Retail Unbundling - New York


Status: The state has comprehensive unbundling programs for its residential gas customers.


Overview: Natural gas unbundling is operational statewide in New York, with the exception of a few small utility companies representing less than 1 percent of residential and small commercial customers. According to the New York State Public Service Commission (NYPSC), 7.3 percent of residential customers were purchasing natural gas from marketers as of October 2004, which is virtually unchanged from participation rates since 2001 (7.1 percent as of December 2003, 7.6 percent in December 2002, and 7.4 percent in December 2001). Only 1.8 percent were participating in December 1999. The NYPSC issued regulations and published its plan of comprehensive unbundling in the state on November 3, 1998. At that time, the NYPSC estimated that it would take 3 to 7 years to get utilities completely out of the merchant function. In mid-July 2001, a preliminary report by two administrative law judges indicated that the process would take much longer than originally expected, as the pipeline infrastructure was deemed inadequate to support a competitive retail market for pipeline capacity at this time. The report claimed that the only competitive market at that time was the commodity market for nonresidential gas customers. Large commercial and industrial customers have been able to purchase and transport their own gas supplies since the mid 1980s. According to the NYPSC, nearly 100 percent of the state’s largest gas customers in 2004 are being supplied by marketers.


Several actions were taken by the NYPSC during 2004 in an effort to accelerate the state’s transition to a competitive retail energy market. In August 2004, the NYPSC issued two policy statements that affirm the commission’s commitment to customer choice and outline strategies to boost participation in competitive markets. These strategies include: opening all utility retail functions (except delivery) to competition, expanding consumer education programs, continuing the option for suppliers to have utilities handle billing, and encouraging aggregation programs and utility-specific programs that help customers switch to third-party suppliers. In particular, utilities were encouraged to replicate Orange & Rockland’s successful Switch and Save program (since renamed PowerSwitch). Among the program’s features is the utility purchase of suppliers’ accounts receivable without recourse, which simplifies suppliers’ operations and eliminates their need to perform credit checks. In return suppliers in the program offer a guaranteed discount (currently 7 percent) to participating customers for a 2-month period and agree to take all residential and small commercial customers that are referred by the utility. Customers are assigned randomly to participating suppliers. According to the NYPSC, nearly one-third of Orange & Rockland’s gas and electric customers have switched to third-party suppliers since the program’s start in August 2000.


The NYPSC directed utilities to limit their long-term supply contracts to the minimum needed to ensure reliable service. Marketers can either take assignment of LDC-contracted capacity or contract directly with the pipeline company. The LDC has the first right to purchase marketer capacity if the marketer exits the market. If an LDC holds capacity on behalf of a marketer, the marketer should be expected to make a commitment to take the capacity for the specified period. A companion order to the policy statement on unbundling and rate-setting guidelines required utilities to conduct comprehensive cost-of-service analyses that separate costs for competitive and noncompetitive services so that marketers can more accurately determine a competitive rate for their services.


In November 2004, the NYPSC began providing a buyers guide on its web site that details price terms and service offerings of energy service companies and local electricity and natural gas utilities. The guide will be updated monthly and covers 12 utility service areas and more than 40 energy service providers. In December 2004, 37 marketers were serving residential gas customers in the state, compared with 42 marketers in December 2003, 44 in December 2002, and 50 in December 2001. Marketers must be certified by the NYPSC and use standard contracts. In March 2002, the PSC issued new requirements that apply to marketers offering prepayment plans or requiring deposits from customers, in order to ensure that customers are able to get back their deposits in case of a company bankruptcy. In June 2002, the State Legislature passed the Energy Consumer Protection Act of 2002, which provides customers the same consumer protections regardless of whether they buy natural gas from a marketer or a regulated utility.


EIA State Data: In 2003, New York had 4,218,180 residential and 386,479 commercial customers. They consumed 413 and 336 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $11.58 and $8.59 per thousand cubic feet, respectively.



Eligibility/Participation in Retail Choice Programs:


Status as of December 2004: Number of Customers



Customer Type


Total 2003

Eligible October 2004

Participating October 2004

Total

Percent of 2003 Total

Total

Percent of Eligible

Percent of 2003 Total

Residential

4,218,180

4,218,180

100

304,626

7.2

7.2

Commercial/ Industrial

389,463

389,463

100

59,850

15.4

15.6

Total

4,607,643

4,607,643

100

364,476

7.9

7.9


Sources: Total 2003: Energy Information Administration, Natural Gas Annual 2003 (December 2004). Eligibility and Participation: New York State Public Service Commission. The EIA 2003 customer data were used to express 100-percent eligibility for residential and commercial/industrial customers.



