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New York DPS Staff: End Mass Market ESCO Sales Except For Guaranteed Savings, "Value-Added" 100% (Not 30%) Renewable, And Municipal Aggregation or Not-For-Profit ESCOs

DPS Staff: Fixed Rates, LEDs, Smart Thermostats Not Value-Add

DPS Staff: Transition Customers Back To Default Service

DPS Staff: ESCO Residential Customers Paid $1.2 Billion More Than Default Service From 2014-16 (15%)

DPS Staff: Only 6 (of 100+) ESCOs Beat ConEd Bill in 2016

DPS Staff Seeks Elimination Of Without Recourse Purchase of Receivables (POR)

DPS Staff Would Ban Door-to-Door, Telephonic Marketing

DPS Staff: Transition From Individual Customer Market Model To Municipal Aggregation, "Should Be Supported"

September 18, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In testimony in the New York PSC's evidentiary review of the retail energy mass markets, Staff of the New York Department of Public Service recommended that the PSC prohibit ESCO sales to mass market customers except where there is a guaranteed savings versus default service, where there is a "value-added" 100% renewable product (for electricity only), or where such sales occur through a municipal aggregation for a not-for-profit municipally owned or not-for-profit ESCO.

"[E]xcept for instances where an ESCO is willing and able to provide a durable guaranteed savings when measured against the default utility service, where an ESCO is willing and able to provide a value-added electric commodity renewable resource energy product where 100% of the electricity provided each calendar year was generated from renewable resources, or in the context of community choice aggregation, the retail access market for mass market customers should be shut down," Staff said

Among other things, Staff recommended the following:

• "Electric and gas distribution utilities that have tariffed provisions providing for retail access shall not allow ESCOs to use their utility distribution systems to provide commodity service to individual mass-market customers unless the commodity service product provided by the ESCO either (a) includes enforceable guarantees that the customer’s overall bill will be lower than it would be if the customer took delivery and commodity service from the distribution utility; or (b) is a value-added electric commodity renewable resource energy product where 100% of the electricity provided each calendar year was generated from renewable resources."

• "Electric and gas distribution utilities that have tariffed provisions providing for retail access shall not allow ESCOs to use their utility distribution systems to provide commodity service to aggregated mass-market customers unless the aggregation occurs using either (a) the Community Choice Aggregation model including the utilization of a professional energy buyer independent of the ESCO acting in a fiduciary capacity to procure the energy for the community; or (b) the not-for-profit model where the ESCO is a bona-fide not-for-profit corporation or municipal entity."

• "Electric and gas distribution utilities that have tariffed provisions providing for retail access shall cease providing ESCOs the purchase of receivables 'without recourse' option pertaining to ESCO commodity service and bills to individual or aggregated mass-market customers, and shall instead provide to ESCOs only the purchase of receivables 'with recourse' option."

• "Electric and gas distribution utilities that have tariffed provisions providing for retail access shall not allow ESCOs to use their utility distribution systems to provide commodity service to individual or aggregated mass-market customers unless the ESCO refrains from direct door-to-door marketing, telephonic sales, or similar marketing practices and instead limits its marketing practices to direct mail or electronic communications whereby the consumer must respond and initiate direct contact with the ESCO."

Regarding the permissible renewable product, Staff said the electric commodity renewable resource energy product shall be, "a value-added electric commodity renewable resource energy product subject to a guarantee that 100% of the energy provided each calendar year to the customer will be generated by biomass, biogas, hydropower, solar energy, or wind energy, as defined in and subject to the environmental attributes and delivery rules of the Commission’s Environmental Disclosure Program."

Furthermore, Staff recommends that "individual" low-income mass market customers not be eligible to be served under the value-added 100% renewable product

Additionally, Staff recommends that an ESCO selling "green products" should be required to disclose what premium it will charge for the purchase of renewable energy separate from the underlying commodity charge.

Staff recommends that consideration of potential other value-added services that would be permitted to be sold be deferred to Track II of the proceeding.

However, Staff said that fixed rates are generally not providing value to customers that is commensurate with the products' cost, especially since utilities offer budget billing

Noting that most ESCOs did not respond to Staff inquiries regarding the value attributed to their fixed rate products, Staff said that, "our review of the data provided by the utilities, in response to DPS-Utility 5, for those ESCOs known to provide only fixed rate products indicates that while some charge relatively modest premiums, in the 5 to 6% range over the default utility’s all in price, several other ESCOs are charging premiums in excess of 20 to 30%. On that basis we do not believe that the currently offered fixed rate products are generally providing benefits to customers that are commensurate with their cost. This belief is reinforced by the fact that utilities are required to offer budget billing programs that provide that same sort of monthly price stability for a customer’s combined monthly bill as a fixed rate ESCO supply product, but with a likely overall lower commodity cost over the course of the year, even when one considers the annual true-up, which can be either negative or positive, that occurs as part of the utility’s supply cost reconciliation programs."

