorable to the Customer’s requirements.” A time-of-use or other rate may yield a lower annual cost, but savings need to be independently verified before paying the auditor. If savings occur during part of the year, with losses occurring at other times, the auditor should be paid only on the net annual savings.

When this little scam was exposed, the customer asked the auditor if a fixed fee arrangement could be used, under which the auditor would simply check what rate was proposed before an account was opened and ensure that it was the best option, thus avoiding the need to later switch. When the auditor heard that idea, he threatened to sue the customer for “loss of anticipated revenue”.

However, similar to The Wizard of Oz, some auditors have better tricks up their sleeves.

Auditors may stretch the intent of their “free savings” contracts to include claims that their participation in a rate-making proceeding yielded savings specific to their customers. Rate changes are realized through the efforts of a number of individuals, not just the auditor (who may not even have been significantly involved in the rate-making process.) Nevertheless, auditors may look at a rate increase request that is reduced by a certain percentage after negotiation, and claim that same percentage against the customer’s bills as a savings for which they should be compensated. The auditor thus derives an enormous savings claim through the efforts of others.

In another case, an auditor wriggled his way into a facility’s demand response (DR) efforts based on an email he had sent to the customer years before, informing said customer about the utility’s DR program and incentives. At the time, the customer was aware of the opportunity but unable to pursue it due to a lack of controls of the equipment. After working with a DR provider to install the necessary devices, the customer secured both a one-time incentive and the annual DR revenue by cutting peak demand when requested. The auditor then made claims to portions of both the incentive and the ongoing revenue, based purely on that email. As often occurs with such demands, the customer refused the claim, only to find itself in civil court facing a possibly large financial judgment. In the end, it was cheaper to pay a portion of the claim than to pay legal fees.

A similar claim was made when an auditor learned that a customer had secured an electric price discount by participating in an economic development program. Anyone who has been involved with such programs knows the application process is time-consuming and may involve a lot of paperwork, record keeping, and other bureaucratic efforts to obtain the discounts. The auditor had no role in the process but made a claim anyway to a portion of the annual discount. He was able to point to the minutes of a meeting he had with the client years before when such programs were generally discussed. The contract between the auditor and the customer had no “sunset” date, so it was still legally in force. Once again, the situation ended up in court, with an out-of-court settlement the cheapest way to resolve it.

Some auditors could put the Wicked Witch of the West to shame with their boldness. While reviewing invoices from a third-party power supplier with whom the auditor had a commission-based brokering relationship, he found that a monthly floating price for gas that had risen during the winter had never fallen again when the weather moderated. The customer had not noticed that the price had instead gotten “stuck” at the high point for months. The auditor then laid claim to 50% of the refund he secured for the customer, even though the auditor had acted as the broker for the supplier that was cheating the customer. One wonders how often that scam has been run on customers that trust too much or do not have the time or understanding to review their bills.

Bottom line, before signing a bill auditing contract, be sure to limit the ways an auditor may claim savings. Otherwise, you may find yourself spending more on attorneys than you’ll save on your bills.

Topics: Newsletters
Luthin Associates

Written by Luthin Associates

Founded in 1994, Luthin Associates provides energy advisory services to all industry sectors in the New York Tri-state region and beyond. In 2019, Luthin Associates joined forces with 5, an innovative energy advisory firm comprised of energy innovators, commodity traders, analysts, engineers, and former energy supplier executives. As part of the 5 family of companies, Luthin Associates provides strategic advice on energy-related matters including procurement, demand-side management, rate optimization, regulatory intervention, benchmarking, bill auditing, RFP management, sustainability planning services, renewable power, and distributed generation.