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ESCO Concerned With Proposed Changes To NY LDC Capacity Release, Seeks More Info, Tech Conference

Worried Experience At Other LDC, Where Supply Prices Distorted, Could Be Repeated

October 25, 2017

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Copyright 2010-17
Reporting by Paul Ring •

Changes to Niagara Mohawk's capacity release program, proposed by New York PSC Staff in a rate case, could result in inequitable treatment of ESCOs depending on how slice-of-system changes are implemented, Mirabito Natural Gas, LLC said in comments filed with the PSC

NiMo currently only assigns DTI capacity to the participants in its retail choice program, and does not use a slice of the system approach that would otherwise include TGP and Iroquois pipeline capacity.

Staff has testified that, "the 'slice of the system' approach for mandatory 10 assignment of capacity is needed here [at NiMo]."

"The approach would entail requiring that all marketers participating in the NMPC retail choice program and serving core customers within the NMPC service territory receive an allocated percentage of the pipeline capacity assets that are used for serving all core customers based on the individual marketer’s customer portfolio," Staff has testified

Mirabito said that more information is needed on Staff's proposal

Mirabito said that the proposal does not sufficiently define whether such a release would be:

(a) A slice of system approach without regard to city gate delivery location; OR

(b) Distinct capacity releases made up of assets distinctly intended for service to specific city gates. For example, a distinct release for West Gates and a distinct release combination for service to Eastern Gates.

"If the proposed approach is to introduce a generic 'slice-of-the-system' release for all core customers regardless of geographic region then we are strongly opposed," Mirabito said

"Burdening customers with assets that are not useful in supplying their geographic location clearly distorts market economics. In this case, such a program would increase the cost of service to all transport customers. East Gate customers would be priced such that they under-recover the cost of actual required assets and conversely West Gate customers would over-recover. The resulting distortion in market signals should not be discounted. Such distortion encourages expansion and contraction of gas service that is contrary to actual market costs and in the long run is not economically sustainable or equitable," Mirabito said

"A 'slice-of-the-system' approach was successfully applied in Keyspan where the customer load is located in a single geographic region where all assets are 'useful' in supplying the load (albeit not equal in cost). However, this is not the case in the NMPC territory where distinct gates have distinct asset needs," Mirabito said

"[D]istinct ('useful') asset groups should be released to distinct and appropriate geographic supply regions. Such releases obviously result in differing underlying costs to serve distinct regions. In such cases, if LDC supply charges are not similarly distinct, then market distortions occur," Mirabito said

"For example, the concept of 'slice-of-system' has been unsuccessfully applied in NYSEG where a weighted average cost of capacity (WACOC) and 'slice-of-system' price were adopted despite opposition by non-utility stakeholders. The resulting single socialized LDC supply charge has significantly distorted competitive and market signals throughout the NYSEG territory. We are providing the following examples based on the NYSEG “slice-of-system” approach because they are known results and reflect the same issues that would exist in Niagara Mohawk," Mirabito said

Mirabito included in its comments a chart of pricing that, "demonstrates how the WACOC approach (where a single system demand component is used across the NYSEG system) creates disadvantageous comparisons for ESCOs in certain areas such as Binghamton and Lockport and advantageous comparisons in other regions such as Ithaca."

"Not only does this distort the comparison (or competitiveness) of ESCO pricing again[st] the utility – it also creates a scenario that encourages expansion and contraction of gas service in regions that is contrary to actual market signals and is therefore not sustainable," Mirabito said

"When the NYSEG WACOC approach was approved, there appeared to be a general belief that use of a 'weighted average cost of capacity' (WACOC) across the system would create a level playing field for market participants. The opposite has occurred. ESCO’s [sic] and Utilities are now subject to distinct price advantages and disadvantage depending on geographic location," Mirabito said

Mirabito suggested a technical conference on the proposed changes

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