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New York News and Analysis
September 2003
| Breaking News | Other Resources |
Highlights
- Consumer Protections in Energy Market Go Into Effect
- Deregulation Blamed for August Power Outage
- Senator Schumer Urges Feds to Monitor Energy Prices for Gouging
After Blackout
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Background
Unlike other states, New York has deregulated electricity markets
through its Public Service Commission (PSC), rather than its legislature, beginning with
an initial PSC opinion in 1995. Subsequent opinions and policy decisions defined roles and
procedures for electricity marketers and directed major electric utilities to file
restructuring plans. The PSC had approved restructuring plans for all major utilities in
the state by March 2001. While the PSC, the legislature
and other entities have attempted to resolve issues that are seen as impeding the
transition to competitive markets, little progress has been made. For example, a
collaborative proceeding (Case
00-M-0504) organized by the PSC over two years ago on issues
related to opening up the market, conducted extensive research. In July 2001, two
Administrative Law Judges assigned to the issue reviewed the collaborative’s work and
issued a recommended decision (RD), upon which no official action has been taken by the
PSC.
The consumer issues addressed in the collaborative proceeding and
the RD, and that remain important to New York consumers, include the following: |
Deregulation has
created a cowboy economy in electricity production in New York State.
Andy Mele, Hudson River Sloop
Clearwater of Poughkeepsie, September 2003
…neither choice nor significantly
lower prices have yet developed for most consumers in New York, where electricity remains
among the most expensive in the nation.
The Albany Times Union, August 2003
Clearly, we are still in the
transition phase. Developing the retail market for electricity has been slower than people
anticipated.
Dave Flanagan, New York Public
Service Commission, May 2003 |
Consumer protections and Home Energy Fair
Practices Act (HEFPA)
During 2002, the state finally resolved a long-standing issue of
whether competitive suppliers, also referred to as energy service companies or ESCOs,
should be required to comply with HEPFA,
a residential consumer protection statute. The state
legislature took up this issue during 2002 and in June unanimously passed a bill -- the
Energy Consumer Protection Act of 2002 -- that would require electric and natural gas
suppliers to comply with HEPFA. On December 20, 2002, Governor George Pataki signed
the Act into law as Chapter 686 of the Laws of 2002;
it went into effect on June 18, 2003. While the law is theoretically in effect, ESCOs have
requested and been granted extensions on several of its key requirements, and many of the
ESCO filings must be reviewed by the PSC’s Office of Consumer Education and Advocacy.
Additionally, the lack of a robust competitive market (see "Migration
statistics" below) means that, in practice, few residential customers are entering
into contracts with ESCOs.
Under ECPA, all of the protections defined by HEFPA are made
applicable to the transactions between the ESCOs and residential consumers. With respect
to starting and continuing service, these protections include rules regarding deposits,
budget billing, terminations, estimated bills, plain language bills, third-party notices
and other protections found for low income, elderly and disabled customers in HEFPA.
Consumer advocates support it, claiming it would provide
consumers protection against fraudulent marketers and set limits on the deposits and fees
that customers might face. Opponents say it would stifle the state's fledgling competitive
energy markets by making it more expensive for marketers to operate and limiting their
ability to offer innovative services and products. They also say it would give suppliers
the ability to shut off service to customers who don't pay their bill, thus increasing the
number of terminations.
Since passage of the law, the PSC has held meetings and requested
comments from interested parties. On June 20, it issued an order requiring energy service
companies to comply within 75 days with HEPFA requirements regarding residential service
deposits, termination of residential commodity service for non-payment, late payment and
other charges, complaint handling and resolution procedures. They were also ordered to
file sample deferred payment agreements, amended sales agreements or disclosure
statements, and a narrative description of the methods and procedures they will utilize to
terminate its commodity service for non-payment. A subsequent order gave companies until
September 26 to issue those filings, after which there may be a further order or direction
from the PSC or the Office of Consumer Education and Advocacy on their compliance.
The June 20 Order also specified a policy mandating the
pro-ration of customer payments on consolidated bills between the ESCO and the
distribution utility. Utilities and ESCOs issuing a consolidated bill were ordered to
begin pro-rating all partial payments within 75 days of the order and after 15 days notice
to customers. However, many entities requested more time and further clarification and the
deadline was extended and the proceeding continued.
Default supplier or provider of last resort (POLR)
In its restructuring decisions, the NYPSC has required local
electric utilities to provide default or POLR service at least during the transition
period. The collaborative discussed whether local utilities should phase out of providing
supply and whether default customers should be bid out. The RD said POLR service should
not be more expensive than service from non-POLR providers. The decision recommended the
continuation of utility-supplied default service until the wholesale market is viable and
can provide reasonable prices and encourage suppliers to make offers to mass-market
customers. The Chapter 686 proceedings do not address the POLR, so it remains an
outstanding issue.
