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NEM: Recent NY PSC Staff Guidance Banning Pass-Throughs Not In Disclosure Statement Raises Concern On How ESCOs May Recover New Compliance Costs From Nuclear Procurement Standard (Costs Start At $17/MWh)

July 27, 2016

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Reporting by Paul Ring • ring@energychoicematters.com

Noting a recent email to ESCOs from New York PSC Staff concerning the prohibition on the use of pass-throughs for costs not identified in an ESCO's disclosure statement, the National Energy Marketers Association said that there is, "significant risk," that ESCOs may not be able to recover new compliance costs arising from a new nuclear procurement standard proposed to be imposed on LSEs

Click here for background on the proposed nuclear (Zero Emissions Credit or ZEC) procurement standard, which is proposed to be recovered on the commodity side of the bill, with ESCOs responsible for compliance for their supply customers.

NEM noted that, under the under the ZEC White Paper proposal, LSEs, including ESCOs, would enter into a contractual agreement with NYSERDA to purchase ZECs during a program year based on load forecasts and subject to a balancing reconciliation. The ZEC price will be established administratively by the Commission, and under the ZEC White Paper’s proposed methodology, would result in a ZEC price for the first two-year tranche of April 1, 2017, to March 31, 2019, of $17.48 per MWh.

"NEM is very concerned about the adverse impact this ZEC purchasing and pricing mechanism will have on ESCOs. The on-going uncertainty of the size of an ESCO’s customer base coupled with the uncertainty of ZEC pricing may result in ESCOs being unable to recover their compliance costs. The ZEC White Paper does not appear to contemplate any mechanism under which ESCOs would be able to mitigate these costs and risks. The ZEC White Paper appears to be operating under the false assumption that ESCOs have the same ability to recover their costs as utilities do, against their captive ratepayers," NEM said

Moreover, NEM's concerns are heightened given recent guidance issued by PSC Staff via email concerning a prohibition on ESCOs charging pass-throughs to customers that were not identified in the customer disclosure statement (click here for story)

Specifically, Staff of the New York PSC recently issued an email to all ESCOs warning ESCOs that, to the extent ESCOs are charging a pass-through not listed in the customer disclosure statement, then Staff will insist such customers be, "rerated."

"Please be advised, any ESCO currently using sales agreements that have any terms within the body of the agreement that effect the price of commodity (such as language that allows for pass-through of certain costs) must disclose such costs or potential costs in the customer disclosure statement," said the email from the PSC's Office of Consumer Services – Retail Access

NEM noted that the increased costs of ESCO compliance with the newly-created ZEC regulatory requirement would likely need to be recovered under "regulatory change," "change in law," or other similar contractual provisions.

"NEM is concerned that, notwithstanding Staff’s furnishing of its email interpretation of pass-through cost information to be included in the Customer Disclosure Statement, that the industry has not had adequate opportunity to review and comment on this interpretation, nor to incorporate such interpretation (assuming it were to be formally adopted by the Commission) into these Statements," NEM said

"Accordingly, ESCOs face a significant risk that these newly-created regulatory ZEC costs may not be recoverable. The Commission must allow ESCOs to recover these newly-created ZEC compliance costs in 'regulatory change,' 'change in law' or other similar contractual provisions," NEM said

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