NY considers ESCO reforms

Wednesday, December 7, 2016

New York utility regulators have launched consideration of reforms to how retail electricity suppliers called energy service companies or ESCOs operate in that state.  A December 2, 2016 notice issued by the New York Department of Public Service describes a history of "substantial overcharges and deceptive practices by the ESCO industry harming New York consumers," and establishes a process to "push ahead with reforms to ensure that ESCOs provide useful, value-added, economical services to New York consumers."  New York's ESCO reform process will play out in conjunction with other state initiatives, such as the Reforming the Energy Vision program.

As described in the Notice of Evidentiary and Collaborative Tracks and Deadline for Initial Testimony and Exhibits, the New York Public Service Commission initially opened up the energy services market to retail competition "to spur innovation in the creation of value-added products, particularly energy efficiency services that regulated rates may not provide, and to create commodity price competition that would result in efficiencies."  The notice summarizes the regulatory philosophies driving the historic decision to separate monopoly services (transmission and distribution) from competitive services (energy commodity), and the expectation that robust competitive markets would yield societal benefits.

But based on its "considerable experience with the offering of retail service to mass market customers by ESCOs," in 2014 the Commission determined "that the retail markets serving mass-market customers are not providing sufficient competition or innovation to properly serve consumers."  In the Commission's view, its subsequent efforts to realign the retail market have not succeeded: "customer abuses and overcharging persist, and there has been little innovation, particularly in the provision of energy efficiency and energy management services.  Commodity price differentiation has not worked, and the market for differentiated services is immature or non-existent."

For these reasons, on December 2, 2016, the Commission gave public notice that it "continues to examine measures that must be taken to ensure that these customers receive valuable services and pay just and reasonable rates for commodity and other services."  Among the measures identified for consideration by the Commission are:
  • whether ESCOs should be completely prohibited from serving their current products to mass-market customers;
  • whether the regulatory regime, rules and Uniform  Business Practices (UBP) applicable to ESCOs need to be modified to implement such a prohibition, to provide sufficient additional guidance as to acceptable rates and practices of ESCOs, or to create enforcement mechanisms to deter customer abuses and overcharging, including whether the Commission decision not to subject ESCOs to Article 4 of the Public Service Law should be revisited; and
  • whether new ESCO rules and products can be developed that would provide sufficient real value to mass-market customers such that new products could be provided to them by ESCOs in the future in a manner that would ensure just and reasonable rates.
To pursue these efforts, the Commission established two procedural tracks.  An evidentiary track will consider the first two bullets listed above, while a "collaborative" track will focus on the third bullet. 

The Commission has previously described ESCO reforms as supportive of New York's Reforming the Energy Vision initiative, a comprehensive revisioning of the state's electricity sector.  In a February 2016 order, the Commission noted, "Development of markets in which vendors offer innovative services of value to consumers, and in which consumers can participate with confidence, is critically important to the success of the Reforming the Energy Vision (REV) initiative. Retail energy markets focused on commodity-only products, and in which ESCOs do not meet expectations of many customers, will thwart these objectives."

Initial pre-filed testimony and exhibits for the Track I evidentiary case on ESCO reforms are due on or before April 7, 2017.

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