Customer Groups Urge NY PSC to Restore Fixed Rates

In 2005, the New York Public Service Commission (PSC) issued an order that led to the elimination of fixed utility rates for residential customers of Central Hudson Gas & Electric. The rationale of the PSC to eliminate the popular natural gas fixed rate option, requested by more than 9,000 customers, was to foster the provision of commodity service by alternative energy services companies, who had asked the PSC to abolish the fixed rate.

In its 2004 “end state” vision statement for utility restructuring, the PSC said it wants all customers eventually to buy electric energy or natural gas from new middleman utilities, which the PSC calls “Energy Services Companies” or “ESCOs”. These utilities do not have wires or pipes. They have been allowed to sell electricity and natural gas at prices, terms and conditions of service which, although not completely deregulated, have not been publicly filed, reviewed, and approved by the PSC for reasonableness.

Due to failure of customers to find discernible value in ESCO service, few have “migrated’ to ESCO service despite minor tax breaks, promotional payments, and major PSC and utility advertising campaigns. For example, the PSC encourages the old utilities to develop costly marketing programs to promote ESCO services, costing many millions of dollars over the past decade. There is no evidence, however, that residential customers benefit over time from purchasing electricity and natural gas in this way. Indeed, they may pay more. The ESCOs are resisting a proposal to make their prices publicly available for effective comparison.

Since its 1997 order establishing an elternative regulatory regime for ESCO utilities, the PSC has assumed that ESCOs would meet customer demand for stable, predictably priced service at reasonable terms, and that more customers would migrate to ESCOs if the PSC eliminated stable, predictably priced service from traditional utilities like Central Hudson. But when the Central Hudson fixed rates ended, natural gas customers were exposed to monthly fluctuations in rates, including the post Hurricane Katrina price spikes in late 2005 and early 2006.

In the next Central Hudson rate case, concluded in July 2006, the Consumer Protection Board (CPB) and PULP urged Central Hudson and the PSC to reestablish fixed rates for residential customers. When Central Hudson, PSC staff, and other parties reached a tentative settlement agreement that did not contain fixed rates, CPB and PULP opposed the settlement proposal when it was being considered by the PSC. Despite the opposition from parties representing residential customers, the PSC denied their request for fixed rates in its order approving the proposed settlement and establishing a new rate plan for 2007.

The PSC order asserts that

Budget or levelized payment plans . . . provide a tool by which customers can achieve certainty with respect to their monthly bills. Moreover, the record shows there is a competitive market in Central Hudson’s territory, which includes provision of fixed-price offers from competitive suppliers.

CPB filed a petition for rehearing, arguing that the Commission had made errors of fact. CPB said the record in the case, based upon the sworn testimony and documentary exhibits, did not support any Commission finding that ESCOs provide a fixed rate service comparable to the Central Hudson fixed rates, or that the budget billing option is an effective substitute for stable rates.

PULP filed a brief in support of the CPB petition for rehearing, and opposing Central Hudson’s request to raise rates beyond the level it had accepted in the settlement.

PULP’s brief contains excerpts from all of the so called “fixed price” contracts that were in the record before the Commission. In each contract there is “fine print” that allows the seller to avoid providing service at the fixed rate. Typically, this is achieved by language giving the utility the right unilaterally to change the price or to terminate the contract. Terms and conditions of ESCO service are in their form contracts, in contrast to normal utility service, which must be provided in accordance with published rules filed with and approved by the PSC. As a result, the “fixed rate” in all of the contracts in the record did not actually require the rate to be fixed. Indeed, some of the contracts impose penalties on customers who attempt to terminate the contract, while allowing the ESCO utility to freely change the terms or terminate.

Also, regarding the Commission’s finding that budget billing plans enable customers to “achieve certainty with respect to their monthly bills,” PULP cited the budget billing law, the PSC budget billing regulation, and the Central Hudson budget billing tariffs approved by the PSC. The law, the regulation, and the tariff all show that budget billing is intended to levelize customer variation in consumption from season to season. But when rates change every month, as the PSC prefers, budget billing does not provide either rate or bill stability. This is because budget billing amounts may be recalculated when underlying rates are changed. Indeed, customers with budget billing may see larger month to month bill increases than customers not on budget billing plans when rates rise.

Thus, PULP and CPB argue, the Commission order was based on errors of fact and should be revised to require Central Hudson to restore a fixed rate plan.

For more information, see PULP’s web page on the Central Hudson rate case.

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