The New York Public Service Commission (PSC) has modified an earlier ruling (Re Restructuring of the Emerging Competitive Natural Gas Market, 158 PUR4th 553 (N.Y.P.S.C. 1994)) that set forth a policy framework to guide the post-Order 636 transition of the state's natural gas distribution industry. The 1994 ruling divided local distribution company (LDC) customers into core and noncore groups, and allowed flexible market-based pricing for unbundled services to the noncore group. The new rate plan adds sharing of earnings above the upper level of an approved rate-of-return "band," with recovery of earnings shortfalls permitted on a prospective basis only after an LDC's next general rate case.The modifications approved on rehearing also lift the prohibition against subsidiary marketing in a gas utility's home service territory. According to the PSC, the restriction could disadvantage utility efforts to market gas because marketers can obtain an advantageous tax differential of up to 10 percent in certain circumstances. The biggest economic risk to core customers remains the loss of other large customers' net revenues due to physical bypass. With proper safeguards (em such as fully separated operations and a prohibition on direct transactions between LDC and affiliate (em the PSC anticipates only a slight risk of ratepayer harm from "home region marketing."

Other modifications affect the test for permissible onsystem streaming transactions, and the filing deadlines for quarterly reports and other information. The PSC refused, however, to remove a cap on market-based rates for noncore customers, holding to its original determination that "the complete elimination of price regulation might prove to be a disincentive to using gas, at least for the near future." Re Restructuring of the Emerging Competitive Natural Gas Market et al., Case Nos. 93-G-0932; 95-G-0050, Aug. 11, 1995 (N.Y.P.S.C.).

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