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NYPSC Pressuring LDCs to Move Forward with Unbundling

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 &amp 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 developed.

"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 it."

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 have."

Rocco Canonica

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