PSC Launches New Phase of ESCO Policy Development, Shifting from Resale of Electricity and Gas to “Value-Added” Services
Data obtained in 2012 by the Utility Project in discovery from Niagara Mohawk, which is the most comprehensive data sample publicly available, indicates that over the two year period ending July 2012, residential customers paid $129.4 million more for ESCO service than they would have paid had they not switched. On February 25, 2014 the New York State Public Service Commission (PSC) issued an Order in Case 12-M-0476, an investigation regarding retail energy markets, taking actions designed to improve them for residential and small non-residential customers. The PSC stated:
In light of the apparent scarcity of energy-related value-added products and services available in the residential and small non-residential markets; the high complaint rates; and what appears to be a large number of active ESCOs generating revenues by offering consumers little more than higher prices, it is apparent that these markets are not providing sufficient competition or innovation to properly serve consumers.
In contrast, the Commission Order reflects an assumption that the retail energy markets are working well for large business customers, who have mostly switched to ESCO service.
The information gathered by Staff in this proceeding indicates that competitive retail energy markets are functioning well for large commercial and industrial customers, including providing these customers with a wide range of energy-related value-added services.
However, there is no public analysis whether the bulk of the business customers might actually be paying slightly more for ESCO service, but offsetting that higher price for the ESCO part of the bill with delivery service tax breaks. This can occur under an irrational loophole in New York tax laws that could give a business customer lower total bills despite a higher ESCO price for commodity service, all at the expense of taxpayers who essentially subsidize the switch to ESCOs. See ESCO Tax Subsidies: A Hidden Cost of the New York PSC’s “Retail Access” Scheme, and ESCO Advertises 9.75% Tax Savings on Delivery Service. The New York State Division of Budget Tax Expenditure Report for 2013, which measures revenue lost due to tax breaks, states that the foregone revenue from delivery service tax breaks to ESCO customerswas $59 million in 2012, the latest year reported:
33. Reduced Rate on Gas and Electric Delivery
Citation: Section 1105-C
Effective Date: September 1, 2000
Description: On September 1, 2000, and on September 1 of each year following,
the sales and use tax rate on transportation, transmission, or distribution of gas or
electricity when sold by someone other than the vendor of the gas or electricity was
reduced by 25 percent of the rate in effect on September 1, 2000. Beginning
September 1, 2003, the State tax rate was reduced to zero.
Estimates: 2009: $53.0 million — 2012: $59.0 million
Data Source: New York State Public Service Commission
Reliability: Level 4B
There is scant information available on what large customers actually pay for electric and gas service, because of the lack of reliable price reporting data. Limited information available indicates that many commercial customers, like residential customers, may be paying more for ESCO service, and for those paying less, most of the savings are less than $10 a month. Also, even those whose bills are slightly reduced may be paying more for the ESCO service, offset by arbitrage of the delivery service tax breaks. Although the PSC seems satisfied that large customers benefit from ESCO service, it may be a worthwhile area for legislative inquiry to determine the extent to which the ESCO migration of large customers is subsidized by taxpayers, and to determine whether there are other public uses for the foregone revenue that would add more value.
Part I of the February 25 Order discusses ways to improve and increase availability of accurate price information, for residential customers considering a switch from full utility service to receive the “commodity” electric energy of natural gas portion of service from alternative energy services companies (ESCOs), and for those who previously switched, to enable them to determine if they are paying more or less for ESCO service than they would had they continued full service from the traditional utility. The solution is a required utility bill calculator at utility websites. An example of such a calculator, developed for use by submetered customers whose landlords are barred from charging more than the utility would charge, is at the Con Edison website now. There appears to be no reason why this calculator will not also work to compare Con Edison bills containing ESCO charges with what Con Edison would have charged for full service.
Part II addresses improvements to marketing and customer enrollment procedures. The Order concludes with modifications to the rules governing ESCO marketing practices, halting the previously required “referral programs” under which utilities promoted switching to ESCOs simply for commodity service, and increasing protections for low-income and other consumers. Notably the Order would require ESCOs marketing to low-income customers to guarantee they would not be charged more than if they had not switched to the ESCO service.
A key finding is that to date, in general, the ESCOs serving residential customers failed to provide “energy-related value-added products or services” to customers; rather, the experience of the small customer segment has led only to higher prices and a high level of complaints concerning misleading or deceptive ESCO marketing practices. Modifications to rules governing ESCOs are aimed at resolving this problem. They include requirements by utilities to develop historic bill calculators to allow ESCO customers to compare the cost of ESCO and utility-provided energy supply on an “apples-to-apples basis”.
Part III discusses ESCO provision of “Energy-Related Value-Added Services” in light of the Commission’s December 30, 2013 order in Case 07-M-0548 announcing new initiatives to restructure energy efficiency and other clean energy programs. In that Order, the PSC declared:
The Commission and other policy makers[ ] can no longer afford to think of energy efficiency and distributed clean energy resources as peripheral elements of the electric system that require continuous government support. Rather, the time has come to manage the capabilities of these customer based technologies as a core source of value to electric customers. In addition, full integration of load management capabilities into energy supply and grid management decisions will improve system wide reliability, efficiency, and resiliency at just and reasonable rates for New Yorkers. The Commission is obligated to ensure that the clean energy programs, the roles and responsibilities of the regulated utilities and the retail markets are aligned to achieve robust market driven investment that supports the deployment and use of economic energy efficiency and clean technologies as critical components of New York‟s 21st Century power system design and operation.