Staff also contended that energy efficient light bulbs, thermostats or similar energy saving products, "are now readily available consumer products that can be found in stores at prices that are likely significantly lower than the amortized costs of these products collected by the ESCOs over the term of the contract."

"Therefore, we conclude that these readily available consumer products should no longer be permitted to be the primary energy related value added product attached to ESCO commodity," Staff said

Staff proposed a transition of mass market customers back to their default full utility service as existing contracts expire. Staff said that the PSC should not be "distracted" from this transition of customers back to utility supply by the potential identification of value-added products in Track II

"[T]he Commission should not allow itself to be distracted from implementing these recommendations by the prospect of potential value-added products that ESCOs could offer to mass market customers until the recommended transition has been implemented; the potential development of value-added products should occur later in a collaborative process in Track II of the ESCO proceeding after the detrimental aspects of the current products have been eliminated and customers can choose a-new whether they want ESCO products by making informed decisions that are not tainted by inappropriate marketing practices," Staff testified

"[T]he default utility can provide commodity service at lower costs, and in the clear majority of cases at a substantially lower cost," Staff said

Citing data from the utilities, which compared on a total bill basis the costs of default service versus ESCO customers, Staff testified that, on an aggregate, statewide basis for the 36-months ending December 31, 2016, "New York State residential utility customers who chose to take commodity services from an ESCO collectively paid almost $1.2 billion more than they would have if they instead took commodity supply from their utility."

The $1.2 billion more paid by ESCO customers equals a 14.9% premium over the aggregate costs for full service customers

Citing the same data, Staff said that, "low-income customers who take commodity service from an ESCO collectively paid in excess of $146 million more than they would have paid if they took commodity supply from their default utility, and small commercial customers paid $136 million."

Staff noted certain inherent limitations in the data, which only included ESCO data for customers billed under utility consolidated billing, such as the lack of information regarding whether the customers were served under fixed rates or the products included a value-added service or renewable energy, or whether the customers received guaranteed savings credits/refunds paid to the customer outside of the utility billing process

However, Staff said that its experience is that 80% of mass market customers take ESCO service under a variable price, and noted few ESCOs offered a guaranteed savings product. Staff noted that ESCOs generally declined to respond to interrogatories concerning their value-added products to assist with the comparisons.

Staff also presented the comparisons by service areas.

For example, Staff said that the analysis shows that the approximate 630,000 and 161,000 residential electric and gas customers taking ESCO service in Con Edison’s service area collectively paid $498 million, or 13.6% more, during the period January 2014 through December 2016 than they would have paid if they received electric and gas commodity service from Con Edison

Staff presented the percent that ESCO customers paid more than full service customers, on a total bill basis, was as follows by service area:

Residential, Electric & Gas
  2014-16
CenHud        12.1%
ConEd         13.6%
NYSEG         12.0%
O&R            6.7%
RGE           10.0%
NiMo          21.7%
KEDNY         23.1%
KEDLI         18.6%
NFG           20.7%

Click here to see more of Staff's data and comparisons

Moreover, Staff said that few ESCOs were able to consistently beat the utility price.

"[F]ew of the 113 active ESCOs in the Con Edison service territory were able to consistently 'beat' the utility all-in electric bill. Specifically, 28 in 2014, 11 in 2015, and 21 in 2016 only six ESCOs were able to 'beat' Con Edison’s equivalent bill," Staff said

Furthermore, Staff said that, "the ESCO providing customers with the best commodity price in 2016, at least compared to the performance of the other ESCOs, served the Westchester CCA customers."

Citing savings to ConEd customers in the Westchester CCA and non-electric-heat NYSEG customers, Staff said that, "More specifically, the price performance consistency and size of the SW CCA program for electric customers in the Westchester portion of Con Edison’s service territory indicates that the CCA model should receive serious consideration in any retail 20 market reformation."

"[W]e believe that a shift away from the current direct ESCO to individual customer marketing model and a shift to a community choice aggregation model, where the aggregator is able to fully evaluate competing ESCO supply offers, will maximize the economies of scale and benefits that can be achieved through customer aggregation and should therefore be supported," Staff said

Staff defined mass market customers as those customer accounts that are not demand metered for electric service or those that consume less than 750 dekatherms (dth)/month of gas on average over a calendar year.

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