ConEd Opposes Changes To Purchase Of Receivables (POR) Program Sought By ESCOs

ConEd, ESCOs File Further Testimony On Merchant Function Charge Allocation, Calculation

ConEd Opposes Various Natural Gas Market Changes Sought By ESCOs

June 17, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Various parties have filed rebuttal testimony on Consolidated Edison's (the "Company") current electric and natural gas rate cases before the New York PSC, addressing issues including Purchase Of Receivables (POR), the Merchant Function Charge Allocation, and natural gas market operational issues

Purchase Of Receivables (POR)

As previously reported in EnergyChoiceMatters.com's exclusive story (click here), the New York Retail Choice Coalition (NYRCC) in initial testimony had sought elimination of the 15% premium to the uncollectibles component of the purchase of receivables (POR) discount rate

ConEd opposed this change

A witness for ConEd said, "The Company’s implementation of POR is consistent with the Commission’s Order Adopting Three-Year Rate Plan in Case 04-E-0572, Proceeding on Motion of the Commission as to the Rates, Charges, Rules and Regulations of Consolidated Edison Company of New York, Inc. for Electric Service and the Order Modifying Reconciliation of Gas Purchase of Receivables in Case 17-G-0794 ... When the Company negotiated the terms of the POR program, the Company undertook the risk associated with purchasing ESCO receivables. NYRCC has not provided any evidence supporting their recommendation regarding the POR, and has not demonstrated that the Company does not face any future risk with the POR program. Given the lack of any evidence to support their assertions, NYRCC’s recommendations are unfounded."

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As previously reported in EnergyChoiceMatters.com's exclusive story (click here), the New York Retail Choice Coalition (NYRCC) in initial testimony had also proposed that the percentage that is included in the Purchase of Receivables (POR) rate that reflects the annual forecast cost of the utility's credit and collection (C&C) function with respect to ESCO receivables should be converted to a cents per therm and dollars per kWh rate for gas and electricity, respectively.

A witness for ConEd opposed this change, citing other recent changes to the C&C component of the POR program

A witness for ConEd stated, "On December 5, 2017, several Energy Service Companies ('ESCOs') (BBPC, LLC (d/b/a Great Eastern Energy, Direct Energy Services, LLC, East Coast Power & Gas, LLC, Robison Energy, LLC and Robison Energy (Commercial) submitted a petition under Case 17-G-0794 to examine and revise the POR recovery mechanism. The petitioners requested 'that any over or under recovery be credited or surcharged, respectively, to the ESCOs through the C&C rate component included in the subsequent year’s POR discount rate as opposed to being credited or surcharged to firm full service and transportation customers through the MRA.' In an order issued July 13, 2018, the Commission directed the Company to file gas tariff revisions in accordance with that request, to be effective January 1, 2019. Additionally, the Company was directed to make similar tariff changes, which were noticed for public comment, for its electric business. Pursuant to its November 16, 2018 Order in Case 18-E-0489, the Commission approved the Company’s electric tariff changes effective January 1, 2019, and considered the proceeding on this matter closed."

"Since the tariff leaves implementing the requested methodology went into effect only recently, and were already publicly available for comment, the Company does not believe the methodology should be changed again in this proceeding," a witness for ConEd said

Merchant Function Charge

ConEd disagreed with testimony from a witness from the New York Retail Choice Coalition (NYRCC) which had alleged that the Company’s cost of service study under-allocates costs to the merchant function

A witness for ConEd stated, "While acknowledging that the Company follows the Commission’s Statement of Policy on Unbundling and Order Directing Tariff Filings, issued August 25, 2004, in Case 00-M-0504 ('Unbundling Policy Statement'), [NYRCC witness] Mr. Lukas argues (p. 15) that the Company’s cost study 'lacks functional detail' in assigning costs to the merchant function. Mr. Lukas highlights a variety of costs (e.g., IT and computer software, legal, regulatory, accounting, call center services, senior management and cybersecurity) that he believes should be separately identified and analyzed in order to be properly allocated to the merchant function. This perceived lack of clarity leads him to conclude that the MFC is understated."

