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Upstate Uproar

Retail Choice: New York utilities cry “bait and switch,” but it’s not that simple.

Fortnightly Magazine - July 2005

for customer enrollment because the utility deals directly with consumers and acts as a lawful agent for the ESCO. As for doubts about benefits, Assaf writes, “Proof of savings is not the correct inquiry.”

Retail choice, she adds, “does not mean that ESCOs must provide electricity at a lower price than the regulated utilities.”

In Albany, as of early June, bills were pending in the state Senate and the Assembly ( S. 5307, A. 77429 ) to compel the PSC to re-analyze retail choice and report back to the legislature. Such legislation would bar the PSC from using the migration of customers from utilities to unregulated vendors as a rod to measure the success of retail choice. Further, the legislation would force the PSC to study the “savings, choices and sustained benefits” before promoting plans like PowerSwitch, that seek to encourage migration by helping ratepayers to get their feet wet.

Profit and Risk

Why should one utility knock itself out to prevent another from offering discounts, even if dubious, since they don’t compete against each other for native load customers that take the regulated standard offer. If one loses his shirt, so be it.

Well, it turns out that that Orange & Rockland won’t lose its shirt. And neither will Con Ed, if it adopts a similar plan. As confirmed by media spokesmen Mike Donovan at O&R, and Mike Clendenin at Con Ed, those companies make no margin on the sale of the commodity. They have designed their rates to charge retail customers the same cost they incur to buy electricity at wholesale.

Not so, for NYSEG and RG&E. Their rate designs, according to allegations by the Small Customer Marketer Coalition and the Mid-Atlantic Power Supply Association, feature fixed rates that include a 35 percent markup on sales of the electricity commodity. Thus, the marketers clearly imply that Energy East utilities want to minimize ratepayer migration to private vendors to protect the profits they earn on regulated commodity sales.

“They [NYSEG and RE&E] are really trying,” writes Jane Assaf, “to seek reconsideration of the fundamental underpinnings of the PSC’s competitive agenda.”

Yet it’s not so simple.

In speaking with the Fortnightly, Jim Laurito explained carefully why that so-called 35-percent margin isn’t what it seems.

“That’s inaccurate,” he insists. “There is a 35 percent risk premium, but not margin.

“Part of that cost is for hedging risk,” he notes. It’s for assembling a properly diversified and comprehensive electric supply portfolio, “so that we can offer our customers a fixed price over two years.”

(In fact, it is NYSEG that offers a fixed, default supply price for two years; RG&E, as Laurito explained, offers a fixed-price deal for a one-year term.)

“With this 35 percent risk premium,” Laurito explains, “and there are states, like Texas, where the premium is even higher,” he adds, “we can provide benefits to our customers, such as helping them avoid $60 million in costs from an ice storm last winter.”

And Laurito believes it is crucial to smooth out the bumps for ratepayers, especially in the upstate region