Direct Energy: NY Staff Whitepaper Price Cap Logistically Unworkable; "Puzzling" Given Negative Impact on Renewal Customers

Among other deficiencies with a proposed reference price benchmark (or price cap) to which all mass market New York fixed ESCO rates would be subject, Direct Energy said in comments on a PSC Staff whitepaper that the proposed timeline for the release and application of the benchmarks is logistically problematic, and would harm customers

As previously reported, the price benchmark whitepaper proposes to establish a not-to-exceed 12-month reference price on a monthly basis, six weeks in advance of the first month of the 12-month period for which the price cap would be in effect. Thus, for example, on approximately April 16, Staff would produce a not-to-exceed price for 12-month fixed-price contracts that would begin on June 1. Offers that began in June and ran through May of the following year and that were priced at or below the price cap would be deemed lawful; prices in excess of the cap would be, "subject to staff review and possible compliance action."

"At the technical conference, ESCO representatives pointed out the many deficiencies in this approach," Direct Energy said. "For example, many customers – especially the small business customers that the Commission has inexplicably included in the price cap proposal – contract with ESCOs well in advance of six weeks before the start date of the contract. This is true both for new contracts and especially true for renewals. Customers whose current contracts will expire on May 31 may be shopping for new offers in February or March rather than waiting until April 16. If the proposal in the Reference Price Whitepaper is adopted, ESCOs will not know what price will be deemed lawful for a June 1 start date until April 16. As a result, it would be exceedingly risky for ESCOs to make any offers before that date. ESCOs would also typically be making renewal offers to customers with contracts expiring on May 31 well before April 16 but again, under the Reference Price Whitepaper proposal, doing so would subject the ESCO to the risk that changes in market conditions occurring between the time when the offer is made and accepted and when the new price cap comes out on April 16, the agreed-upon price will exceed the cap and thus subject the ESCO to 'staff review and possible compliance action.'"

"The price cap proposal in the Reference Price Whitepaper would also limit customer options in the six-week period after the new price cap is announced and the beginning of the 12-month period during which the cap would be in effect. As discussed at the May 31 technical conference ... the wholesale market prices on which ESCO fixed-price retail offers are based can change dramatically in a short period of time. If the market runs up shortly after the new price cap is calculated, ESCOs might not be able to make any fixed-price offers until the next price cap is calculated in the following month," Direct Energy said

"This approach – in which ESCOs could make no offers more than six weeks before the proposed start date of 12-month contracts and might find themselves limited in their ability to make offers even during the six weeks after the price cap is announced – does nothing but hurt customers. Ironically, the customers it hurts most are those who are the most informed and who actually plan ahead in shopping for their energy needs. The proposal also punishes ESCOs who are trying to help customers plan ahead by getting renewal offers out well in advance of contract expiration. This is an especially puzzling result considering that the phenomenon of customers coming to the end of a fixed term and rolling to monthly variable service is perceived by some to be an undesirable feature of retail power and gas markets. Wouldn’t the Commission want to encourage ESCOs to make renewal offers earlier rather than later to help more customers avoiding moving to variable service? This proposal makes that otherwise prudent business practice impossible," Direct Energy said

"A further problem with the Reference Price Whitepaper proposal is presented by the fact that the price cap would operate on a straight calendar year basis – for example, it would be in effect for offers running from June 1 through May 31 of the following year – while customer contracts actually start at different times during the month, corresponding to their utility billing date. Thus, for example, ESCOs signing customers to offers during the first week after the new price cap was announced would have to hold those enrollments to ensure that the customer’s service did not start in the current month, which would make the contract subject to a previous price cap," Direct Energy said

Direct Energy included in its comments an expert affidavit further outlining these enrollment logistical issues resulting from the price benchmark.

Customer switching across New York utilities can take anywhere from 5 days to 60 days. Since a Staff reference price only remains valid for approximately 42 days (or 6-weeks) ESCOs bear the risk that a signed customer won’t start flow until after the reference price expires," Direct Energy's witness noted

"Let’s take an example where the reference price is determined for the period of 7/1/2016 through 6/30/2017 and an ESCO submits an enrollment with expected flow beginning 7/1/2016. If processing takes longer than expected and the switch date moves to 8/1/2016 the customer’s service period would now run from 8/1/2016 to 7/31/2017. Since a different reference price will be valid for this period the ESCO may be forced to either renege on an already signed contract or risk being out of compliance and open to reprimand by the Commission," Direct Energy's witness noted

"Some New York utilities switch customers on their associated meter read date as opposed to the start of the month. The Staff price cap always assumes a 1st of the month start and a last day of the month end. Taking the 7/1/2016 to 6/30/2017 example, if the ESCO contract extends from 7/1/2016 through 6/30/2017, but the actual service period due to the customer’s meter read date extends from 7/17/2016 through 7/16/2017 the ESCO may be out of compliance and open to reprimand by the Commission," Direct Energy's witness noted