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Black Tuesday: New York Adds Recourse to Purchase of Receivables; Will Adopt ESCO-Specific Discounts
The New York PSC has added a measure of recourse to its electric and natural gas purchase of receivables programs.
Specifically, in its retail markets investigation order, the PSC ordered that, if an ESCO customer is facing termination in a circumstance where the customer's supply charges exceed the otherwise applicable default service charges, the ESCO customer need only pay the lower default service charges to avoid termination.
This, obviously, results in an undercollection versus the amount billed by the ESCO. Rather than having such under-collected amount included in the purchased receivables, the PSC said that the difference between the ESCO's billed costs and the lower default service costs will be charged back to the ESCO -- essentially introducing a form of recourse to POR.
The Home Energy Fair Practices Act (HEFPA) does allow a customer to have his or her utility service reconnected following termination for non-payment by paying the lesser of the combined utility delivery and ESCO commodity charges or the bundled utility commodity and delivery charges. However, HEFPA is silent as to whether, if the customer pays the bundled utility commodity and delivery charges in lieu of the higher ESCO and delivery charges, how the balance of the bill should be collected.
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"We conclude that, in the event the customer owes more for service through an ESCO than what he or she would have owed for bundled utility service, the customer can avoid termination of service by paying the lesser amount. Further, in such cases the differential will be charged back to the ESCO," the PSC said.
Though not explicit, presumably this differential will be charged back to the ESCO immediately (in other words, a charge for the differential will not continue on the consolidated bill for a period in an attempt to collect payment, even if the differential balance is not subject to termination).
Though the PSC limited its use of POR-with-recourse to the situation described above (customers facing termination with ESCO charges in excess of default service charges), the distinction matters little.
The PSC has essentially adopted a de facto price cap on ESCO service, since ESCOs have no mechanism to enforce collection of charges in excess of the otherwise applicable default charges. It won't take long for customers to realize the advantages available to them under the PSC's adopted policy.
Customers facing ESCO bills higher than default service rates are now incented to not pay their bill, in order to trigger the PSC's provision that the customer will only have to pay the lower default service amount to avoid termination. ESCOs are therefore facing recourse for all of their receivables exceeding the cost of default service.
In addition to adoption of recourse described above, the PSC also ordered the introduction of ESCO-specific POR discount rates -- which frankly does not make sense given that customers will only now be disconnected for not paying the equivalent default service costs (if the ESCO charge is higher).
Specifically, since the PSC did not adopt POR with recourse in all circumstances, the PSC said that, "[w]e are concerned that POR without recourse, in which the POR discount is uniform across all ESCOs, may decrease the incentive for ESCOs to charge existing customers reasonable rates."
"We therefore direct that the POR programs be modified so that POR discount rates are calculated and established for individual ESCOs. We expect that this approach will avoid the substantial time and costs of requiring POR with recourse, while achieving many of the same beneficial results," the PSC said.
The PSC does correctly note that ESCOs enrolling and retaining good-paying customers will benefit from an ESCO-specific discount rate.
However, we understood that the main concern with non-recourse, uniform-discount POR was that ESCOs were indifferent to their rates' impact on uncollectibles, insofar as they were guaranteed to be paid their billings minus the established discount. Therefore, for example, ESCOs could sign up low-income customers on above-market rates and be guaranteed payment, minus the uniform POR discount, until such time as the customer was disconnected.
With the PSC now prohibiting disconnection so long as the customer pays the equivalent default service cost, even where the ESCO charges are higher, this concern with non-recourse POR has been ameliorated. Yes, an ESCO focused on serving low-income or at-risk customers might have a higher write-off percentage than the system average, but this simply reflects its customer mix. Such an ESCO's customers' higher write-off percentage is no longer resulting in higher costs for other ESCOs and/or utility customers, because if this ESCO's customers are actually being terminated, it's because they did not pay the equivalent default service costs. The bad debt of this ESCO's customers, therefore, is the same as it would be had the customers been default service customers, which they would have been absent the decision to shop.
Other than perhaps lowering the discount rate for ESCOs with good-paying customers (and encouraging ESCOs to only serve such customers), we're not sure what ESCO-specific POR discount rates accomplish, now that disconnection is prohibited for ESCO costs in excess of default service, since uncollectibles should no longer exceed what uncollectibles would have been had all customers remained on default service (we do understand that, if the customer facing termination fails to pay even the lower default service costs, the uncollectibles for an ESCO customer with ESCO costs above default service will result in higher write-offs, unless the recourse applies in any case where ESCO costs exceed default service costs, not just in those instances in which the customer actually remits payment. Therefore, ESCO-specific discounts might lower this system bad debt).
The PSC ordered that a collaborative should be held within 60 days with the intent of implementing ESCO-specific POR discount rates within 180 days. The PSC directed that the ESCO specific POR discount rates must be reviewed and, if necessary, reset annually. The utilities were ordered to file annual reports which identify the ESCO specific POR discount rate in a format determined through the collaborative.
Case 12-M-0476
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February 25, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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