A witness for ConEd stated, "In its Unbundling Policy Statement, the Commission prescribed a specific methodology, applicable to both electric and gas cost allocation, to allocate the following costs to the merchant function: procurement, credit and collection/theft, total Company information resources costs, education and outreach, uncollectibles and working capital costs. The Company’s ECOS study filed in this proceeding separately identifies the merchant function and follows the methodology established by the Commission to assign these costs to this function. The Company follows industry-standard cost-causation principles in further developing the merchant function. For example, Mr. Lukas questions the allocation of legal and regulatory expenses to the merchant function. These costs are traditionally treated as overheads in ECOS [Embedded Cost-of-Service] studies and are allocated to all functions based on labor. As such, the Company’s cost study properly identifies and functionalizes these costs to the merchant function."

A witness for NYRCC said that DPS Staff, "took a status quo approach to the computation of the electric MFC."

Staff did not look "under the hood" of the MFC calculation, a witness for NYRCC said

NYRCC's witness cited an interrogatory response from DPS Staff relating to the MFC

"This interrogatory response reiterates the fact that Staff Electric Rates Panel (SERP) analysis of the Company’s MFC calculation was strictly limited to verifying that the Company adhered to the Statement of Policy on Unbundling and Order Directing Tariff Filings, issued in Case 00-M-0504 on August 25, 2004 and that the allocation methodology between competitive and non-competitive was consistent with the prior rate case, 16-E-0060. What is telling, however, is that when asked to identify what value the Staff or Company used for total Company information technology (IT) costs and the amount and percentage of total costs allocated to the MFC the SERP states: 'The Panel did not independently calculate or modify any components of the merchant function charge (MFC). We did not split the MFC cost components out separately.' (See Exhibit RGL-5)[.] This is stated even though on page 24, lines 7-12 of the Staff Electric Rates Panel testimony specifically cites IT as a component of the MFC," a witness for NYRCC said

"The remainder of the interrogatory requests Staff to identify the total Company costs and percentage of those costs allocated to the MFC for call centers, service centers, credit and collections/theft activities and outreach and education costs. Staff’s Interrogatory Response just restates that the SERP did not independently calculate or modify any components of the merchant function charge (MFC) nor did it split the MFC cost components out separately," a witness for NYRCC said

"The [cited] interrogatory related to IT, call centers, service centers, credit and collections/theft activities and outreach and education costs. There are further breakdowns of overheads like accounting costs, legal, regulatory, HR that were identified in NYRCC’s IR 12 and 13 that were not analyzed with respect to the percentage and amount of total Company costs that were allocated to the MFC. This is a necessary step that should be performed to determine the to the reasonableness of the results of the study. As I state in my direct testimony this flaw can be overcome by improving the functionalization of costs and the allocation overheads to determine the MFC," a witness for NYRCC said

NYRCC's witness said that the PSC's prior Unbundling Order envisions that the MFC methodology discussed and approved in that case would evolve

"As mentioned in my direct testimony the Unbundling Order, states on page 39 that: 'We have noted a number of areas where the record could be improved in the future or where other approaches might be more reasonable than the alternatives proffered in this record, and we encourage the parties to explore them as the future filings of the utilities are submitted,'" a witness for NYRCC said

"The need to refine the methodology used to compute the MFC is of even greater importance now given the prospect of a rate cap being considered in Cases No. 15-M-10 0127 and 12-M-0476. There some parties advocate that ESCO prices not exceed utility prices. This relook is an appropriate rate case issue since the MFC is part of the overall rate setting equation and is really the only venue to use rate case quality data. All in all, I believe Staff did not perform a rigorous review of the MFC and did not look at the plausibility of the allocation results in any great detail. Since the level of the MFC is a controversial issue it is appropriate that, as I proposed in my direct testimony, an impartial party be retained to review the cost allocation methodology and present their findings for review by the various stakeholders in this proceeding. I do not think the use of outside consultant is a novel concept and it would remove any perceived biases or lack of cost detail in the analysis," a witness for NYRCC said

See details on NYRCC's proposed independent study of the MFC in our exclusive prior story here

Utility Consolidated Bill Format, Enhancement

As exclusively reported by EnergyChoiceMatters.com (details here), NYRCC had proposed in initial testimony that ConEd provided enhanced ESCO content on utility consolidated bills

ConEd opposed any such change via a rate case, stating that a statewide process would be more appropriate.

