New York Utilities Balk at Ending POR Without Recourse

Although the New York Attorney General supports the end of purchase of receivables without recourse, New York utilities have balked at the idea, raising concerns that requiring POR with recourse could harm customers and increase administrative costs.

Matters first reported that the New York PSC's investigation of retail market issues includes the examination of whether ESCO receivables purchased by the utility should be purchased with recourse.

"Those ESCOs that assign their account receivables to the utilities should only do so with full recourse, insulating utility ratepayers and shareholders from ESCOs' uncollectible accounts," the AG said. "To qualify as independent competitors, ESCOs should bear the full risk of their customers' uncollectible accounts. After fifteen years in existence, ESCOs today have adequate financial resources to stand on their own. To effect a genuine competitive retail energy market, the PSC must provide that utility ratepayers and shareholders are not responsible for ESCO collections."

However, the utilities warned that introducing recourse into POR would frustrate customers while implicating additional costs.

Notably, New York statute permits the disconnection of a customer for non-payment of supplier receivables on a consolidated bill, even where utility receivables are paid in full. ESCOs waive this right under utilities' various POR without recourse billing services agreements.

However, if POR with recourse is introduced, ESCO-ordered disconnections will be implicated, which make it, "impractical to continue a POR with recourse or a PAYGP [Pay As You Get Paid] model," National Grid said.

POR with recourse, "would also require a potentially very difficult coordination of an ESCO disconnect and the utility’s disconnect (either one or both would issue a disconnect notice)," National Grid said.

Similarly, NYSEG and Rochester Gas & Electric said that POR without recourse should be maintained. "This structure is highly desirable to the Companies because it allows only one party, the utility, to decide when to terminate service for non-payment," NYSEG and RGE said.

"The Companies are concerned that a change in the POR Program to allow 'recourse' could have serious operational ramifications and cause customer dissatisfaction," NYSEG and RGE said.

"Reconnect protocols would also need to be carefully reviewed in a POR with recourse or PAYGP model. Would the ESCO that requested the disconnect be required to reconnect? What if another ESCO took over service," National Grid said.

"There are no clear benefits to be gained from changing the purchase of receivables model to a recourse model," Consolidated Edison and Orange & Rockland said, citing various logistical challenges and costs.

Moreover, National Grid doubted that introducing POR with recourse would achieve one of the concerns prompting the PSC to review the current without recourse programs, which is the potential shifting of bad debt from ESCOs to utility customers. "[I]n a POR with recourse model, an ESCO is incented to choose and retain customers with low risk of bad debt. By doing this, the utility is left with an increased risk as the Provider of Last Resort (POLR)," National Grid noted.

Numerous utilities also said that the costs of modifying systems to support POR with recourse would be "significant."

If POR with recourse is required, NYSEG and RGE said that the redesign, "would require a very large IT effort." In addition, the companies would have to retest most of the 80+ qualified ESCOs in their service territories. The companies conservatively estimate that this testing would take approximately 40 weeks (assuming that IT personnel could be dedicated and available for the entire period). "Thus, the redesign of the Companies' billing and EDI systems would be costly in terms of dollars spent on design and programming, as well as thousands of IT personnel hours," NYSEG and RGE said.

Central Hudson estimated the programming changes as requiring, "over 400 hours of programming and testing, [and] the Company would also incur significant costs and changes related to our collection process, accounting procedures, internal controls, and require numerous administrative updates."