ESCO Asks New York PSC To Divert Uncommitted Funds From Public Policy Surcharges To Support ESCOs Facing Financial Difficulty From Pandemic, Related Issues

ESCOs Serving C&I Customers, "Are Losing Money At A Rapid And Unsustainable Rate"

July 14, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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Comments filed on behalf of Aggressive Energy LLC (AE) at the New York PSC, in a proceeding on COVID-19, proposed that the PSC allocate a portion of previously collected, and uncommitted, funds from various public policy riders to provided financial relief to ESCOs which are experiencing an "unsustainable" state of affairs due to the reduction in load, and revenue, while still being charged NYISO fixed charges such as capacity.

The comments filed on behalf of Aggressive Energy also proposed a recalculation of capacity payments and other fixed-cost requirements applicable to ESCOs to reflect the reduced load

"The combination of unprecedented, sustained reductions in energy use with fixed costs that are based on pre-pandemic energy consumption threatens the viability of ESCOs and the many businesses that rely on ESCO services," the comments filed on behalf of Aggressive Energy said

"ESCOs pay fixed costs for capacity purchases in addition to other costs that are based on the projected load expected, based on historical data, under customers’ typical operating conditions. ESCOs account for reasonable potential variations in energy use due to typical factors such as weather which may reduce or increase energy loads by a reasonable amount. The unanticipated effects of the COVID-19 pandemic due to mandatory closures and stay-at-home orders have caused an unprecedented, continual decrease in energy use in virtually every industry in New York," the comments filed on behalf of Aggressive Energy said

"As described in greater detail below, energy service companies such as AE are required to pay fixed costs that do not change based on reductions in energy consumption. Energy service companies that primarily serve C&I customers are most significantly affected by COVID-19 to the extent that, without action from the Commission, prior and projected losses call into question the ability of such companies to continue operations in New York," the comments filed on behalf of Aggressive Energy said

"ESCOs that primarily serve C&I businesses under fixed or index rate products are particularly negatively affected by the pandemic because so many businesses have been mandated to close until further notice or otherwise operate on a limited basis. Stay-at-home orders leave buildings, businesses, sports and concert arenas, and educational institutions empty. The ESCOs that primarily serve residential customers may see a modest increase in energy use, but the State as a whole has experienced an overall decrease in energy use," the comments filed on behalf of Aggressive Energy said

"ESCOs serve most of the largest energy users in New York, including office buildings, universities, hospitals, manufacturing facilities, professional sports stadiums and arenas, and large concert venues. Most of these businesses are currently operating on a limited capacity or are closed entirely, and there is no indication that the entire economy will return to pre-pandemic activity and energy use any time soon. According to the most recent report from NYISO on load shift in response to COVID-19 issued on July 1, 2020, overall energy use in New York City averaged between 9-12% below typical demand levels, and, at one point, according to NYISO, load shift averaged between 15-20% below typical demand levels. The NYISO forecast team has 'observed that the reduction in electric demand from commercial customers is a leading driver of overall reduced electricity consumption,'" the comments filed on behalf of Aggressive Energy said

"Significant reduction in energy use in New York City and throughout the State had led to loss of revenue for all ESCOs. The effect on AE has been dramatic with substantial loss of revenue during the closures related to the pandemic on average of 15% monthly while continuing to incur 100% of the fixed costs, thereby causing extreme hardship," the comments filed on behalf of Aggressive Energy said

"Compounding the problem of revenue loss is the ESCOs’ obligation to pay fixed payments for capacity payments and other fixed costs. These fixed costs are based on a projection of expected load that is based on historical data and trends, so these fixed costs do not drop at a level commensurate to the loss of revenue. ESCOs anticipate and account for a reasonable amount of deviation in projected usage, but the load shift deviations in response to COVID-19 greatly exceed any reasonable projection. The fixed costs are excessively high based on the actual load during the pandemic response, and there is little indication as to how quickly load will return to pre-pandemic levels in the near future," the comments filed on behalf of Aggressive Energy said

"ESCOs are taking on a growing amount of bad debt. Utility shutoffs are currently prohibited, even for customers that are far behind on paying their energy invoices. Many of these customers may eventually close, restructure, or reduce output, but the ESCO is still required to pay fixed costs at full price despite the warning signs. ESCOs could also see losses due to over-deliveries of natural gas which will be sold back to the market at loss due to currently depressed rates," the comments filed on behalf of Aggressive Energy said

"As mentioned above, ESCOs that serve C&I businesses are losing money at a rapid and unsustainable rate. As a result, without intervention from the Commission, many ESCOs may have to suspend service or withdraw from the market, and competition in the energy market will be stifled at a time when businesses and residential customers will benefit most from fair competition in energy markets," the comments filed on behalf of Aggressive Energy said