Universal service and the obligation to serve
The RD proposed that the PSC explicitly adopt a universal service
goal that seeks to have gas and electric service available to all. It also proposed that
all suppliers would have the obligation to serve all customers within the customer classes
and geographic area for and within which the supplier is providing service. Suppliers
would be permitted to designate the geographic area in the state within which they intend
to provide service and the class of customers that they will serve within that area, but
would not be otherwise able to limit their customer class. Nor could they discriminate
between customers based on the customer’s income or ability to pay.
Price volatility
Until a competitive market with adequate supplies exist, utilities
should not rely solely on short term or spot purchases to meet customers’ needs and
may be required to continue to provide commodity price stability by "hedging"
the prices of supply resources for several years through long term contracts or other
financial transactions.
Supply
The RD recommended that major changes be delayed until it is clear
that there is more than enough electricity and natural gas available to insure that the
wholesale energy markets run smoothly, without the price spikes that have caused a crisis
in California and hurt consumers nationwide. This could mean building new power plants,
more electricity transmission wires, and additional natural gas pipelines.
The New York Independent System Operator (ISO) released a report
in March 2002 that characterized New York’s power supply markets as in
"persistent crisis." The problem, according to the ISO, was continuing growth in
the demand for electricity with too little addition to generating capacity that provides
supply. The ISO said the state will need 7,100 additional megawatts, a 22 percent increase
in supply, by 2005. Statewide, only two new plants have been approved, neither of them in
New York City or Long Island, where the need is greatest.
Even before the August 2003 blackout, the ISO concluded in May
that these areas also suffer from some of the "worst transmission bottlenecks in
America, susceptible to blackouts." It warned, "lack of transmission investment
could well result in reliability problems in the not-too-distant future." The ISO now
says that transmission development in New York has slowed to a glacial crawl, lacking even
a planning process for infrastructure improvements.
The August blackout and other electric issues
The blackout of the electric systems in the Mid-west and Northeast
United States and eastern Canada on August 14, 2003, gave critics an opportunity to
question anew the deregulation of New York’s utility industry. The blackout affected
6.7 million of New York’s 7.5 million customers, with the New York metropolitan area
being the hardest hit.
Paul Tonko, a Democratic state assemblyman and chairman of the
Assembly’s energy committee, said New York has moved too far and too fast in removing
generations-old oversight on the regional monopolies of electric and natural gas utilities
and the shift affected the capacity and maintenance of the electrical transmission system.
Rob Sargent, policy analyst for the National Association of State
Public Interest Research Groups, also contented that deregulation is "potentially a
culprit" in the blackouts. "Look at a map where the states were most affected by
this. All these states are deregulated," he said.
Deregulation has resulted in less oversight by the public over
how utilities spend their money, according to Charles Brennan, staff attorney for the
consumer-oriented Public Utility Law Project. "It has resulted in an environment in
which generators have a great deal more freedom to act without a regulatory authority
overseeing their actions. That’s the same for the construction and maintenance of the
grid," he said.
Senator Charles Schumer, a member of the Senate Energy Committee,
blamed what he called the Republican administration’s "doctrinal commitment to
unfettered deregulation."
"Under-investment in transmission lines and a weak oversight
board controlled by utilities have created an unstable, unreliable and overloaded
patchwork system for transmitting power from one place to the other. I can think of no
greater indictment of this policy than the millions of people without power and the loss
of billions of dollars that occurred last week," Schumer said.
In his testimony to the U.S. Senate on September 10, Mark Cooper, Director of Research of
the Consumer Federation of America urged, "It is about time that you get the
perspective of local jurisdictions that have had the good sense not to go down the road of
electricity restructuring and deregulation or have decided to change course after being
badly burned by deregulation and restructuring. Two-thirds of the states have figured out
that deregulation is a road to ruin. It is time for federal authorities to change course
too, or at least to pause for a substantial period while they rebuild the physical and
institutional infrastructure of the electricity gird."
On September 10, a coalition of New York environmental groups
including the American Lung Association, the New York Public Interest Research Group,
along with four other organizations, called for a better transmission system, better
planning, more conservation and a shake-up of the state’s deregulated power system.
They acknowledged that the suggested changes may not have prevented the latest outage, but
stressed they could prevent another from occurring.
From more information about the sequence of the significant
events that lead to the blackout, see a
September 11 report by the North American Electric Reliability
Council.
Migration statistics
As of July 2003, 265,549 of the state's nearly 6.4 million
residential electricity customers (4.2 percent) eligible for choice have switched to new
suppliers. Of these 66,870 were in Con Edison territory (which serves New York City), the
largest number of any New York utility. However, it is still only 2.6 percent of its 2.6
million residential accounts.
The transition to choice has varied among individual utilities,
as have rates, rate caps and reductions and the ability to pass costs along to customers.
During the summer of 2000 rates soared by 43 percent in the Con Edison territory, in part
because the utility was able to pass through its wholesale power fuel costs to customers.
This led to calls for reform, from Con Ed, the Commission and others.
