N.Y. Orders Central Hudson to Release Capacity at WACOC; Makes Winter Bundled Sales Service Mandatory

The New York PSC has ordered Central Hudson Gas & Electric to make the necessary tariff changes to implement Weighted Average Cost of Capacity (WACOC) pricing for capacity released to retail suppliers required to accept mandatory assignment of capacity, and also approved Central Hudson's proposal to require all retail suppliers to take Winter Bundled Sales (WBS) Service as part of the retail access program (11-G-0697).

The PSC Staff noted that, to date, Central Hudson is the only gas company in New York that is not in the process of or has not already implemented pricing of capacity released to retail suppliers at the WACOC.

In the current Central Hudson Retail Access program, the cost of capacity released to retail suppliers is set equal to the pipeline demand charges, as invoiced by the interstate pipeline. The retail suppliers are charged directly from the interstate pipeline. To adjust the cost to be equivalent to the released capacity WACOC, a surcharge/credit to retail access customers is passed through the Capacity Assignment Adjustment (CAA) for the difference between Central Hudson's system WACOC and the retail access capacity release amount. Annually, any difference between the surcharge/credit amount and the actual difference between the pipeline rates and Central Hudson's system WACOC is reflected in the CAA.

Using the WACOC would provide a better price signal to all customers, Staff said.

Furthermore, Staff said that Central Hudson's use of the WACOC would reduce Central Hudson's overall on-going administrative work effort. Central Hudson had previously said that even if it switched to the WACOC method, a true-up mechanism would still be needed. Central Hudson said that because it uses a commercial software product to manage its capacity release and supplier modifications, programming changes would also be needed.

In a recommendation adopted by the PSC, however, Staff said that this has not been an issue preventing implementation with any other company. "Also, a true-up mechanism is not necessary if monthly updates to the WACOC are used similar to how this capacity cost is updated in monthly GAC statements," Staff said.

The PSC directed Central Hudson to file within 60 days, to become effective November 1, 2012, the necessary tariff changes, for Commission review and approval, to implement weighted average cost of capacity pricing for capacity releases to retail suppliers.

The PSC also approved Central Hudson's proposal to make Winter Bundled Sales (WBS) Service mandatory for retail gas suppliers serving Service Classification Nos. 6, 12 & 13 customers.

Central Hudson previously allowed retail suppliers to choose either the Winter Bundled Sales Service option or the Balancing Service option to meet their gas requirements during the winter period. When retail suppliers choose the Balancing Service Option instead of Winter Bundled Sales Service, Central Hudson must release to the supplier a larger volume of pipeline capacity to manage system reliability properly.

Releasing more capacity to retail suppliers then leaves less of the utility's portfolio available to manage system balancing, Staff said. As migration of customers to transportation has increased over time, the ability to provide releasable capacity has diminished, Staff said.

Requiring retail suppliers to take Winter Bundled Sales Service will reduce the amount of capacity released to suppliers through the mandatory "slice-of-system" process, and will result in Central Hudson having sufficient capacity to release to retail suppliers without needing to purchase capacity on the open market for the foreseeable future. Staff said that this is consistent with the WBS programs of other companies and is the most efficient and cost effective manner to operate this program for all firm customers, transportation and sales customers alike.

The requirement to take Winter Bundled Sales Service will be effective April 1, 2012.