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New York ESCOs Seek Independent Study Of Costs To Be Included In ConEd Merchant Function Charge

Seek Change In POR Calculation

Seek Natural Gas Market Changes, Restoration of Physical Storage Program

Seek Technical Conference on Electric UFE

May 28, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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In testimony in Consolidated Edison's current electric and natural gas rate cases, the New York Retail Choice Coalition (NYRCC) sought an independent study of costs included in the utility's merchant function charge

NYRCC also sought elimination of the 15% premium to the uncollectibles component of the purchase of receivables (POR) discount rate, as well as various changes to ConEd's natural gas policies and procedures, and a technical conference on Unaccounted for Energy (UFE)

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A witness for the NYRCC stated regarding the MFC that, "the current standard cost of service methodology is not conducive to separately identifying costs and properly allocating them to the merchant function. A sample of the costs we are referring to include IT and computer software, legal, regulatory, accounting, call center services, senior management and cybersecurity."

A witness for the NYRCC testified, "I believe there are limitations to the ability of the current methodology to properly identify and sperate [sic] the costs associated with providing competitive services from non-competitive services. The lack of resolution in these studies makes it difficult to pinpoint and assign specific expenses and plant costs specifically to the merchant function. I do think they are a very useful tool measuring, on a relative basis, the return of various rate classes as a guide to distributing rate relief. In that case the limitations are mostly spread uniformly across all the rate classes. I also think they provide a useful guide to determine the minimum cost to serve customers of various rate classes though these costs are almost never applied precisely."

The NYRCC issued discovery requests to ConEd asking that ConEd provide the O&M expenses and Plant in Service associated with each of the various cost categories listed in the request. For each item the NYRCC also requested the percent of total O&M costs and Plant in Service for that item that was allocated to the MFC.

A witness for the NYRCC testified, "In its response the Company did not answer specific questions regarding the percentage of total costs allocated to the MFC and billing backout credit for a list of twenty cost categories listed in the question. Instead, the Company’s answer refers to the allocation methodology outlined in the testimony."

A witness for the NYRCC testified that, in the discovery response, ConEd replied that, "The MFC includes a direct assignment of costs associated with procuring electric/gas commodity. It also has an allocation of costs associated with the Company’s call centers, credit and collection/theft activities, outreach and education costs, IT costs and bad debt expenses."

A witness for the NYRCC testified that, "It is the indirect and formulaic allocation of costs related to the items such as IT and computer software, regulatory, call center services, accounting, HR and the other items listed in the interrogatory that illustrates the lack of functional detail in the study. Such detail is necessary to more accurately compute the MFC as well as the credit and collection costs and the billing back out credit. In fact, it appears that one of the few items directly allocated to the MFC factor itself (leaving aside the credit and collection costs and billing back out credit) are the costs associated with energy procurement."

A witness for the NYRCC reviewed embedded cost of service data included in ConEd's rate case. In testimony, a witness for the NYRCC listed, "select examples of implausible results and need for further study."

A witness for the NYRCC testified that:

• "Electric Exhibit No DAC 2 Schedule 1, Table 2, at page 1 shows that zero dollars in 'Plant' was allocated to the MFC. Table 2 page 5, however, shows there is $35,643,758 allocated to merchant function for 'Common Plant.' 'Common Plant' includes plant used by a utility in rendering more than one type of service, such as a corporate headquarters, computer equipment, etc. Common Plant allocated to the merchant function, however, represents only 1.56 % of the total 'Plant' + 'Common Plant.' Admittedly, the large distribution and transmission amounts impact this percentage. However, this is the very reason that it is difficult to determine if resources like IT are properly allocated to the merchant function when using loading factors since they could be overallocated to the larger cost categories based on their larger dollar weightings."

• "An analysis of GRP -1 Schedule 1 for gas shows similar results for 'Plant' costs. Exhibit No GRP Schedule 1 Table 1 page 1 shows that zero dollars in 'Plant' were allocated to the MFC. Table 2 page 2, for common plant shows there is $5,736,792 allocated to merchant function. This represents not even 1% of total 'Plant' + 'Common Plant.'"

• "Electric O&M expenses shown on DAC 2 Schedule 1 Table 3 page 1 shows that $27,782, 572 was allocated to the merchant function. This represents only 1.82% of total O&M expenses of $1,520,524,643. The large amount of distribution and transmission expenses incurred could distort the amount of IT, computer software, accounting and other similar costs that are allocated to the merchant function. To overcome this deficiency more detailed studies would need to be performed."

