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NYPSC Orders LDCs to Exit Merchant Function
Retail gas competition in the state of New York clearly needs ajump start, and the New York Public Service Commission (PSC) gaveit one yesterday. The PSC announced it will force the state’s localdistribution companies to cease selling gas within three to sevenyears.
The commission plans to handle additional unbundling measures ona utility-by-utility basis and will deal with some of the moredifficult issues, such as who will step in and be the supplier oflast resort in utility service territories, in a generic proceedingat a later date coinciding with the completion of electricrestructuring. Collaborative sessions will be held to discussreliability, market power, and the further unbundling ofpotentially competitive services, such as metering, billing, andinformation services.
The phase-out of the merchant function over the next severalyears is designed to take advantage of a window of opportunityprovided by the expiration of many long-term pipeline contracts.”The commission recognized what I call different strokes fordifferent folks,” said Phil Teumim, director of the PSC’s gas andwater division. It realized some LDCs will take more time to exitthe merchant function than others because of transportation andstorage agreements.
Once at the forefront of natural gas unbundling, New York hasfallen behind because low customer participation levels. The 2,800large gas consumers who use 30% of gas delivered to the statemigrated to alternative suppliers in the mid- to late 1980s, but asof last month only 45,000 small commercial and residentialcustomers have taken advantage of supplier choice. Mandatorycapacity assignment has been part of the problem, Teumimacknowledged. But many of the LDCs’ long-term transportationagreements with pipelines will be terminating next March and 50%will expire in five years. “We think that will make it moreattractive to compete here,” he said.
Another problem was uncertainty about the future direction ofunbundling. Marketers were hesitant to enter a market thatcontinued to be dominated by regulated utilities. “This sets a newvision so that the parties know where the end state will be. Atleast now, the marketers will know the LDCs will no longer be inthe gas sales function. It tells the marketing community that allcustomers are available permanently. By the same token, we thinkit’s important for LDCs to know where they are going.”
The Commission’s vision is based on a staff report issued onSept. 7, 1997, a series of roundtable discussions with a broadrange of parties, and comments received from 35 partiesrepresenting consumers, utilities, energy services companiesseeking to compete with the utilities, government agencies andother interest groups.
“Consumers need a robust natural gas marketplace in New York inorder to realize the benefits of competition, more choices andlower prices,” said PSC Chair Maureen O. Helmer. “We believe thatthe separation of the supplier and distribution functions is themost effective way to encourage competitors to enter the market.But we recognize that achieving this separation will have to bemade on a utility-by-utility basis to balance the interests of allthe stakeholders and to ensure the continuation of safe andreliable service.”
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