An Alternative to Con Ed Revs Up Its Sales Force
YONKERS — In a nondescript ballroom at the Royal Regency Hotel here, some 100 budding sales consultants responded as if they were at an old-fashioned revival meeting where the Word was “power.” One after another, shopkeepers, accountants and nurses stood up and testified to the money they had made persuading family and friends to switch from Con Edison to Ambit Energy. Newly promoted consultants got ovations, handshakes and back slaps.
Norbert Hennessy, an Ambit Energy sales consultant, at a sales meeting in Yonkers.
“As good as I thought it’d be, it was 100 times better,” said Ray Montie, a former telecommunications salesman from Hauppauge, N.Y., who claims to have made hundreds of thousands of dollars by building a network of more than 2,000 consultants for Ambit since last October. “I’ve never seen a business grow so quick.”
The business model — or ground-floor opportunity, as Mr. Montie put it — is not unlike Amway, Nu Skin and other multilevel marketing businesses: Average Joes and Janes sell friends a product or service (who, in turn, sell friends a product or service) with each seller getting a slice of the recruit’s spending in return. Only instead of pushing soapsuds or vitamins, Ambit evangelists sell gas and electricity.
The approach is a novel and perhaps inevitable byproduct of utility deregulation that began a decade ago, with broken-up monopolies now facing competition from alternative energy service companies, known as ESCOs. Hundreds of ESCOs have sprung up — and some have folded up — in recent years, promising to supply gas and electricity cheaper than giants like Con Edison, which still delivers the power. In New York City and Westchester County, ESCOs have nearly 600,000 customers (Ambit officials refused to say how many customers it has locally or nationally).
Direct Energy Services, IDT Energy and many other ESCOs — eager to capitalize on fears over high fuel prices — use mass mailings, Web sites and door-to-door salespeople to recruit customers from Con Ed by promising they will save 7 percent on their supply cost for the first two months, and avoid taxes on the delivery of that supply. Direct Energy reckons that customers in a typical New York City apartment can shave about $6.50 off their monthly electric bill.
Companies offer perks, too. Energy Plus gives customers bonus miles on various airlines for every dollar they spend on electricity.
Ambit, which was founded in Texas in 2006 and came to New York in June 2007, is one of a handful of ESCOs experimenting with the network-marketing model, betting that people are more likely to buy electricity from someone they know than from a stranger at their door (and that sales agents who earn residuals from those they enlist will be more motivated than those who work for a salary or straight commission).
Besides the monthly savings on utility bills promised by competing ESCOs, Ambit sells itself as an entrepreneurial opportunity: So-called consultants pay $399 (plus $25 a month for a personalized Web site; Mr. Montie’s is GetRichEnergy.com).
The company’s pitch packet — “An income opportunity like no other,” promises the cover — says consultants can make back the initial $399 by signing up 30 new customers within 12 weeks. Each month, consultants get 5 cents to $5 for each customer, depending on when they signed up and their energy usage (presuming they all pay their bills). There are bonuses for signing people up as consultants, and, as with so many network-marketers, free trips to Las Vegas or Atlantic City.
But Ambit and the other ESCOs operating in New York have caught the ire of state regulators and consumer advocates, who say some sales representatives, in their zeal to earn commissions, have inflated potential savings, misrepresented contracts and been overly aggressive with vulnerable constituencies like the elderly and nonnative English speakers.
Mindy A. Bockstein, executive director of the New York State Consumer Protection Board, said that some agents had exploited the perplexing way gas and electricity is priced and the difficulty of deciphering which companies offer the best deals.
Con Edison estimates rates on each month’s bill and later reconciles them based on actual prices that fluctuate daily. ESCOs generally offer fixed-rate one- and two-year contracts, ignoring the volatile market; they also post average rates on Web sites like one from the State Public Service Commission, powertochooseny.com, potentially confusing people about their actual costs.
“I am worried that consumers, in their quest to save a dime, save a dollar, might be taken advantage of,” Ms. Bockstein said, adding that the network-marketing approach often leads to more abuse. “Many of these independent consultants are not trained and not well versed in the appropriate marketing practices.”
Since January 2007, the state’s Public Service Commission has received nearly 3,000 complaints about the 50-plus ESCOs operating in New York, including 34 about Ambit so far this year. In July, U.S. Energy Savings agreed to pay $200,000 in costs and penalties after customers complained to the state attorney general’s office about $600 termination fees they had to pay to cancel long-term contracts. Nationally, some ESCO customers have found themselves double-paying for power, when the nascent companies folded before the term of a prepaid contract was up, forcing them back to the big utilities.
