Exelon: New York Should Utilize "Prudent Mix" of Hedged Contracts for Default Service

Electric default service in New York should be served under a "prudent mix" of short- and medium-term procurements, Exelon said in comments to the New York PSC in a proceeding on this winter's price impacts.

"Exelon recommends that the Commission consider requiring New York utilities to implement hedging strategies for electric default service supply through a prudent mix of short- and medium-term procurements to supply a single, undifferentiated default service offering for each utility. A prudent mix – determined through input of stakeholders and market participants and approved by the Commission – can provide an appropriate balance by protecting against electric price volatility while also being reflective of current commodity costs. It is critical that the consumers are given time-forward information vs. time backward information in order to have the necessary information to compare offerings and to make their next choice," Exelon said.

"Default Service hedging has the attendant benefit of making it possible for the utility to have a published Price to Compare ('PTC') which is a vehicle through which residential consumers can make apples-to-apples comparisons of ESCO offers against default service prices. In markets where residential shopping remains nascent, having such a PTC is a substantial boon to encourage energy shopping, providing peace of mind to consumers who may previously have eschewed shopping due to an inability to make such comparative evaluations," Exelon said.

On contract, the Retail Energy Supply Association said, "The potential use of increased levels of hedging is neither a useful nor prudent approach in response to this winter’s unusual pricing activity."

"It is also clear that ramping up increasing levels of hedging engenders significant costs and problems that outweigh any purported benefits. Hedging by a utility is an inherently anti-competitive activity that can raise costs unnecessarily for ratepayers while depressing the competitive retail energy market. Furthermore, it should be noted that during extreme constraint periods it is not unusual for certain ancillary costs to rise significantly (example, Schedule 813 Residual Adjustments). These costs are not subject to hedging by any LSE (whether a utility or an ESCO). However, an ESCO which offers fixed price products typically fixes this cost on behalf of a customer whereas a utility service just passes through this charge to the customers on utility default service whatever it may be," RESA said.