New York: Regulatory and Legislative Actions on Retail Unbundling


Summary: The New York State Public Service Commission (PSC) published its plan for comprehensive unbundling of natural gas services on November 3, 1998, and ordered that local distribution companies (LDCs) should exit the merchant function during a 3-to-7-year transition period. By April 1, 1999, all LDCs were to stop assigning upstream capacity to customers who had chosen to purchase gas from other sources. LDCs were directed to encourage competition and to cooperate with marketers so as to increase the number of customers choosing transportation service. LDCs were also directed to explore options to mitigate stranded costs. Issues such as metering and billing and last resort service that also relate to electric utilities will be decided in connection with electric utility restructuring. Issues regarding system operation and reliability and market power are being addressed through collaborative meetings with LDCs, marketers, consumer groups, government agencies, and the PSC. As a result of this collaborative process, a preliminary report was issued in July 2001, which concluded that the transition to a competitive retail market will take much longer than expected. It recommended that utilities eventually be forced to exit the retail market but that the current market was not sufficiently competitive to support this change.

 

Legislation was enacted in June 2002 that provides customers who purchase natural gas or electric power from marketers the same protections they have as utility customers. Under the law, all the protections granted utility customers under the Home Energy Fair Practices Act also apply to transactions between marketers and residential customers. Customers with billing disputes may take their complaints to the Public Service Commission.


Regulatory actions in 2004 included directing the nine largest utilities in the state to develop plans to accelerate development of competition in natural gas and electric markets and to file detailed cost analyses in future rate cases that allocate costs between competitive and noncompetitive categories. The NYPSC also recommended transitional steps toward a fully competitive market in which utilities completely exit the retail market (see overview section above).


Regulatory and Legislative Actions

Legislation

6/02

Legislature Approves Energy Consumer Protection Act of 2002. Gives consumers who buy natural gas or electricity from marketers the same protections they have as utility customers. The law makes marketers subject to the same late-fee caps that apply to utilities and requires them to offer budget billing plans. No prepayments are allowed, and deposits can be collected only from consumers with a bad payment history. Marketers may shut off service to customers who do not pay their bills under the standards specified in the Home Energy Fair Practices Act. Law becomes effective in June 2003.

Regulatory Actions

8/04

Statement of Policy on Unbundling and Order Directing Tariff Filings. Presents guidelines for accurately quantifying a fair utility rate that marketers can compete against. Directed utilities to conduct comprehensive cost-of-service analyses that would allocate costs between competitive and noncompetitive services.

 

8/04

Statement of Policy on Further Steps Toward Competition in Retail Energy Markets. Policy adopted encouraging customer choice and affirming that competitive markets are the preferred means of promoting efficient energy services. Outlines strategies to boost participation in competitive markets, including: opening all utility retail functions (except delivery) to competition, expanding consumer education programs, continuing option for suppliers to have utilities handle billing, and encouraging aggregation programs. Long-term supply contracts are discouraged and marketers should either take assignment of LDC-contracted capacity or contract directly with the pipeline. Utility has first right to purchase marketer capacity if marketer exits the market.

 

1/04

Comments Requested re Specific Strategies to Facilitate Customer Choice. Companies asked what should be done now to increase customer choice and what would be the expected benefits and cost of recommended actions. Asked to consider ways to eliminate barriers to customer aggregation programs and the pros and cons of auctions, incentive mechanisms, long-term contracts, and minimum capacity commitments for marketers.

 

3/03

Recommended Decision re Unbundling Track Embedded Cost Studies. Administrative law judge recommended that an embedded cost of service study approach should be used in cost analyses for energy service provider studies, which would be based on cost-causation principles, but sufficiently flexible to consider consumer interests.

 

5/02

Proceeding on Competitive Gas Metering. Comments requested on pros and cons of allowing large customers to get metering and meter data services from competitive providers, as well as many other meter issues including whether residential and small commercial customers should be able to utilize competitive gas metering..

 

3/02

Consumer Protection Measures Strengthened, Case 00-M-0504. PUC issued new requirements that apply to marketers offering prepayment plans or requiring deposits from customers. Rules were in response to a company bankruptcy that resulted in some customers being unable to get back their deposits.

