NiMo Files to Implement New Electric Commodity Pricing Mechanism Email This Story March 11, 2011
Niagara Mohawk has filed its proposed new rate mechanism for electric commodity pricing for default service customers with the New York PSC, which is substantially similar to NiMo's original proposal filed in January 2010 as part of a rate case (see 2/1/10)
The proposed modifications, to take effect in January 2012, include revising the basis for setting the retail commodity rates charged to NiMo's residential and small commercial customers, implementing new reconciliation mechanisms for recovering electric supply costs that are not recovered by the retail commodity rates, and revising the manner in which the company allocates the costs of procuring capacity to its supply customers.
NiMo said that the proposal is meant to meet Commission's goals for default service including: (1) limiting price volatility for mass market customers through hedging supplies acquired to serve these customers; (2) truncating hedging and requiring hourly market pricing for large commercial and industrial (C&I) customers; and (3) allocating the costs of volatility management to the customers who benefit from that management through appropriate commodity charges.
"The Company also believes that changes to its commodity mechanisms will improve transparency for customers so they will be better able to make educated decisions in the retail electricity marketplace," NiMo said.
Notably, NiMo would change the manner in which commodity rates are determined for mass market customers, from being based on hourly NYISO Day-Ahead prices to a forecast of NYISO Day-Ahead prices derived using monthly forward trading market prices, obtained approximately four days prior to the forecast month.
"The Company is proposing this change because it will result in better alignment between monthly hedging costs or benefits and retail commodity rates, while simplifying those rates for customers. Customers will benefit from an easier to understand commodity price so that they can better evaluate their electric supply charges," NiMo said.
Additionally, NiMo proposed implementing a new mechanism, the Electric Supply Reconciliation Mechanism (ESRM), to reconcile all commodity costs and revenues not related to non-bypassable legacy hedge contracts and the NYPA hydropower contracts.
Specifically, the ESRM will reconcile: (i) the costs and benefits of "New Hedges" (after June 1, 2001) as well as costs associated with procuring and maintaining the New Hedges; (ii) timing of actual expenses and revenues; (iii) forecast and actual monthly prices for mass market customers; (iv) capacity costs; (v) ancillary services costs; and (vi) prior reconciliations that would have flowed through the Commodity Adjustment Charge prior to January 1, 2012. As part of this reconciliation, NiMo will allocate certain costs clearly associated with a particular customer group (such as those relating to the New Hedges) only to that customer group. All other commodity reconciliation amounts are proposed to be allocated among all customer groups purchasing commodity from NiMo.
The ESRM would be reflected on the commodity portion of customers' bills.
Among several changes to the collection of bypassable capacity costs, NiMo would base the Locational Based Marginal Capacity Price on the NYISO Capacity Spot Market price, rather than the current price from the six-month block auction. "[T]he Capacity Spot Market price represents the most accurate price for capacity in New York, due to the fact that it is the price derived from the capacity market where all load-serving entities in New York must ultimately settle their NYISO capacity obligations," NiMo explained.
As provided for in its most recent rate case, NiMo will also base the calculation of capacity costs for class load factors on the demand of a particular rate class during the hour in which the New York system peaks, instead of the demand of the class during the hour in which the class itself peaks.
NiMo will also implement the capacity tag method of cost allocation to hourly priced customers, charging such customers a kW demand charge based on each customer's individual demand during the NYISO system peak hour, instead of the current mechanism under which a customer is charged on an hourly basis during on-peak hours.
NiMo would also eliminate the option for mass market customers to take market priced commodity service from NiMo.
Costs of legacy hedges (along with the benefit from NYPA hydropower) would remain nonbypassable, though recovered under a new Legacy Transition Charge given that the Competitive Transition Charge will be eliminated. Legacy hedges will not impact bypassable commodity rates.
New hedges are defined as those entered into after June 1, 2001, and their costs/benefits will be reflected in bypassable commodity rates and only applicable to default service customers.