The New York Public Service Commission released the text of itspreviously announced gas unbundling policy statement, laying outits plan to force the state’s LDCs out of the merchant functionwithin three to seven years (see NGI Oct. 12, 1998) and endmandatory capacity assignment by next April. But it can expectstrong opposition from a number of New York LDCs who aren’t willingto give up gas sales and who say capacity assignment is areasonable way to recover stranded costs.

“The most effective way to establish a competitive gas marketin gas supply is for local distribution companies to cease sellinggas,” the PSC said.

Not so, according to New York State Electric &amp Gas. “Webelieve you can have a competitive market with the LDC as onechoice,” said Steve Adams, manager of gas pricing, regulation andstrategy for NYSEG. “Right now we have a third of our throughputprovided by nonregulated suppliers. That market is pretty welldeveloped.

“Obviously we’ll comply with any provisions the commission putsout, but.NYSEG believes the market should be allowed to developnaturally and that the LDCs should remain a choice for the bundledsales service to the extent that customers decide to choose NYSEGfor 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 LDCshould be pushed out of the marketplace,” said a National Fuelspokeswoman. “We don’t think the customer wants to be forced intomaking a choice. And we’re still not sure whether we can be pushedout of the merchant function because it’s part of public servicelaw that we remain in that role.”

The PSC is convinced, however, that forcing LDCs out of gassales will “exert general downward pressure on costs of allelements of utility service and yield synergy savings through theprovision of a combination of services (e.g., gas, electric,telephone) through one supplier. While upward cost pressure may befelt by some customer groups as subsidies are eliminated, theoverall impact is expected to be a general reduction in prices.”

Under the commission’s plan, LDCs will continue to be providersof last resort for gas service, at least for the short-term whileother options are more fully explored and developed by thecommission and industry stakeholders through collaborativediscussions conducted in conjunction with electric industryrestructuring proceedings. Each LDC will be required to work withcommission staff to develop an individual plan to implement thetransition. Discussion topics will include capacity contractexpirations and efforts to minimize stranded costs, a long-termrate plan that would freeze or cut rates, a plan to furtherunbundle rates, efforts to increase customer transportation and thetime frame required to exit the merchant function.

“There are some public service law requirements that utilitiesbe the supplier of last resort. If we don’t have the merchantfunction it isn’t clear how we would have that role,” saidConEdison’s Paul Olmsted, director of gas supply and trading. “Westill believe that legislation is required for us to be relieved ofthat obligation and it just wasn’t addressed here.

“We’re moving as a company pretty fast in the realm of allowingcustomers choice and our track record in gas and electricity isamong the best,” said Olmsted. “But we’ve not yet come to gripsfully with the idea of requiring customers [who] don’t want toswitch [to switch suppliers]. It’s early in the process I think tobe doing that.”

Olmsted said despite the company’s reservations about commissionpolicy on regulated supply, ConEd was pleased with a number ofother provisions in the PSC’s policy statement. “Most important forus is reliability. The draft that commission staff had put out ayear ago called on providing reliability through market forces. Weweren’t persuaded that market forces would be marshaled to makesure that reliable gas was delivered to our citygate. Thecommission was very explicit in this write up that reliability willnot be compromised. So that is tremendously important recognitionon their part. We made that argument and we’re glad they listened.

“The second good thing was a positive statement that LDCs wouldbe provided with a reasonable opportunity to recover strandedcosts. At this point we don’t have strandable costs, but we’reobviously concerned that the commission not start off with a viewthat we could be exposed to that risk.”

The PSC’s policy calls for LDCs to cease mandatory assignment ofupstream transportation capacity by next April. That too will befought in the coming months. Adams said NYSEG believes mandatorycapacity is “appropriate. The cost is really following the costcause. Shifting those costs, which we believe were prudentlyincurred, to sales customers is not the most appropriate, equitablemechanism. However, we believe that we should be allowed to recoverit.”

The PSC did say, however, any LDC that believes it must continueassigning capacity can file a request to do so with the commissionby Jan. 2. New capacity contracts should be held to a minimum, andLDCs should encourage marketers to provide upstream capacity orrely on short-term and citygate arrangements. But LDCs will have anopportunity to recover stranded costs if they can demonstrate theyattempted to minimize those costs, the PSC said. The commissionalso 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 forcapacity no longer assigned to migrating customers will beeliminated. LDCs must “aggressively pursue options to addressstrandable costs, to actively encourage competition includingcollaboration with marketers to expand the number of customerstaking transportation service and to provide customer education,”the PSC said.

Olmsted said ConEd never has assigned capacity so its not anissue. “We have a very active trading operation, and to the extenton any given day that we have capacity that doesn’t need to serveour firm sales load, we move it out on a seasonal, yearly, monthlyor day-to-day basis. We’re not sitting on our thumbs and we neverhave.”

Rocco Canonica

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