The comments filed on behalf of Aggressive Energy said that, "It is likely that electric and gas utilities and/or NYSERDA currently possess a substantial amount of previously collected and uncommitted customer funds for programs that have been canceled or put on hold during the pandemic. According to the petition initiated by Multiple Interveners in Case 20-M-0187, collection of funds has continued for programs that have been canceled or put on hold indefinitely. Programs such as energy efficiency programs and similar utility programs that require workers to enter homes and businesses will be difficult, if not impossible, to undertake until after the pandemic. In addition to utility programs, customers fund large scale renewable energy projects, behind-the-meter renewable energy projects, energy storage projects, and electric vehicle infrastructure investments, among others. These programs are funded by electric and gas delivery rates and surcharges. These funds continue to be collected while the related work has slowed substantially and while many of the projects and programs may be permanently eliminated or reduced as the Commission considers COVID-19-related austerity measures."

"Businesses throughout the state, including the New York Business Council, support the petition by Multiple Interveners. The Business Council estimates in its comments that the previously collected uncommitted funds amounted to $1.15 billion as of June 1, 2020," the comments filed on behalf of Aggressive Energy said

"A portion of these funds should be directed to ESCOs who can demonstrate they have suffered a material loss of revenue to mitigate the losses described above," the comments filed on behalf of Aggressive Energy said

Additionally, the comments filed on behalf of Aggressive Energy said that there should be an immediate reduction in the amount of capacity purchases that ESCOs are required to make to reflect the current reduction in C&I energy consumption.

"Re-calculating capacity payments and other fixed-cost requirements relating to commercial customers consistent with the recent load drop-off. This would require determinations and accommodations around peak load and capacity requirements on market imbalance calculations by and with NYISO," the comments filed on behalf of Aggressive Energy said

Other Comments

First Choice Energy, LLC filed separate comments noting the challenges facing ESCOs and seeking various relief

"The impact of COVID-19 on earnings, liquidity, cash flow, and access to capital for ESCOs serving (and directly billing) large commercial customers have been significant. Unlike local utilities that may recover losses in future rate cases; ESCOs may not," First Choice Energy said

"While First Choice Energy is offering its customers extended payment terms, there have been no changes to the payment terms in New York’s wholesale electricity and natural gas markets, compounding the adverse impact to earnings, liquidity, and cash flow," First Choice Energy said

"Additionally, the typical percentage of such customers paying in full, and on-time has decreased considerably, particularly following announcements from local utilities that customers who do not pay their electric or natural gas service will neither lose service nor pay late fees," First Choice Energy said

"Another concern is the likely inaccuracy of customer usage, which is provided by the utilities to ESCOs. Absent actual meter reads, Customer usage is typically estimated or based on past historic usage. First Choice Energy is concerned that the meter reads provided by the utilities may be materially inaccurate and will result in a situation where customers have either overpaid or underpaid for commodity service. The more inaccurate the usage data estimate provided by the utility, the more difficult it is for ESCOs to balance commodity supply against customer demand. The consequence to ESCOs that directly bill and supply commodity service to commercial customers, is even more debilitating because of the potential interruption to revenue streams -- which is typically otherwise predictable," First Choice Energy said

First Choice Energy said that, "First Choice Energy is supportive of measures to provide relief to ratepayers, and generally supportive of a policy to prohibit late fees for COVID-19 related overdue payments; however, it is essential that corresponding relief is provided to ESCOs."

"While First Choice Energy is offering its customers extended payment terms, there have been no changes to First Choice Energy’s payment terms in New York’s wholesale electricity and natural gas markets, compounding the adverse impact to earnings, liquidity, and cash flow," First Choice Energy said

"First Choice Energy recommends that the implementation of any rate relief program offered to consumers is ultimately neutral to the entity serving the customer, whether utility, ESCO directly billing customers, or ESCO that participates in the utility’s POR/CB program," First Choice Energy said

"In considering whether investments in and collections for clean energy programs be modified during the pandemic, the Commission should consider the impact this relief measure will have on Load Serving Entities ('LSEs'), including ESCOs that are obligated to pay for clean energy programs, such as RECs and ZECs," First Choice Energy said

"To the extent customer payments are modified such that payments for ZECs and RECs are suspended, corresponding relief must be provided to the LSE supplying electric supply to the customer. In other words, if customers are no longer required to pay for RECs or ZECs, ESCOs must be relieved of their obligation to pay NYSERDA and/or refunded if already paid," First Choice Energy said

First Choice Energy also sought equitable relief to customers and LSEs. "For example, if a Clean Energy Program fee is suspended, the payment should likewise be suspended for the LSE supplying electricity to that customer," First Choice Energy said

First Choice Energy proposed that the PSC eliminate late fees and any other penalties for LSEs with respect to their Clean Energy Program obligations.

First Choice Energy also said, "To the extent any reconciliation or deferral of expenses related to COVID-19 are permitted, corresponding relief should be provided to ESCO’s that have not otherwise recovered lost revenues, and are facing financial hardship as a result of COVID-19."

Case 20-M-0266

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