RESA Witness: NY PSC Staff's ESCO Vs. Default Service Comparison "Flawed"

A "flawed" comparison of ex post revenues from default service customers versus ESCO customers, submitted by Staff of the New York Department of Public Service, is, "all that Staff's got," in Staff's push to largely end retail choice in the mass market (except for a limited set of products or channels), a witness for the Retail Energy Supply Association said during cross examination yesterday in the New York PSC's evidentiary hearings reviewing the ESCO mass markets

As previously reported, Staff, in their pre-filed direct testimony submitted in September, proposed to prohibit ESCO sales to mass market customers except where there is a guaranteed savings versus default service, where there is a "value-added" 100% renewable product (for electricity only), or where such sales occur through a municipal aggregation or a not-for-profit municipally owned or not-for-profit ESCO.

See more on Staff's recommendations from their direct testimony here

Testifying on behalf of RESA, Dr. Jeff Makholm, Senior Vice President/Managing Director at National Economic Research Associates, Inc., rebutted Staff's comparison of costs under default service versus ESCOs, which had been offered in the hearing process as well as previously in support of the various "reset" orders

Citing data from the utilities, which compared on a total bill basis the costs of default service versus ESCO customers, Staff had testified in pre-filed direct testimony that, on an aggregate, statewide basis for the 36-months ending December 31, 2016, "New York State residential utility customers who chose to take commodity services from an ESCO collectively paid almost $1.2 billion more than they would have if they instead took commodity supply from their utility."

Under questioning during cross, Makholm objected to the use of the term "rates" or "prices" as describing Staff's comparison of default service versus ESCOs

Makholm testified emphatically that Staff's analysis does not compare actual rates or prices, but merely compares ex post average revenue.

However, Makholm said that default service is, "insufficiently unbundled," to isolate it as a stand-alone service, and revenues under default service are therefore not revenues which are tied to an identifiable service, thereby rendering any comparison to ESCO service meaningless and inappropriate

Rather than being a stick in the ground that is meaningful for an analysis of the market, Makholm said that Staff's "flawed" analysis is like a stick in "quicksand", because the true costs of default service are always shifting, due to deferrals and hedges.

Makholm had made the same point in his pre-filed direct testimony, in which he had said that such average utility-vs-ESCO revenue totals, while convenient to compute, "are not useful for gauging the competitiveness of ESCO services. That is, these are not in fact comparisons for a generic kind of indistinguishable 'commodity service.' They reflect utility default charges -- which themselves are complicated by utility hedges and deferrals from what would be produced from the NYISO price or gas market prices -- and the energy services offered by the ESCOs, which are related to a diverse range of products."

In his pre-filed direct testimony, Makholm had opposed the use of what he called a, "faulty default service average revenue benchmark as a pretext for eliminating or regulating ESCO service to mass-market customers."

Emphasizing this conclusion during cross, Makholm summarized, "that's all that Staff's got."

In his pre-filed direct testimony, Makholm had said, "Average default service kWh or dth revenues received by New York’s regulated utilities (or even unitized, customer-specific prices for default supply) are not in any way useful competitive benchmarks in the market for the services that ESCOs provide. The utility retail default energy revenues, which in themselves are affected by their own regulated commodity price deferrals and hedging activities, do not reflect the services provided by ESCOs, and it is highly misleading to make such default service average revenue comparisons to ESCO revenues as if they did."