• "Gas O&M expenses shown on GRP-1 Schedule 1 Table 3 page 1 shows that $5,553,491 were allocated to the merchant function. This represents only 1.6 % of total O&M expenses of $ 341,916,198. Again, the large amount of distribution and transmission expenses would impact the percentages of IT, computer software, accounting and other costs not separately allocated or studied . [sic]"

"My conclusion is that for the study to properly assign monopoly energy utility costs to a utility competitive rate costs such as IT and computer software, legal, regulatory and other items need to be separately identified (functionalized) and allocated between these functions," a witness for the NYRCC testified

A witness for the NYRCC testified that the MFC under-allocates costs to competitive functions

To correct this issue, a witness for the NYRCC testified that, "Our preferred course of action would be to employ an outside, impartial third party to conduct the study and offer recommendations to the Commission. Costs associated with such a study would be recoverable in future rate cases. The consultant would be charged with seeking a reasonable balance between the current broad-brush method vs. the need to have more specific allocations for agreed upon cost functions. This study would also review the billing backout credit and the credit and collection costs included in the Company’s POR rate. We understand this would take some time. We are not asking that the currently proposed MFC rates be revised until the factor is recomputed. If the factor is revised the Company would be assured that any change would be revenue neutral and it would bear no rate recovery risk. We note that this effort would provide an important template that can be used in other rate cases filed by New York State utilities. As an alternative, a technical conference could be held with the aim to achieve a joint agreement on a revised method and rate level for the MFC. If no agreement is reached, then the parties would present their disagreements to the Commission for final resolution."

POR Discount Calculation

NYRCC sought to remove the 15 percent risk adder from ConEd's purchase of receivables (POR) uncollectible rate

"My proposal is that the 15 percent risk adder be applied to the uncollectible rate, to compensate the Company for its financial risk that the actual uncollectible rate for the purchased receivable may be higher than the uncollectible rate, which is not cost justified [sic] and should be eliminated. There is no evidence that there is any incremental risk factor associated administering the POR program. In fact, in response to NYRCC-6 Question No. 54, which asked the Company to, 'Provide any studies the Company has performed to justify the 15 per cent to compensate the Company for its financial risk that the actual uncollectible rate for the purchased receivable may be higher than the uncollectible rate,' the Company stated that, 'The Company has not conducted any such studies since 15 percent was approved in the New York Public Service Commission’s 'Order Adopting Three-Year Rate Plan' in Case 04-E-0572 [sic]," a witness for the NYRCC testified

Furthermore, NYRCC said that the percentage that is included in the POR rate that reflects the annual forecast cost of the utility's credit and collection function with respect to ESCO receivables should be converted to a cents per therm and dollars per kWh rate for gas and electricity, respectively.

"This is due to the fact that it is unlikely on a cost causation basis that the credit and collection costs vary directly in relationship to the annual forecast cost of the Company’s gas credit and collection function with respect to ESCO receivables. In addition, using the above method would make it easier to true up. I also note that, as we propose, National Grid bills these charges on a unit sales basis," a witness for the NYRCC testified

Natural Gas Market Changes

NYRCC also sought various changes to ConEd's natural gas procedures and policies

NYRCC sought six changes to be implemented via the rate case

"First, we are proposing that the Company and ESCOs be subject to the same set of rules with respect to serving natural gas customers. For example, with respect to Intraday Nomination Flexibility for Virtual Storage, we request that ESCOs be granted the same flexibility the Company has to serve its full-service Sales Customers. At present, Con Ed may adjust their storage supply portfolio throughout four gas nomination cycles whereas ESCOs must have their nomination posted in the TCIS system by 10:30 am, day ahead, to secure the supply from Con Ed. No changes are allowed after the 10:30 am deadline has passed. This difference allows Con Ed to bring the most cost-effective supply to their customers, while ESCOs are left at a competitive disadvantage. This change would allow ESCOs to bring the most competitive supply to their customers and minimize ESCO cash-outs," a witness for the NYRCC testified

