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NEM: "Misleading" NY Utility Supply Cost Reconciliation Process (Where One Utility Is Seeking To Exclude $43 Million From Current Supply Rates) Must Be Reformed, Distorts ESCO-Utility Price Comparisons

December 6, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Citing the "misleading" impact large prior period reconciliations have on customers' purchasing decisions and comparison of ESCO and utility supply rates, the National Energy Marketers Association said that the New York PSC's utility gas cost reconciliation process as set forth in the Commission’s regulations at 16 NYCRR 720-6.5(g) must be reviewed and revised.

EnergyChoiceMatters.com was first to report in September that KeySpan New York (The Brooklyn Union Gas Company d/b/a National Grid NY) had petitioned the New York PSC for a temporary waiver of certain tariff provisions and Section 720-6.5(g) of 16 NYCRR to allow KEDNY to suspend collection of the annual reconciliation of gas costs surcharge/refund mechanism in its Gas Adjustment Clause (see details here).

KeySpan New York had explained that because it under-collected commodity costs during the 2016 GAC Year, application of the tariff’s commodity reconciliation provisions would increase the GAC surcharge to $0.51 per dekatherm effective January 1, 2017, which would collect approximately $43 million of gas costs from KEDNY’s customers in calendar year 2017. Absent action by the Commission, this gas cost surcharge will become effective January 1, 2017.

KEDNY argued that the supply cost deferral is needed to avoid a, "sharp increase in the commodity portion of customers’ bills," and to "manage" the customer bill impacts associated with recovering $43 million of unbilled gas commodity costs

NEM further cited the reconciliations at the other LDCs as having the following impact:

• Central Hudson - $3,582,817 undercollection resulting in a surcharge of $0.50854 per Mcf

• ConEd - $23,086,882 undercollection resulting in a surcharge of $0.027729 per therm

• KEDLI - $432,056 undercollection resulting in a surcharge of $00062 per therm

• KEDNY - $43,010,888 undercollection resulting in a surcharge of $0.0501 per therm

• NFGD - $10,143,025 overcollection resulting in a refund of $0.2161 per Mcf

• NIMO - $583,074 undercollection resulting in a surcharge of $0.00109 per therm

• NYSEG - $3,144,892 overcollection resulting in a refund of $0.013775 per therm

• O&R - $3,226,949 undercollection resulting in a surcharge of $0.3395 per Mcf

• RG&E - $1,343,290 overcollection resulting in a refund of $0.005579 per therm

Highlighting how the current process does not align customers rates with actual supply costs, NEM noted in particular that ConEd had reported that $3.5 million of its $23 million undercollection for the twelve month period ended August 31, 2016, stems from an over-refund of the reconciliation for the twelve month period ended August 31, 2014. "In other words, mistaken gas cost estimates and subsequent reconciliations continue to distort the prices consumers see and pay year after year after year," NEM said

"Allowing the gas cost reconciliation process to continue unchanged has undermined the very functioning of the retail natural gas market. This is because an artificially stated and/or retroactively adjusted utility rate obfuscates the true value of ESCO-provided products that are priced based on current market conditions. The gas cost reconciliation process that permits utility collection of deferrals with interest underscores the inequity of allowing utilities to compete to provide commodity with ratepayer-backed guarantees versus ESCOs that compete to provide commodity to consumers with at-risk capital," NEM said

NEM noted that accurate utility supply pricing is critically important given that the PSC is relying on comparisons of ESCO prices to utility supply prices to judge the efficacy of the retail market.

"The impact of artificial utility commodity rates coupled with retroactive adjustments to make up the shortfall is also directly relevant to the Commission’s proceeding on ESCO service to Low Income Consumers and the Market Reset proceeding because the practice has distorted the utility Price to Compare. It has created a misleading basis upon which consumers make energy purchasing decisions and causes consumers to misapprehend the value of ESCO offerings relative to the value of artificially stated utility commodity rates. It is one of the factors that has prevented a meaningful comparison of utility and ESCO rates," NEM said

Citing specifically the situation at KEDNY, NEM said, "KEDNY’s commodity rate was understated for the period, sending an inaccurate price signal to consumers and undercutting ESCO efforts to compete with market-based product offerings."

"KEDNY then seeks to compound the damage by requesting the Commission allow it to temporarily suspend the annual reconciliation of gas costs surcharge for the three-month period of January 1, 2017, through March 31, 2017, at the peak of winter heating season, with unrecovered costs to be addressed in the following year’s reconciliation in 2017 to be reflected in 2018 pricing. When a utility can understate its commodity rate and then defer collecting the costs over a span of years, it damages and destabilizes the competitive marketplace," NEM said

NEM recommended that the PSC's gas cost reconciliation regulations and processes should be reviewed and revised to support the following goals:

• making utility commodity rates more reflective of current market conditions and pricing;

• making the impact of the utility rate reconciliations less disruptive and confusing to consumers, particularly to ensure consumers understand the nature of and reason for the adjustments;

• providing more transparent disclosure of utility pricing; and

• contributing to the more accurate presentation of a utility "Price to Compare" against which ESCOs can develop and market competitive products and services to consumers who may then make better-informed purchasing decisions.

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