The February 25 Order also directs that comments from the public be sought in response to the questions contained in Part III, which relate to a new phase in the Commission’s policies for the ESCO market. In this phase, the Commission seeks to identify additional actions that could facilitate the development of “value-added” product and service offerings for residential and other small energy customers.
Also on February 25, a Notice Seeking Comments was issued, inviting comments from the public regarding the following questions:
A. Costs of Acquiring New Customers
1. Are there specific actions that the Commission could take to reduce the costs to energy service companies (ESCOs) of acquiring mass market customers who will purchase energy-
related value-added services? What are the costs and benefits of these potential actions?2. Should a new generation of utility ESCO referral programs be developed to facilitate customer awareness of energy-related value-added services offered by ESCOs? Should customers be referred to specific ESCOs based on their interest in energy-related value-added services? What are the costs and benefits of these potential changes?
3. Should utilities be directed to obtain information from their customers regarding their interest in energy-related value-added services that might facilitate ESCO marketing? What are the costs and benefits of such a requirement?
B. Billing
4. Are changes to Commission policies concerning consolidated ESCO billing (CEB) required to remove unwarranted barrier(s) or impediment(s) to ESCOs seeking to use CEB? What are the costs and benefits of any proposed modifications to the Commission’s policies to further facilitate CEB?5. Under consolidated utility billing (CUB), what are the benefits and costs of requiring utilities to increase the space on bills to be used for ESCOs to provide information regarding energy-related value-added products and services, to approximately 1000 characters?
6. Under CUB, what are the benefits and costs of requiring utilities to modify their billing systems to enable ESCOs to provide tailored customer-specific billing messages regarding energy related value-added services?
7. What specific changes to utility billing systems are required to facilitate the ability of ESCOs to offer time-of-use products for mass market customers? What are the benefits and costs of any proposed changes?
8. What other modifications to CUB should be considered to facilitate development of energy related value-added services, and what are the benefits and costs of such modifications?
C. Processing of Enrollment Requests
9. To what extent do current enrollment requirements limit the ability of ESCOs to offer value-added services?10. What specific actions could be taken to reduce the period between when a customer enrolls with an ESCO and when service commences? What are the benefits and costs of those actions?
D. Net Metering Refinements
11. Do existing rules governing net metering, particularly concerning billing, allocation of credit and the settlement of outstanding balances, impose undue costs or burdens on ESCOs? If so, explain those concerns and the impact on ESCO operations and the ability of ESCOs to offer value-added services requiring net metering.E. Data Availability
12. What specific data might be available to assist ESCOs in developing innovative energy-related value added services?13. Who currently owns or maintains that data, and what are the barriers to making that data available to ESCOs and other parties? What are the costs and benefits of removing or reducing those barriers?
14. How can this data be made generally available? Are there specific standards and protocols that should be adopted to ensure statewide consistency and ensure customer privacy?
F. Other Proposals to Facilitate Energy-Related Value-Added Services
15. What other specific barriers to offering energy-related value-added services do ESCOs face? What action(s) could the Commission take to address those barriers? What are the costs and benefits of those actions?16. What other specific regulatory changes to enhance the ability of ESCOs to offer energy-related value-added services to mass market customers should be considered by
the Commission? What are the benefits and costs of those proposals?G. ESCO Eligibility
17. Consistent with the Commission’s efforts to encourage energy-related value-added services as well as compliance with the UBP, what changes to ESCO eligibility requirements should the Commission consider?18. Consistent with efforts to encourage ESCO compliance with the UBP and other Commission rules, what changes to ESCO eligibility requirements should be considered? For example, should the Commission consider requiring ESCOs to pay application or annual fees?
H. ESCO Compliance
19. Should the Commission require that the annual and tri-annual filings required by the UBP be accompanied by a letter from the ESCO’s Chief Executive Officer certifying that the filing is in full compliance with the UBP and that the ESCO has the resources and practices in place to ensure compliance with the UBP and other Commission Orders related to retail supply service?****Interested parties may submit initial comments on the above questions no later than April 25, 2014. Reply comments may be submitted no later than May 12, 2014. Comments should be submitted electronically by e-filing through the Department’s Document Matter and Management System (DMM)2 or to the Secretary at secretary@dps.ny.gov. ****
The first phase of the PSC’s retail market experiment, which focused mainly on reselling of commodity service, has not served residential customers well. See Value of ESCO Service Questioned. Will we now see the provision of higher priced electricity and gas “bundled” with new light bulbs and thermostats? Will the ESCOs embark upon home energy improvements, providing insulation and weatherization services? Given the track record of ESCO consumer abuses to date, and the prevalence of complaints about home improvement contractors –which rank in the top ten types of consumer complaints received by the Attorney General — it remains to be seen whether the ESCO industry will be now able to provide new “value-added” services that will really benefit utility customers.