"The Company would not consider these requests outside of a statewide proceeding that included the other New York State utilities, Commission Staff, and stakeholders to evaluate these changes," a witness for ConEd said

"[T]he Company’s implementation of the consolidated bill for ESCOs is consistent with the Commission’s Uniform Business Practices ('UBP') for ESCOs and the Consolidated Utility 10 Billing Services and Assignment Agreement ('CUBS Agreement') signed with all ESCOs," a witness for ConEd said

"The rules and guidelines specific to the 13 consolidated bill took years to establish and involved a number of stakeholder discussions as part of Case 98-M-1343, In the Matter of Retail Access Business Rules," a witness for ConEd said

"[T]he changes NYRCC requests would require changes to the CUBS Agreement and may require modifications to the UBP for ESCOs. These changes may also require changes to the electronic data interchange ('EDI') transactions used to exchange information between the Company and ESCOs. Given the nature of NYRCC’s requests and the potential impact to all of the New York State utilities, the Company believes these requests are better suited for discussion within a statewide proceeding," a witness for ConEd said

ESCO Natural Gas Storage

ConEd responded to testimony concerning ConEd's Tier 2(B) mandatory pilot storage program for ESCOs, which concluded on March 31, 2019.

See background on the storage program and parties' earlier testimony on the program in our exclusive coverage here

As previously reported, DPS Staff in initial testimony has recommended that the Company should complete its evaluation of the prior storage pilot and propose updates by July 1, 2019. Staff had said that this will provide an adequate review process, including the time necessary for implementing tariff amendments, so Marketers can begin filing their assigned allocation of storage assets by April 1, 2020, in order to serve firm transportation customers for the winter heating season commencing on November 1, 2020

ConEd agreed with the deadline to complete its evaluation and agreed to file proposed updates to the Tier 2(B) program by July 1, 2019, and said that it will file proposed updates to be effective April 1, 2020.

NYRCC's witness also offered further testimony concerning ConEd's Tier 2(B) mandatory pilot storage program for ESCOs

NYRCC's witness agreed with a DPS Staff witness that a physical storage program needs to be implemented in time for the 2020/21 winter. "We support [Staff's] recommendation that the Company should complete its evaluation of the program and propose updates by July 1, 2019 in order to give enough time so ESCOs can be ready to begin filing their assigned allocation of storage assets by April 1, 2020, for the 2020/21 winter," NYRCC's witness said

"However, a physical storage program is not the only issues [sic] that is outstanding. We continue to believe that certain improvements to the retail access program need to be resolved as part of this case as outlined in my direct testimony. These include the six issues I identified on Page 6 line 11 to Page 9 line 14 of my direct testimony. Issues that are not resolve sic] in this case should be resolved in a formal collaborative which should begin right after the conclusion of this case. As we previously stated the collaborative process would entail a regular schedule of meetings with a beginning and end date followed by a formal report that would be issued by February 2020. The report would include agreed upon changes and notate issues for which no agreement has been reached. Parties would then have a right to dispute any part of the report with the Commission having final say. It is understood that any changes would be revenue neutral. February 2020 was selected because this would allow enough time to implement changes for the 2020/21 winter," NYRCC's witness said

See a discussion of the six issues NYRCC raised in its initial testimony in our exclusive story here

Also regarding storage, ConEd noted that various ESCOs offered testimony recommending that the Company be required to allow ESCOs to make intraday storage changes.

ConEd did not agree with this proposal

"The Company’s current virtual storage program automatically adjusts nominations by ESCOs to meet their daily delivery requirement when there has been a virtual storage nomination if the actual temperature variable is higher or lower than the forecasted weather. This program achieves a similar result for ESCOs in their efforts to meet their supply and balancing requirements and mitigates large imbalances. The Company does not make supply adjustments to its storage for economic purposes. The Company’s top priority is reliability, which has recently taken on greater importantance [sic] given the current state of constraints on our system. The Company does not agree that the ESCOs should be allowed to make intraday storage changes for supply price purposes," a witness for ConEd said

Natural Gas Balancing

As exclusively first reported by EnergyChoiceMatters.com, DPS Staff had recommended that both Service Classification (SC) 9 and SC 20 daily balancing service tiers begin at 5%, as opposed to the current 10%. In addition, Staff had recommended that Con Edison should modify its existing tariff to properly charge for this balancing service on a total throughput basis similar to the variable balancing charges for power generation customers, but at the 5% level, not the 2% level imposed on power generation.

A witness for the NYRCC stated, "The NYRCC does not oppose tightening the balancing provisions. However, we have two concerns."

