Memorandum in Opposition - A.1086/S.3916

This memo is submitted by Energy Coalition New York in opposition to the subject bill which would amend the Public Service Law to provide for a consumer cost mitigation program in response to energy supply cost increases that exceed the prior month’s charges by 15%. 

Energy Coalition New York consists of New York State’s major gas and electric utility companies: Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York Inc., National Fuel Gas Distribution Corporation, National Grid, New York State Electric & Gas Corporation, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric Corporation. Coalition companies collectively employ more than 32,000 people, service more than 8.5 million customers and pay more than $3 billion in state and local taxes, assessments and fees. The member companies annually invest billions of dollars to make capital improvements to the electric and natural gas infrastructure located in New York State.

The mitigation program by the public utility is prescribed by the bill to be substantially similar to a program authorized by the Public Service Commission (“PSC”) in Case #14-E-0026, where National Grid provided its customers with a $32 million temporary credit to offset an increase in electric supply costs. Under this plan, National Grid was allowed a future recovery from customers as per determination by the PSC. The PSC currently has sufficient regulatory authority to respond to price spike situations. The PSC is able to engineer a specific response to significant increases in supply costs.

Under the terms of this legislation, a 15% increase in the energy supply price over the prior month triggers the cost mitigation program. Using one ECNY member as an example, in 2012, based on an average residential bill, there would have been 4 months when there was in excess of a 15% increase and again four times in 2013. These increases were not significant enough to result in a consumer reaction. It should be noted there were also decreases in energy supply costs during those periods. This bill as applied would create a continuing cycle of deferrals, including in periods of relatively low energy costs. For example, using data from an ECNY member, during June 2012 a 25% increase in kilowatt hours costs – from approximately 3.6 cents to 4.5 cents – would trigger the deferral, yet the impact on a typical customer’s bill was less than $6. Moreover, it would have a limited impact on reducing the consumers’ overall costs, as deferrals would be charged to consumers on future bills.

The utilities would be adversely impacted by the deferral mechanism in this bill because it would place them in a financial spiral which could drain them of cash on their balance sheet. The inability to recover electricity costs in a timely fashion has been the cause of significant past utility financial stress in other states, a potential outcome of continuous deferrals that New York should avoid.

A legislatively mandated program of cost mitigation lacks the flexibility of a regulatory program. The PSC is currently able to fashion a program response which would not drive up total consumer prices the way continuing deferrals, which carry interest and affect short term debt, would.            

Furthermore, deferrals create a false price signal that affects consumer behavior contrary to New York State energy policy. Curbing spikes will make NY consumers less likely to conserve. Additionally, the deferrals undercut pricing transparency by intentionally altering market pricing. The energy services corporations’ “price to compare” is similarly impacted, which undercuts current regulatory priorities.

Customers can enroll in budget plans at no cost which provide a balanced billing mechanism. This payment plan enables consumers to avoid the roller coaster impacts of energy supply costs. In addition, utilities provide payment assistance programs for low income and special needs customers, and also to customers who are experiencing financial difficulties. Public Service Law § 38 mandates budget payment plans and the PSC is able to establish the terms and conditions of such plans.

Power suppliers enjoy the advantage of free market pricing. Utilities bill and pass through the costs of power supply to the customers. This legislation shifts the collection costs of the power suppliers for their product by requiring the utilities to defer collection of their bill to ensure payment of the power suppliers. It also exempts energy services companies from any consequences of their participation in the distribution market. This approach, although convenient because of the regulatory leverage, is inequitable to both the distribution utilities and their customers. In the free market, no supplier is absolved of the cost of collection of their direct product sales. Power generators, particularly those that are enjoying increases in revenues but are unaffected by the natural gas shortage, are escaping any responsibility for the problems created by the spikes in energy supply prices. An effort should be made to find a more equitable approach to defer the consequences of energy supply cost spikes, rather than placing the entire burden on utilities and their customers.

Based on the foregoing, Energy Coalition New York strongly opposes the passage of the subject legislation.