The Consumer Protection Board and New York City Department of Consumer Affairs have urged the Public Service Commission to make mandatory the voluntary guidelines that were developed by the ESCOs and the commission in 2006. (Thirty-one ESCOs in New York, not including Ambit, had signed on by March.)
Many customers complain that they cannot determine what savings ESCOs offer, if any.
The lack of transparent pricing “favors sellers who induce customers with hype, teaser rates and high-pressure telephone or door-to-door solicitation, only to be followed by higher prices and onerous conditions of service ostensibly agreed to in the boilerplate of one-sided contracts,” said Gerald A. Norlander, executive director of the Public Utility Law Project, an advocacy group for energy users based in Albany.
Con Edison encourages customers to compare their rates with those offered through ESCOs on each month’s bill, but Charlie Reed, senior planning analyst for customer outreach at Con Edison, said savings are generally insignificant for residential customers, who use relatively little power. He said that many ESCO sales consultants seemed ill trained to explain the complexity of energy pricing, leading to confusion and dissatisfaction.
“I never hear good news, only bad news about the ESCOs’ sales people,” Mr. Reed said. “I get customers who come up with questions: ‘I didn’t know it was only for two months, or 7 percent on the whole bill.’ The sales folks are aggressive, and they want them to be.”
At the recruitment meeting here, Mr. Montie and other Ambit believers tried to distinguish their company from network marketing schemes that have earned dubious reputations for their pushy sales tactics and shaky finances.
“It’s the easiest sell because everyone needs electricity,” said Alan Vaccaro, a New York City highway patrolman who started selling Ambit in May after a friend recruited him. “How am I going to get people to buy my vitamins instead of going to CVS? You feel good about this.”
Since May, Mr. Vaccaro — who is 48, lives in Yonkers and plays saxophone in a New York Police Department jazz band — has signed up two co-workers, one cousin and a friend’s nephew. “I want to retire and do Ambit full time,” he said. “I want to have the Ambit yacht and do presentations on the boat.”
Paul Brown, a jovial accountant from Long Island, learned about Ambit from a friend of a mechanic who picked him up after his car broke down in the Bronx this winter. In the past eight months, he said, he has recruited 10 people — who, he said, have recruited enough people to build him a network of 1,030 customers. He said he earned about $1,500 a month and had a goal of $100,000 a month by next year.
“I want to talk to 365 people a year,” he said. “I have tax clients. They trust me.”
Multilevel marketing is legal if money is earned by selling products. The practice becomes an illegal pyramid scheme if participants are paid mainly for recruiting new members. In Ambit’s case, consultants earn money by getting people to sign up with a genuine gas and electricity provider, and by commissions on fuel and power purchases by customers, as well as by signing up new consultants.
The chance to save customers a few dollars on their electric bill, however, appeared to be incidental at the recruitment meeting; most Ambit consultants who were interviewed were focused on finding people willing to spend $399 to become consultants who would generate bonuses and could help their networks grow exponentially. They were also fired up when Mr. Montie said that Ambit, which now operates in Texas and parts of New York and Illinois, would enter more untapped markets — a larger pool of potential bonuses.
But Chris Chambless, Ambit’s co-founder and chief marketing officer, said in a telephone interview that to enter a new market, Ambit had to link its computer systems with those of the incumbent utility, a long process.
Noting that Ambit currently has less than 2 percent of the market in Texas and less than 1 percent in New York State, Mr. Chambless said that “over time, there’s a substantial opportunity to earn money,” though he acknowledged that “ultimately, there’s a finite universe.”
“There’s only so many doors you can knock on,” he said. “Ten or 15 years from now, it may not be as good an opportunity to get into.”
Mr. Chambless declined to discuss Ambit’s finances because it is privately held. But he said he and the company’s chief executive, Jere W. Thompson Jr., had a lot of experience in deregulated markets. Mr. Chambless added that Shell Energy Trading, a subsidiary ofRoyal Dutch Shell, had also agreed to sell energy to Ambit, a major endorsement of the company’s prospects.
Consultants and their customers, though, should thoroughly investigate the financial health of network marketing companies, said Doris Wood, the chairwoman of the Multi-Level Marketing International Association.
“I love network marketing next to God and my family,” said Ms. Wood, who has worked in the industry for 50 years. “But does the company — not the product; that sounds legitimate — have a good foundation behind it? If they sign up every person in New York, what happens then?”
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