 

1/02

Provider of Last Resort Pilot Program. Orange and Rockland Utilities proposed a 6-month pilot POLR program for about 5,000 residential gas customers. Participants will be assigned to gas marketers on a rotating random basis so that each marketer has about the same number of customers. Program will evaluate customer and marketer reaction to the program and test whether "conveying a sense of urgency to customers re need to choose a supplier is an effective means of promoting retail access." Program targeted for 2002-2003 heating season but probably will not be ready until the 2003-2004 heating season .

 

7/01

Study of the Future of Competitive Gas and Electricity Retail Markets, Case 00-M-0504. Preliminary report recommended that major changes be delayed until enough pipeline capacity is installed to ensure reliable and competitive retail markets. Report also recommended that rate-term agreements be no longer than 3 to 4 years so as not to fix prices after a competitive market develops. In addition, report recommends that the PSC require marketers to provide the same consumer protection measures required of utilities.

 

4/01

Initial Approval of Data Exchange Standards and Uniform Billing Practices. The PSC adopted a set of uniform business and payment processing practices to be included in utility tariffs and procedures and approved a plan requiring LDCs and energy service companies to standardize certain data systems to ensure electronic data interchange throughout the state.

 

4/01

Investigation into Business Practices of Energet!x, a marketer supplying gas in the Rochester area. Concerns centered around a price increase in fixed price contracts and short time given for customers to evaluate changes. Concerns also raised about relationship with its affiliate RG&E. Agreement was subsequently reached in which Energetix rescinded price increase.

 

4/01

Study of Generic Gas/Electric Unbundling Issues, Case 00-M-0504. Report issued on collaborative efforts, "Concepts, Issues, and Views of the Future." Next phase will be to examine policy issues statewide, including how to calculate unbundled costs, rate treatment for stranded costs, and cost functionalization.

 

2/01

Decision Issued Approving Measures to Encourage Competition in RG&E Service Area. Measures include: (1) "retail back-out credit" of $45 per year to be paid to competitive supplier to reflect utility avoided costs when a customer chooses an alternative supplier, (2) gas delivery management options that allow competitors to use and pay for storage on RG&E's system, (3) and communication protocols to share system info with users and customers including emergency planning, system alerts, etc. Decision also reduces delivery service rates for customers from 7/00 through 6/02. charges.

 

12/00

Interim Restructuring Plan Approved for Key Span NY and LI (1/01-6/01). Plan includes: (1) One-time bill credit against the delivery charges paid by heating customers. (2) Incentive payment to marketers equivalent to 8% of monthly delivery charges incurred by marketer's firm service customers. (3) Pilot program to reduce frequency of meter tests. (4) Consumer education program re/ competition. (5) Survey to measure gas marketer satisfaction.

 

11/00

Orange and Rockland Utilities, Inc. Restructured to Encourage Competition. Delivery and commodity charges are to be itemized separately in customer bills. O&R will provide a marketer $25 for each customer (up to 10,000) who switches to that marketer and also implement a "backout credit" to cover utility avoided costs. O&R will offer pilot program to help marketers manage gas delivery and also implement a program to notify marketers of available capacity.

 

10/00

Order Restructuring Niagara Mohawk. Final order issued on measures approved by Commission in 7/00 to foster competition in Niagara Mohawk service area. The LDC will make more pipeline and storage capacity available to marketers/suppliers and offer balancing services and billing services. Bills are to delineate actual costs of services and the LDC is to initiate a consumer education program and provide grants to counties to develop aggregation programs for low-income customers. Delivery rates to customers will be frozen through 8/31/03.

 

2/00

Single Billing Option Approved. Customers who choose an alternative gas supplier can receive a combined bill for service, to be issued by either the utility company or the supplier. The entity issuing the bill will be responsible for bill printing and mailing, receiving and processing payments, and remitting the amount owed to the biller..

 

12/99

Order Concerning Reliability. Requires each LDC to submit a Gas Transportation Procedures Manual that describes the LDC's services, day-to-day and critical period operating procedures, and the rights and responsibilities of gas marketers and direct customers. The manuals are to include: (1) information regarding LDC and marketer contact personnel, (2) a requirement that all market participants have Internet access, (3) procedures for day-to-day and periodic communications including via Internet, conference calls, and regular meetings, (4) uniform daily nomination schedules reflecting the GISB standards, and (5) communications procedures during critical periods such as during OFOs or system alerts.

The Order also established procedures to reexamine gas curtailment issues, established a default position on capacity requirements that requires marketers to have firm primary delivery point capacity for the 5 winter months, and established a process to explore long-range capacity dedication issues. Comments on these issues are due March 31, 2000.

