NYPSC Pressuring LDCs to Move Forward with Unbundling
The New York Public Service Commission released the text of its
previously announced gas unbundling policy statement, laying out
its plan to force the state's LDCs out of the merchant function
within three to seven years (see NGI Oct. 12, 1998) and end
mandatory capacity assignment by next April. But it can expect
strong opposition from a number of New York LDCs who aren't willing
to give up gas sales and who say capacity assignment is a
reasonable way to recover stranded costs.
"The most effective way to establish a competitive gas market
in gas supply is for local distribution companies to cease selling
gas," the PSC said.
Not so, according to New York State Electric & Gas. "We
believe you can have a competitive market with the LDC as one
choice," said Steve Adams, manager of gas pricing, regulation and
strategy for NYSEG. "Right now we have a third of our throughput
provided by nonregulated suppliers. That market is pretty well
"Obviously we'll comply with any provisions the commission puts
out, but.NYSEG believes the market should be allowed to develop
naturally and that the LDCs should remain a choice for the bundled
sales service to the extent that customers decide to choose NYSEG
for their service."
National Fuel had a similar response. "As for promoting choice,
we're in favor of that. What we don't agree with is that the LDC
should be pushed out of the marketplace," said a National Fuel
spokeswoman. "We don't think the customer wants to be forced into
making a choice. And we're still not sure whether we can be pushed
out of the merchant function because it's part of public service
law that we remain in that role."
The PSC is convinced, however, that forcing LDCs out of gas
sales will "exert general downward pressure on costs of all
elements of utility service and yield synergy savings through the
provision of a combination of services (e.g., gas, electric,
telephone) through one supplier. While upward cost pressure may be
felt by some customer groups as subsidies are eliminated, the
overall impact is expected to be a general reduction in prices."
Under the commission's plan, LDCs will continue to be providers
of last resort for gas service, at least for the short-term while
other options are more fully explored and developed by the
commission and industry stakeholders through collaborative
discussions conducted in conjunction with electric industry
restructuring proceedings. Each LDC will be required to work with
commission staff to develop an individual plan to implement the
transition. Discussion topics will include capacity contract
expirations and efforts to minimize stranded costs, a long-term
rate plan that would freeze or cut rates, a plan to further
unbundle rates, efforts to increase customer transportation and the
time frame required to exit the merchant function.
"There are some public service law requirements that utilities
be the supplier of last resort. If we don't have the merchant
function it isn't clear how we would have that role," said
ConEdison's Paul Olmsted, director of gas supply and trading. "We
still believe that legislation is required for us to be relieved of
that obligation and it just wasn't addressed here.
"We're moving as a company pretty fast in the realm of allowing
customers choice and our track record in gas and electricity is
among the best," said Olmsted. "But we've not yet come to grips
fully with the idea of requiring customers [who] don't want to
switch [to switch suppliers]. It's early in the process I think to
be doing that."
Olmsted said despite the company's reservations about commission
policy on regulated supply, ConEd was pleased with a number of
other provisions in the PSC's policy statement. "Most important for
us is reliability. The draft that commission staff had put out a
year ago called on providing reliability through market forces. We
weren't persuaded that market forces would be marshaled to make
sure that reliable gas was delivered to our citygate. The
commission was very explicit in this write up that reliability will
not be compromised. So that is tremendously important recognition
on their part. We made that argument and we're glad they listened.
"The second good thing was a positive statement that LDCs would
be provided with a reasonable opportunity to recover stranded
costs. At this point we don't have strandable costs, but we're
obviously concerned that the commission not start off with a view
that we could be exposed to that risk."
The PSC's policy calls for LDCs to cease mandatory assignment of
upstream transportation capacity by next April. That too will be
fought in the coming months. Adams said NYSEG believes mandatory
capacity is "appropriate. The cost is really following the cost
cause. Shifting those costs, which we believe were prudently
incurred, to sales customers is not the most appropriate, equitable
mechanism. However, we believe that we should be allowed to recover
The PSC did say, however, any LDC that believes it must continue
assigning capacity can file a request to do so with the commission
by Jan. 2. New capacity contracts should be held to a minimum, and
LDCs should encourage marketers to provide upstream capacity or
rely on short-term and citygate arrangements. But LDCs will have an
opportunity to recover stranded costs if they can demonstrate they
attempted to minimize those costs, the PSC said. The commission
also intends to take a closer look at capacity auctioning.
For those who do not request capacity assignment be maintained,
effective April 1 the sharing of released capacity revenues for
capacity no longer assigned to migrating customers will be
eliminated. LDCs must "aggressively pursue options to address
strandable costs, to actively encourage competition including
collaboration with marketers to expand the number of customers
taking transportation service and to provide customer education,"
the PSC said.
Olmsted said ConEd never has assigned capacity so its not an
issue. "We have a very active trading operation, and to the extent
on any given day that we have capacity that doesn't need to serve
our firm sales load, we move it out on a seasonal, yearly, monthly
or day-to-day basis. We're not sitting on our thumbs and we never