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NYPSC Aims to Spark Competition; Orders LDCs to Quit Gas Sales in 3 to 5 Years

NYPSC Aims to Spark Competition; Orders LDCs to Quit Gas Sales in 3 to 5 Years

Retail gas competition in the state of New York clearly needs a jump start, and the New York Public Service Commission (PSC) gave it one last week. The PSC announced it will force the state's local distribution companies to cease selling gas within three to seven years.

The commission plans to handle additional unbundling measures on a utility-by-utility basis and will deal with some of the more difficult issues, such as who will step in and be the supplier of last resort in utility service territories, in a generic proceeding at a later date coinciding with the completion of electric restructuring.

The phase-out of the merchant function over the next several years is designed to take advantage of a window of opportunity provided by the expiration of many long-term pipeline contracts. The commission also intends to hold collaborative sessions to discuss reliability, market power, and the further unbundling of potentially competitive services, such as metering, billing, and information services.

"The commission recognized what I call different strokes for different folks," said Phil Teumim, director of the PSC's gas and water division. It realized some LDCs will take more time to exit the merchant function than others because of transportation and storage agreements.

"I think moving the LDC's out of the merchant function is really going to open up the market and engender competition," said Statoil's Martha Duggan, director of regulatory affairs. "New York is one of our target states.

"It has been very successful opening up large industrial markets." The same cannot be said, however, of the smaller customer markets, she said. "There's a school of thought that says anytime you are involved in a program where the utilities are mandatorily assigning their upstream capacity to marketers that sign up customers that slows down market development. And the upstate New York LDCs, until very recently, have all had mandatory assignment of capacity. It's starting to change. Three of them requested tariff changes to do pilot programs under which they would not assign all of their capacity. That's a good start, but we think the time for piloting is well past," said Duggan. "We'd much prefer a blanket lifting of the mandatory assignment. I think it's a big [roadblock] to competition."

Once at the forefront of natural gas unbundling, New York has fallen behind because low small customer participation levels. The 2,800 large gas consumers who use 30% of gas delivered to the state migrated to alternative suppliers in the mid- to late 1980s, but as of last month only 45,000 small commercial and residential customers have taken advantage of supplier choice. Mandatory capacity assignment has been part of the problem, Teumim acknowledged. But many of the LDCs' long-term transportation agreements with pipelines will be terminating next March and 50% will expire in five years. "We think that will make it more attractive to compete here," he said.

Another problem was uncertainty about the future direction of unbundling. Marketers were hesitant to enter a market that continued to be dominated by regulated utilities. "This sets a new vision so that the parties know where the end state will be. At least now, the marketers will know the LDCs will no longer be in the gas sales function. It tells the marketing community that all customers are available permanently. By the same token, we think it's important for LDCs to know where they are going."

National Fuel, a New York distribution company, "has been generally supportive of the commission's gas restructuring objectives, but we think there still are some difficult issues to work out," said Julie A. Coppola, a spokewoman for the company. "We think the law will require us to be the supplier of last resort and that will mean we have to retain some gas sales capability. We don't think the reliability concerns have been sufficiently addressed. That's pretty obvious in the timeline change from staff's original plan for a five year exit of the merchant function to the commission's a three to seven year exit."

The Commission's vision is based on a staff white paper issued on Sept. 7, 1997, a series of roundtable discussions with a broad range of parties, and comments received from 35 parties representing consumers, utilities, energy services companies seeking to compete with the utilities, government agencies and other interest groups.

"Consumers need a robust natural gas marketplace in New York in order to realize the benefits of competition, more choices and lower prices," said PSC Chair Maureen O. Helmer. "We believe that the separation of the supplier and distribution functions is the most effective way to encourage competitors to enter the market. But we recognize that achieving this separation will have to be made on a utility-by-utility basis to balance the interests of all the stakeholders and to ensure the continuation of safe and reliable service."

Rocco Canonica

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