Restructuring Today
August 1, 2005

NEMA attacks Energy East plan to continue bundled rate

Marketers heaped scorn on retail access plans filed by Energy East's Rochester Gas & Electric and New York State Electric & Gas.
     The utilities want to keep offering a bundled fixed-rate option along with variable rates to customers who don't choose a competitive supplier.
     The plans, filed in response to the PSC's statement of principles a year ago on boosting shopping, "appear to offer choice, yet at the same time, they undermine the very fundamentals of a competitive market structure and design," NEMA President Craig Goodman wrote.
     The utilities chose, Goodman continued, "the most disruptive structure possible" that sets them up as competitors to marketers.
     NEMA called the utility's practice of defaulting customers to its fixed-price commodity service "aggressive, disingenuous and unseemly."
     "NYSEG might call it 'utility ratepayer subsidized slamming,'" said NEMA, were Orange & Rockland Utilities to do the same thing.
     O&R pioneered PowerSwitch discounts to lure customers to shop, a concept NYSEG and RG&E sharply criticized.
     A utility's fixed-price offer that shifts the risk to ratepayers "places all other competitors that rely on fully 'at risk' capital at a significant, possibly definitive competitive disadvantage," Goodman wrote.
     Such practices should be deemed officially "anti-competitive," Goodman urged.
     NYSEG's proposal is "the antithesis of choice," Goodman declared in NEMA’s comments, and could set a precedent that might undermine the PSC's efforts to spur shopping in the New York market.
     NEMA wants the PSC to reject the utilities' plans and order them to develop new ones "that encourage accelerated migration and prohibit utilities from competing as utilities" with marketers.
     It would not oppose Energy East's creating a marketing firm subject to the same rules as marketers. 
     NEMA faulted NYSEG and RG&E for failing to reveal fully their embedded costs of serving migrating customers "despite four years of admonishment and hundreds of briefs and numerous commission orders."
     That failure distorts the price to beat and has limited shopping, NEMA said.
     NYSEG estimates it makes $25 million to $40 million by offering a "price protection plan" to customers, yet how can it compute that if it doesn't know its fully embedded costs, NEMA asked.
     NEMA questioned too whether customers who chose the utilities' fixed rate knew what they were buying or the premium they were paying for protection.
     Utilities aren't supposed to profit from selling the commodity, NEMA reminded.
     Consumers can turn to the market for fixed-price supply and other innovative products, NEMA wrote.
     At a minimum, NYSEG and RG&E should offer a package that includes all the best practice the PSC has listed -- buying marketers' receivables, hourly rates for large customers, competitive metering for smaller customers, a consumer education program, an enhanced retail-access website, shopping targets and incentives, a savings program like O&R's PowerSwitch, pool shopping, better supply service for marketers, marketer-friendly bill formats and back-out credits for embedded retail costs.


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