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New York PSC Chair Calls For ConEd To Provide Immediate Default Service Supply Rate Relief By Reflecting Full Value Of Hedges In Next Billing Cycle

Asks ConEd To Reassess Approach To Default Service Supply Billing With Goal Of Reducing Volatility

NY PSC Chair: "We Must Consider Energy Affordability In Every Action We Take"

February 17, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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New York PSC Chair Rory Christian, in a recent letter to Consolidated Edison, requested that the utility undertake changes in its next billing cycle to provide immediate relief to default service customers from high supply prices, while also requesting that ConEd reassess its approach to full-service supply billing with a goal to reduce the likelihood of extreme and sudden price volatility

Christian's letter to ConEd comes after default service customers saw significant increases in supply bills due in part to higher market prices as well as increased usage from colder weather, though Christian also said at today's PSC meeting that, "The bill impacts that ConEdison customers experienced were exacerbated by a unique billing methodology used by the company which we have requested that they reassess with the goal of reducing such volatility in the future."

More broadly, and with potential impacts to other areas of the industry (including retail market regulation), Christian during today's PSC meeting stated, "This experience serves as a reminder that we must consider energy affordability in every action we take."

Con Edison provided the following statement concerning the matter:

"Con Edison is taking action to address the increase in energy supply costs and its impact on our customers. We are reviewing all of our practices that affect customer supply costs, including our energy-buying practices, the tools we use to reduce supply price volatility, the way we communicate changes in supply prices, and our programs to help customers who have fallen behind on their bills."

--- Statement from Con Edison

New York Governor Kathy Hochul recently urged ConEdison to review its billing practices, stating, "Even though the spike we are seeing in electricity, natural gas and fuel prices were predicted and are due to severe winter weather, I am calling on Con Ed to review their billing practices because we must take unified action to provide relief for New Yorkers, especially our most vulnerable residents."

In a recent news release issued by the governor's office, Christian stated, "While the PSC and the utilities cannot control supply prices, utilities can improve their procurement and billing practices to reduce the likelihood of dramatic price swings in the future and we are requiring Con Edison to address this going forward."

Last week, Christian wrote a letter to Timothy P. Cawley, Chairman, President, & CEO of Consolidated Edison, Inc., "seeking several actions by Con Edison to (1) mitigate the immediate problem, (2) reassess power supply billing practices to reduce the risk of severe price volatility in the future, and (3) improve communications to customers regarding commodity pricing, especially in advance of anticipated bill increases."

In the letter, Christian wrote, "Con Edison should mitigate the recent high customer bills by providing the full value of its hedged commodity procurements to customers in the next billing cycle."

In the letter, Christian wrote, 'This recent cold weather spell has exposed weaknesses in Con Edison’s billing practices that warrant closer examination. When Con Edison issues bills, it passes through the weighted average supply rate based on the residential customer load shape and New York Independent System Operator (NYISO) market prices in effect in each billing cycle. The company also applies a forecasted hedge value, which is updated mid-month. This value is fixed for one month and includes reconciliations to account for underestimated forecasted hedge values and sales variations from prior periods. If the actual electric market prices vary significantly from those assumed in the hedge value forecast for the upcoming month, the mismatch between the value of the hedges and the supply rate billed to customers is exacerbated. This situation occurred in January and is continuing to occur in February. Total bills for full-service mass-market customers billed at the end of January were 49 and 58 percent higher for New York and Westchester customers, respectively, from their previous bill for the typical energy usage. Department Staff estimates that approximately 70 percent of the increase in supply rates between December and January was attributable to Con Edison’s forecasting hedge values being underestimated."

"Specifically, based on information Con Edison provided to staff, the hedge value forecast for January, while apparently reasonable in the assumptions used at the time of the calculation, led to the actual hedge gains being significantly underestimated. The value of the underestimated hedge benefit should be included in Con Edison’s next billing cycle update to ensure that customers receive the full value of Con Edison’s hedge. Assuming normal weather for next month, we expect that this adjustment will significantly reduce the commodity price reflected on customer bills next month. The Department has determined that the Company’s current hedging strategies combined with a revised supply billing practice may have effectively mitigated the bill volatility seen in January," Christian wrote in the letter

Additionally, Christian wrote that, "Con Edison should reassess its approach of forecasting its hedge value in billing cycle updates to reduce the likelihood of dramatic and sudden price volatility."

"While Con Edison’s hedging practices will likely result in substantial cost savings to customers this winter compared to what customers would have paid if Con Edison did not hedge, the underestimated forecast of the hedge benefits, added to the flow through of weighted average market prices based on customers’ individual billing cycles as noted above increased bill volatility this winter," Christian wrote in the letter

"Con Edison should immediately reassess its approach to full-service supply billing with a goal to reduce the likelihood of extreme and sudden price volatility, and report to Staff its findings," Christian wrote in the letter

Christian also wrote in the letter that, "Con Edison must improve communications to electric and gas customers to better explain forecasted commodity price changes."

"While Con Edison included bill inserts and sent out messages on other platforms that natural gas commodity prices were expected to be higher this winter, it did not inform customers that electric commodity prices were also expected to be higher, or in its billing for last month that there was a spike in electric commodity prices. Con Edison should have foreseen the likely electric commodity price spikes and done more to provide advance notice to their customers and other stakeholders. In addition to preparing customers in advance of expected price increases, it is essential that Con Edison also continue to offer customers deferred payment agreements and provide information regarding other bill assistance programs," Christian wrote in the letter

Christian requested that ConEd provide a response with recommendations to Department of Public Service Staff by February 28, 2022.

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