Rates in the state have remained consistently high. Con Ed is
still able to pass through wholesale spot market prices to retail consumers, while most
other New York utility customers are receiving service under rate caps or mandated rate
reductions, according to consumer affairs consultant Barbara Alexander. The Con Ed tariffs
approved by the PSC allow for monthly reconciliation and, therefore, cannot be predicted
in advance. While Con Ed provides its customers with estimated rates for a six-month
period every May and November, the actual price charged for the generation supply portion
of the bill varies according to the wholesale market.
Here is a history of New York’s residential electric rates: |
New York Average Annual Price per kWh (nominal cents) |
| |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
2001* |
2002** |
2003*** |
| Residential |
12 |
12.4 |
13.2 |
13.6 |
13.9 |
14 |
14.1 |
13.7 |
13.3 |
14.1 |
14.1 |
13.26 |
14.67 |
Sources: Federal Trade Commission, NY
Public Service Commission, Energy Information Administration
*Based on monthly average bills by utility; click here to see the chart.
**As of May 2002
***As of May 2003
Natural gas markets
As was the case throughout the country, New York was subject to
higher gas prices during the winter of 2002-03; prices have remained high throughout the
spring and summer. In an
August 2003 press release, Senator Charles Schumer urged the
Federal Trade Commission (FTC) and the Federal Energy Regulatory Commission (FERC) to
closely monitor the electricity, natural gas, oil and gasoline markets for any
irregularities that may occur in the wake of the August power outage.
"After the California energy shortage subsided, energy
prices kept going up for all the wrong reasons because a few unscrupulous suppliers
exploited the situation. The markets are already showing an increase in energy prices
which is why it's imperative for federal authorities to monitor them for any untoward
activities. The shortage is going to exact a big enough toll as it is, and we need to
ensure that foul play doesn't add insult to injury," Schumer wrote in his letter to
the FTC and FERC.
Rising natural gas prices have a much larger impact on New
Yorkers than home heating oil increases, Schumer said, because in Upstate New York there
are 1.75 million households who use natural gas to heat their homes compared to 785,000
that use home heating oil.
All classes of customers can choose natural gas suppliers in New
York. The PSC issued regulations and published its plan for comprehensive unbundling in
November 1998. The collaborative process mentioned above looked into gas markets and, as
with electricity, predicted that a fully competitive market is years off. The RD said the
state’s gas pipeline infrastructure is inadequate to support a competitive retail
market at this time.
For recent residential gas rates, click here.
Migration statistics
The state’s gas marketers are faring slightly better than
electricity marketers; as of July 2003, competitive suppliers served 291,822 residential
customers, or 7 percent of New York’s nearly 4.2 million residential natural gas
customers.
For recent migration data, click here. |
Other resources
Alexander, Barbara. Default Service: Can Residential and Low Income
Customers Be Protected When the Experiment Goes Awry?,
April 2002. This paper was originally published in April 2001 and updated in
October 2001. This version reflects the most recent information available for state
activities with respect to Default Service through 2001 and early 2002. However, readers
are cautioned that the states described in this paper routinely consider changes to state
restructuring policies that have a significant impact on the nature, price, and purpose of
Default Service.
Alexander, Barbara. Default Service: Can Residential and
Low Income Customers Be Protected When the Experiment Goes Awry?, April 2001, and an Update to the April paper issued in October
2001. These papers summarize and make some preliminary conclusions about the development
of a default or provider of last resort service for residential and small commercial
customers as part of the move to retail electric competition. Both papers highlight the
status of default rates and impacts of restructuring-related developments on residential
and low-income consumers in the states of California, Massachusetts, New York,
Pennsylvania, and Texas.
National Center for Appropriate
Technology. The Transition to Retail
Competition in Energy Markets: How Have Residential Consumers Fared?, September 2002. A study of the impacts
of electric and natural gas markets restructuring on low- and moderate-income consumers in
five states including New York. It’s approach to electric industry
restructuring has been marked by a lack of certainty in the overall approach and industry
structure, as well as a lack of competition. A key decision on the electric market
structure has been pending for over a year and marketers have shown little interest in
residential consumers.
Tonko, Paul. New York's "Perfect
Storm" An Industry in Crisis: The Financial Condition of Electric Generating
Companies in New York State, October 17, 2002. An analysis
by a state legislator critical of the state’s deregulation strategy predicts an
impending electricity crisis due to capacity problems faced by utilities and credit
problems of suppliers. Also sets out a 10-point plan to restore investor confidence and
mitigate the impacts of the crisis.
The New York PSC website is very
detailed. It includes many documents from the collaborative process and the Recommended Decision.
Consumer-oriented information, as well as a collection of news articles over the past two years, is available at the website of the Public Utility Law Project.
Village Voice. "How Pataki's
Disastrous Energy Plan Fattened His Friends and Campaign Coffers: Bad Policy, Big
Bucks," October
23-29, 2002. This article by Wayne Barrettterms declares New York’s deregulation experience a
disaster that no one’s talking about. It details the monetary connections between
Governor Pataki and major utilities and new merchant generators, including their
contributions to Pataki’s successful 2002 re-election campaign.
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