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Backwards: Suppliers Want Long-Term Fixed Price Default Service for New York

January 28, 2013

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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A coalition of competitive suppliers has told the New York PSC that a long-term Price to Compare should be introduced into the retail market.

Specifically, the Independent Power Producers of New York told the PSC that the Commission's current Retail Market Review, "should create an effective forward-looking price-to-compare that captures at least a 6-12 month period to allow consumers to evaluate fully their purchasing options as compared to a backward-looking mechanism." [ed: emphasis added on "effective", also note use of the singular term "price"]

IPPNY said that this would, "improve consumer price transparency."

IPPNY did not expand further on this recommendation. However, as written, the language can suggest a single, "effective" (not an estimate) Price to Compare that does not vary for a period of 6 to 12 months, in contrast to New York's current monthly pricing of default supply.

A current default service Price to Compare in New York essentially does not exist. Because of the significant reliance on spot pricing, the default rate is not set in advance, and is rather calculated after the end of the month. While forecasts are provided by the utilities of the projected supply rate, these are merely for guidance, and are not the rates charged to customers, preventing useful default versus ESCO rate comparisons.

Matters would note that, in PPL's recent default service proceeding, the Retail Energy Supply Association said that a Price to Compare that is "effective" for six months, as apparently suggested by IPPNY, "will not accurately reflect the true market price of energy," and would run contrary to the goals of promoting retail competition.

IPPNY additionally said, "the Commission should consider accelerating competition by proposing new ways to moving [sic] existing utility customers into competitive markets through vehicles such as the Basic Generation Service ('BGS') program operated by New Jersey."

IPPNY did not further elaborate on what elements of New Jersey BGS should be adopted. However, it should be noted that New Jersey's BGS features mass market supply contracts lasting 36 months -- to the advantage of wholesale suppliers and detriment of retail suppliers. Notably, the boom/bust cycle created by the New Jersey BGS perpetuates a role for wholesale full requirements default service by preventing growth of a vibrant and sustainable retail market. Retail suppliers have called the long-term future of New Jersey's market "bleak" due to the current structure of BGS.

That being said, certain retail suppliers also noted the challenges presented by New York's current lack of a defined Price to Compare, other than the forward forecasts and month-ago supply rates, and while some retail suppliers expressed support for a forward-looking component to the Price to Compare, those suppliers that addressed specifics made clear that individual monthly supply rates would continue, which is not apparent from IPPNY's description of a singular price to compare.

Specifically, Constellation NewEnergy suggested an approach to provide a forward component to the Price to Compare while still accommodating monthly supply pricing.

First, unlike IPPNY, Constellation questioned the customer value of any Price to Compare given the different nature of ESCO and default service.

However, Constellation said that to the extent the PSC sees value in a Price to Compare, a working group should consider the issue. "At the very least, the PTC Work Group should consider that each utility publishes on the Commission’s 'Power to Choose' website a PTC that is accurate, that includes all costs making up each respective utility’s default supply charges including all costs and adjustments associated with the utility’s commodity procurement methodology, and that provides aggregate price comparisons for a reasonable period of time (e.g., for six-months). To the extent that a utility does not procure its default power requirements six or more months in advance, the utility should nevertheless provide an estimate of what it expects prices to be for six months going forward, based on an estimation process determined in the PTC Work Group and approved by the Commission," Constellation said.

Direct Energy Services, LLC also noted the problem of the after-the-fact default service pricing, but was more vague as to its preferred solution:

"[U]tility default service prices are set on a monthly variable basis, in a manner that (1) is very difficult for customers to understand and to draw comparison against competitive ESCO pricing offers, (2) is subject to various projections, true-ups and reconciliations, and (3) does not include all of the components of the retail energy products ESCOs provide to their customers. There are good reasons for New York to have implemented this system of utility pricing at the time but there is no question that it now stands as an impediment to customer understanding and robust competition on a level playing field. New York’s current rate setting design stands in stark contrast to other state jurisdictions that offer wholesale procurements on quarterly or semi-annual basis for the residential and small commercial customer segments, thus providing a more transparent and forward-looking view of utility rates that inures to the benefit of shopping consumers."

While Direct Energy contrasted the New York spot/utility-hedged portfolio default service to the full requirements procurements in other states, it did not suggest any specific modifications for New York.

See related stories today:

Retail Suppliers Say Brokers, Door-to-Door Marketers Should be Licensed in New York

New York Attorney General Investigating "Several" ESCOs for Deceptive Marketing Practices

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