NYRCC's witness said that KEDLI and KEDNY virtual storage can be nominated in accordance with normal scheduling deadlines and cycles thereby mimicking a physical storage withdrawal service. "While ESCO’s cannot make injections into storage with KEDLI AND KEDNY [sic], they can indeed reduce the quantity nominated intraday. National Grid allows nomination flexibility and still maintains system reliability. A so called, 'No Notice Service,' which is the key to maintaining reliability, would not be diminished as part of our proposal. For background, No Notice Service is a pipeline delivery service that allows customers to receive gas on demand without making prior nominations to meet peak service needs without paying daily balancing and scheduling penalties," a witness for the NYRCC testified

"Second is that we request increased transparency as to how virtual storage inventory costs are computed. We are asking that Con Ed provide a clear methodology on how it how it calculates the inventory price for storage gas. Based on currently available information to ESCOs, it is difficult to forecast it for forward pricing purposes," a witness for the NYRCC testified

"Our request for increased transparency stems in part from an April 10, 2019 email sent to Marketers, which is included as Exhibit No. RGL-2, which included the following message: 'The following information is Con Edison’s storage fill plan provided to estimate your storage prices for the following winter season. Con Edison’s total gas space is 41 Bcf, of which 14 Bcf is currently filled at the inventory price for April 1st of $3.026/dth. The remaining volume (23 Bcf) that will be filled (to reach 90% by the beginning of next 20 winter season) will be filled with 85% of purchases from Marcellus and 15% of purchases 21 from the Gulf.' ESCOs do not understand why, if $2.40 per/dth was the all-in storage price for last winter, how it would be possible for the remaining balance to be $3.026/dth. Our data shows that injection costs should have brought the costs down," a witness for the NYRCC testified

"The third issue relates to Con Ed’s Intraday City Gate Allocation. ESCO’s must request intraday city gate allocations from Con Ed gas control to deliver additional supply to an ESCO’s firm customers within its Maximum Daily Quantity. If an ESCO has available pipeline transport to a given city gate, they should be allowed to utilize the space for their firm customers and not have to receive special permission from gas control. The ESCOs pay full demand charges for city gate deliveries and should be able to use available capacity to deliver to its customers. If certain gates are constrained this information should be published day ahead or as soon as the congestion is binding. Constraints should be equally binding for Sales Customers," a witness for the NYRCC testified

"The fourth issue is timely Cash Out Invoices. Con Ed generally does not process end of month cash out invoices until 90 days past the end of a given month. There are some instances of Con Ed not processing invoices for 120 days or more. We request that these invoices be processed within 30 days of the end of month close so that ESCOs can timely reconcile," a witness for the NYRCC testified

NYRCC's fifth issue is POR Disbursements. "Con Ed currently does not provide a detailed list of adjustments to POR disbursements. For instance, an ESCO may be entitled to a total gross POR disbursement of $2 million yet receive a net disbursement of $1.5 million. The ESCO must then review all possible outstanding invoices with Con Ed to reconcile the two amounts. We request that Con Ed provide a detailed listing of all adjustments associated with a given POR disbursement providing sufficient information to determine which accounts were adjusted, or any other reasons the ESCO is not receiving full payment," a witness for the NYRCC testified

"The sixth issue concerns the credit and security requirements required to be posted for natural gas imbalances. While under Con Edison’s PSC No. 9 Gas Tariff, Leaf 391, Miscellaneous Provisions, Section B1, the Company’s Credit and Security Requirements, the Company may allow 'satisfaction of creditworthiness requirements and provision of any security as specified in the UBP.' The reality is the Company requires collateral postings from ESCOs with the narrow exception of those ESCOs rated by one of the national credit rating agencies, Standard & Poor’s, Moody’s Investor Service, Fitch Ratings or Dun & Bradstreet. With the exception of very large, multi-state entities, ESCOs are typically not rated because obtaining such a rating is cost prohibitive," a witness for the NYRCC testified

NYRCC noted that, under current practice, mid-size ESCOs would be required to post collateral if requested by the utility, even if the ESCO’s POR receivables exceed the utility’s potential exposure attributable to the ESCO.