"The first is regarding malfunctioning meters. Broken meters and telemetry that does not function makes it difficult, if not impossible, to accurately forecast and reconcile daily deliveries. Our experience shows that it is not unusual to experience a non firm meter that does not accurately measure or remotely transmit daily consumption data. The Company’s tariff indicates that where a meter is not registering the Company can estimate the daily consumption to compute balancing charges. Therefore, we recommend as part of implementing tighter balancing procedures the Company be required to increase maintenance of non firm meters and give immediate feedback when meters are malfunctioning and/ or telemetry equipment is not transmitting data. Furthermore, we propose that balancing charges should be waived when meters are not providing data for more than three days. To be clear, we are not suggesting that the Company be responsible for maintaining telemetering lines; instead we are requesting that the Company provide immediate feedback as to whether the problem is with the meter or the telemetry so the customer can take corrective action (if it is the customer’s responsibility)," a witness for NYRCC said

Second, we believe consideration should be given to adjusting the balancing charges. The proposal that the balancing charges be implemented 'on a total throughput basis similar to the variable balancing charges for power generation customers, but at the 5% level, not the 2% level imposed on power generation' is not clearly defined. It does not layout the present and proposed balancing tiers and percentages. It may be that they present too large of a change. Currently, for non firm daily under-deliveries there is no charge for the first 10 %. The next 10% is per Statement," a witness for NYRCC said

"Power generation rates may not be the most appropriate proxy for setting non firm natural gas balancing charges for several reasons. First, for power generation, greater than 2% but less than or equal to 5% is 110% of cost of gas and greater than 5% but less than or equal to 10% is 120% of cost of gas. If the literal intent is that anything greater than 5% is at 120% of the cost of gas, we believe this could be too large of a change and is not be appropriate for non firm customers. Perhaps greater than 5% should be at 110% to smooth out the change. In any event we believe this matter needs further analysis. The exact levels can be set as part of the formal collaborative proposed by Staff to deal with physical storage issues. Second, there are also key differences between non-firm gas customers and power generation customers. Among other things: (i) non firm gas customers pay much higher rates than power generation customers; (ii) Power generation customers have tighter balancing provisions as a result of having relatively low recourse rates; (iii) non firm gas customers are a higher priority service than power generation; and (iv) power generation customers are in a better position to negotiate better balancing terms," a witness for NYRCC said

NYRCC's witness further recommended that, "Similar to the KEDNY and KEDLI non firm programs, I recommend consideration of no-harm, no foul rules. This basically means if the system is in balance, no one gets a penalty. If the system is out of balance, the customers that caused the imbalance are penalized."

A witness for the City of New York also opposed DPS Staff's proposed balancing changes.

"[Staff witness] Mr. Maioriello’s daily balancing recommendations should be rejected. Regarding his proposal to charge for daily balancing within the five percent tolerance band, Mr. Maioriello failed to provide the specific charge that would be assessed to daily balancing customers, nor did he provide any basis to calculate such a charge. At this stage of the proceeding, there is simply no way for the Commission, the Company, or the interveners to assess the reasonableness of a currently undetermined daily balancing charge," a witness for the City of New York said

"Mr. Maioriello’s recommendation that the daily balancing service tiers should begin at five percent instead of 10 percent should also be rejected. Mr. Maioriello did not provide any foundation that the current 10 percent tiers were not working properly, that Con Edison was having any difficulty managing the current 10 percent tier structure, or that the current tier structure was causing Con Edison difficulty in maintaining the integrity of the gas distribution network for firm service customers. The Commission should not make significant changes to the daily balancing tiers for SC 9 and 20 without evidence that the current tiers are posing problems for the operation of Con Edison’s gas distribution system," a witness for the City of New York said

Other Natural Gas Market Issues

In initial testimony, NYRCC had raised an issue regarding ConEd’s Intraday City Gate Allocation. NYRCC said ESCOs 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. NYRCC said that if an ESCO has available pipeline transport to a given city gate, the ESCO should be allowed to utilize the space for their firm customers and not have to receive special permission from gas control.

ConEd opposed NYRCC's proposed change to intraday citygate deliveries.

A witness for ConEd said, "ESCOs are currently able to request intraday citygate deliveries from Gas Control who is the system operator, similar to the process followed by Con Edison who schedules on behalf of Sales Customers. No party is allowed to make intraday changes without Gas Control confirmation in order to maintain system integrity. The pressure of the system cannot be jeopardized in order to provide economic advantages to certain parties."

Case 19-E-0065 et al.

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