 

9/99

Uniform Business Practices. Order requiring utilities to file tariff amendments by October 1, 1999, to comply with all aspects of Uniform Business Practices, Case 98-M-1343.

 

8/99:

Order Concerning Issues Associated with Future of Natural Gas Industry and Role of LDCs, Case 97-G-1380. Continues requirement that marketers with firm service customers have "firm, non-recallable, primary delivery point capacity for November through March" or as an alternative provide firm, secondary capacity and pay "standby charges" to the LDC for backup service. LDCs are to establish their standby charges for the 1999-2000 heating season by October 1, 1999. Also by that date marketers are to indicate their interest in such service and then confirm that interest by October 15, 1999. An LDC who releases 7 months of capacity at maximum rates would be considered to have met the PSC's directive to minimize stranded costs.

 

5/99

Order Concerning Stranded Capacity Costs (2/99) Adopted as Permanent Rule, Case 98-G-1785 et al.

 

4/99

Order Clarifying Gas Policy Statement (11/98). Clarifies that LDC ratemaking and unbundling proposals in compliance with Gas Policy Statement are to be public information. Includes guidelines for the presentation of rate proposals, including data requirements.

 

4/99

Order Modifying Uniform Business Practices, Case 98-M-1343. Supersedes 2/99 order, slightly modifying provisions for late payment charges, security posting, switching notification, information costs, and usage and load profile information. Practices are to be effective by June 1, 1999.

 

3/99

Stranded Costs. Order Concerning Capacity Assignment, Case 97-G-1380 et al. LDCs are to establish mechanisms (to be called "transition surcharges") for recovery of stranded capacity costs. The unit rates for upstream capacity cost recovery should be applied on a volumetric basis using the gas cost adjustment clause and a surcharge on post-aggregation firm transportation customers. LDCs must continue to offer capacity to parties that desire it; the cost of that capacity will be based on the LDCs weighted average cost of capacity. Stranded capacity cost calculations shall include all capacity release credits associated with the nonassigned upstream capacity after April 1, 1999.

 

2/99

Order Concerning Recovery of Stranded Capacity Costs: Emergency Measure, Case 98-G-1785 et al. Requires LDCs to review tariffs to ensure that transportation customers are not receiving system reliability benefits without paying for them. States that LDCs may recover "prudent" stranded capacity costs from all firm sales and post-aggregation firm transportation customers (after 3-28-96 order).

 

2/99

Opinion and Order Concerning Uniform Business Practices, Case 98-M-1343. Establishes guidelines for standardized retail access business practices across the electric and natural gas utilities, such as standards for marketer creditworthiness, customer information, billing practices, switching, slamming prevention, and dispute resolution process. These practices are to become effective on May 1, 1999.

 

11/98

Policy Statement on Issues Associated with Future of Natural Gas Industry and Role of LDCs, Cases 93-G-0932 and 97-G-1380. The PSC ordered that LDCs would stop selling gas and be completely out of the merchant business at the end of a 3-to-7-year transition period. By April 1, 1999, all LDCs would "cease assigning capacity to migrating customers." LDCs would remain the suppliers of last resort, at least in the short term. Negotiations on new rate terms and revenue requirements for LDCs during the transition period will be on a utility-specific basis. LDCs are to quantify the potential for stranded costs and devise mitigation plans and long-term rate plans that unbundle distribution and upstream costs. LDCs will continue to have access to sufficient supply and storage for system operation and can impose some restrictions on marketers in order to maintain system reliability. LDCs will also be responsible for customer educational programs.

 

9/97

Order Clarifying April 1998 Excess Capacity Filing Requirement, Case 93-G-0932. PSC spelled out procedures expected of LDCs to prepare for competition. At the same time, a staff report was released for comment that recommended that all LDCs in the state stop selling gas and become solely gas distributors over a 5-year period.

 

3/96

Order Concerning Compliance Filings, Case 93-G-0932. The PSC approved LDC aggregation programs and allowed LDCs to "assign upstream capacity to aggregation customers for 3 years." LDCs were to report on their efforts to reduce "excess" capacity and mitigate stranded costs in filings due on April 1, 1998.

 

12/94

Regulatory Guidelines for Natural Gas Distributors, Order 94-26, Case 93-G-0932. Established regulatory guidelines for natural gas distributors that led to the implementation of small customer aggregation programs.


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File last modified: 01/31/2005