"[W]e suggest that ConEd allow ESCOs to demonstrate creditworthiness through other commonly acceptable methodologies, such as use of audited financials, among others," a witness for the NYRCC testified

NYRCC also said that other natural gas market issues should be addressed in a collaborative

"First and foremost, since ConEd terminated its pilot physical storage program, a new program must be instituted as soon as possible. Ideally, we would like to see such a program in place for the next 2019/2020 winter season, but realistically speaking, such a program should be finalized and in place in time to implement for the 2020/21 winter injection season starting on May 1, 2020," a witness for the NYRCC testified

"Second, issues pertaining to the utilization of firm transportation associated with storage (storage FT) to deliver production area supply to the city gas needs a full vetting. This would include a discussion of FERC issues that may be potential barriers to this concept. Utilizing storage FT to allow delivery of flowing gas on days when these supplies are cheaper than storage gas would allow ESCOs to better manage their supply costs," a witness for the NYRCC testified

"Third, the collaborative should address other issues to ESCOs neither identified nor settled in the case. As previously mentioned, any changes made outside the rate case would be revenue neutral to the Company," a witness for the NYRCC testified

Electricity UFE

NYRCC requested that a technical conference be held concerning Unaccounted for Energy (UFE) at ConEd

A witness for the NYRCC testified that, "For the months of April, May and June 2018 the UFE factors were incorrectly reported to the NYISO as 14.10%, 15.4% and 16.70% respectively. These results were two to three times the values of the same months in 2017. ESCOs challenged the accuracy of these values with the NYISO and were advised that it cannot make any adjustments unless and until Con Ed provides the NYISO with a revised UFE Zone J value for each month in question. Several ESCOs reached out to the Company, but their requests for clarification and correction were met with resistance. In a letter dated Nov 21, 2018, submitted by Feller Law Group on behalf of a coalition of ESCOs, a request was made to Con Ed requesting 'that ConEd hold a stakeholder meeting in early December to address the Spring 2018 UFE Issue and Inquiring ESCOs’ concerns.' ConEd refused to meet with the ESCOs and answer their questions. Finally, many months after ESCOs initially raised this issue to ConEd, the Company provided the NYISO with corrected data and the NYISO was able to adjust the May and June factors with the NYISO. However, it was past the NYISO tariff deadline to revise the April UFE factor. As a result, Con Ed filed a request for waiver with the FERC in mid-January 2019 for permission to revise the April UFE factor on a look back basis. That case is still pending."

NYRCC's witness testified that, "In its FERC filing the Company stated 'While a few ESCOs (including Con Edison on behalf of its full-20 service retail customers [('Sales Customers')]) received lower energy bills for April (and will therefore see an increase in costs as a result of the waiver), the rest of the ESCOs received higher energy bills for April and will experience a decrease in their NYISO bill or will receive a credit from the NYISO for their April 2018 bill.' ... It is unclear as to why full-service Sales Customers received lower bills."

"Given the lack of clarity and cooperation, we propose that the Company be required to hold technical conferences with the ESCOs, Staff and other interested parties to fully explain how the UFE is developed for ESCOs and Sales Customers and how their losses are computed. Simple reference to a NYISO operating manual is not a sufficient explanation without specific examples. Should it become apparent that changes need to be made to ensure ESCOs and full-service customers are treated the same regarding the above, the Company will be required to make changes to attain equal treatment. Any disputes would be resolved by PSC Staff or, if necessary, by the Commission if the parties cannot agree on a course of action. In addition, the technical conference should also address any other electric retail choice issues that are problematic to ESCOs for resolution as described above. All changes would be revenue neutral," a witness for the NYRCC testified

Enhanced ESCO Content On Utility Consolidated Bills

Noting testimony filed by ConEd concerning an updated customer service system, NYRCC said that, "this is an ideal opportunity to make changes to allow for ESCOs to better communicate with their customers and provide more detailed breakdowns of their charges."

"At a minimum, we believe the revisions to CSS should provide flexibility for ESCOs to display more pricing detail and present more detailed communication than is currently available. Our understanding is that we are presently limited to 480 characters. Regarding pricing components ESCOs cannot separately unbundle items such as utility charges on the supply side of the bill, capacity charges, imbalance charges or regulatory change pass throughs (positive or negative), similar to the way utilities show them on their commodity statements," a witness for the NYRCC testified

"Also, there should be line items available to itemize ERVAS [Energy Related Value Added Services], such as: service contracts, community solar net metering credits, financing of new updated equipment, electric vehicle charging stations, etc. These changes will enhance transparency of ESCO pricing and allow ESCOs to promote new products consistent with New York State’s and the Commission’s public policy goals," a witness for the NYRCC testified

Case No. 19-E-0065 et al.

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