National Energy Marketers Association
Meeting with NYPSC Chairman Flynn
Agenda
September 30, 2003
NYPSC Headquarters
Albany, NY
(Members to meet at 9:45AM at the cafeteria on the concourse level)
I. Introduction of NEM and its Member Companies (Goodman)
NEM is a national, non-profit trade association representing wholesale and retail marketers
of energy, telecom and financial-related products, services, information and related
technologies throughout the United States, Canada and the U.K. NEM's Membership
includes wholesale and retail suppliers of electricity and natural gas, independent power
producers, suppliers of distributed generation, energy brokers, power traders, and
electronic trading exchanges, advanced metering and load management firms, billing and
information technology providers, credit, risk management and financial services firms,
software developers, clean coal technology firms as well as energy-related telecom,
broadband and internet companies.
This regionally diverse, broad-based coalition of energy, financial services and technology
firms has come together under NEM’s auspices to forge consensus and to help resolve as
many issues as possible that would delay competition. NEM members urge lawmakers and
regulators to implement: (a) laws and regulations that open markets for natural gas,
electricity and related products, services, information and technology in a competitively
neutral fashion; (b) rates, tariffs, taxes and operating procedures that unbundle competitive
services from monopoly services and encourage true competition on the basis of price,
quality of service and provision of value-added services; (c) competitively neutral
standards of conduct that protect all market participants; (d) accounting and disclosure
standards to promote the proper valuation of energy assets, equity securities and forward
energy contracts, including derivatives; and (e) policies that encourage investments in new
technologies, including the integration of energy, telecommunications and Internet
services to lower the cost of energy and related services.
Marketers and Utilities Should Join in the Spirit of Cooperation - (Goodman) Marketers
should and can be the utilities largest and best customers. We take the costs and risks off
of the utility systems. The longer we delay in reaching a competitive end state in the
markets, the longer consumers will suffer the consequences - in the form of higher prices
(duplicative costs and rents), fewer competitive options, and sub-optimal settlements. We
are looking for a win-win solution for market participants through the market transition to
end-state. We look forward to working with the utilities and the PSC to achieve this goal.
National Energy Marketers Association
3333 K Street, NW, Suite 110
Washington, DC 20007
Tel: (202) 333-3288; Fax: (202) 333-3266
http://www.energymarketers.com
II. Review of General Benefits of Retail Competition
A. Savings - member testimonials on gas side (Kinneary) and electric side
(Storie)
Kinneary - over the past 36 months, TG&E operated in four New York
State gas programs (identify utilities and customer classes) and in these
programs they beat the utility price 74.3% of the time. In O&R they beat
the utility price 88.9% of the time because less margin is required to be
competitive due to the marketer-friendly structure of the O&R program.
O'Neill/Meath - to provide message distinguishing C&I and residential
markets
If we can achieve this magnitude of savings in some of the least hospitable
service territories, imagine the amount consumers could save if the O&R
model was adopted statewide
B. Choices - (Stewart, Bunge, Meath) consumer access to new offerings of
products, services, information and technology, i.e. interval meters,
software to provide real-time information
Bunge - HomePort is bundling utility bills in mortgage payments. Freddie
Mac is currently considering this as a green product. The energy services
convey with the home.
Stewart - MediaFusion technology has the capability to improve grid
reliability at low cost.
Meath - An additional benefit of competition is to provide consumers with
different pricing options and bundled services.
C. Consumer Protection - (Wemple, Kinneary) - HEFPA - O&R model
(purchase of receivables) and utility definition - consumers are smart
enough to compare prices, quality of service, reputation and technological
innovation. The ability to do business when you want, with whom you
want, and then to buy what you want is one of the greatest consumer
protections that government can offer.
III. Review of Prerequisites to Successful Energy Competition (Kinneary)
A. Utility Exit from Merchant Function/Utility Market Pricing - The current,
transitional retail market structures, whereby utilities provide default
service at artificially low, subsidized rates, provides utilities with an unfair
competitive advantage. The solution to this problem is for utilities to exit
the merchant function. In the interim before this occurs, the utility default
rate should utilize market-based pricing as done by the New York utilities.
By comparison, in New Jersey last winter utilities could not raise rates
when prices increased which made competitive offerings less attractive.
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However, the New Jersey utility customers are paying those higher prices
now in deferrals. Energy marketers are unable to defer energy costs as
utilities can. In addition, when utilities hedge supply costs, energy
marketers should be informed (immediately after the fact) to prevent anti-
competitive future pricing.
Note: (Wemple) ask for status of Competitive Opportunities proceeding -
much work was done in considering the market end-state in this case
B. Unbundled Delivery Service Rate - Consumers do not receive adequate
price signals in the form of "shopping credits" for use in the competitive
retail market. NEM is pleased the Commission has required the utilities to
perform fully allocated embedded cost-based rate unbundling to provide
proper pricing signals. NEM believes New York is setting good national
precedent if done right.
Utilities must remove all costs related to commodity sales from delivery
service charges and place them in their commodity price. Costs should
follow causation, e.g., all costs associated with POLR service should be in
POLR rates and all costs associated with fully bundled sales service should
be in fully bundled sales rates. These costs include: for natural gas, no
notice service, pipeline capacity charges, city-gate delivery requirements,
and related commodity charges; for electricity, transmission charges,
scheduling and control area services, and distribution line losses; for both
natural gas and electricity, a share of pool operating expenses, risk
management premiums, load shape costs, commodity acquisition and
portfolio management, working capital, taxes, administrative and general
expenses, metering, billing, collections, bad debt, information exchange,
regulatory compliance, and customer care. These costs are incurred by
energy marketers and are included in energy marketer pricing. These same
costs are also included in utility pricing resulting in a double payment of
these costs if they remain in utility delivery service pricing.
C. Payment Allocation Order Which Unfairly Favors Utility Distribution
Service (Purchase of Receivables) - As a general matter, payments on a
consolidated bill should be applied first to the consumables portion of the
bill, then to the non-consumables portion. Payment for a consumed
commodity should have priority over payments for depreciable physical
assets like pipes and wires.
We support the Commission's Order requiring the mandatory pro-ration of
payments on consolidated bills. We also suggest that the purchase of
receivables by the consolidated billing party, as utilized in the O&R choice
program, is a simplified, efficient, timely and cost-effective way for market
participants to achieve HEFPA compliance.
The O&R program has a market-based utility price and provides a purchase
of marketer receivables by the consolidated billing party, marketer access to
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capacity and storage, and utility incentives for customer migration. It has
achieved a 30%+ migration rate and has a low customer complaint rate.
The purchase of receivables model is desirable because it resolves the
complex issues of HEFPA implementation, avoids the unnecessary
duplication of infrastructure investments prior to achievement of significant
migration levels, and protects public health and safety to the greatest extent
possible.
D. Utilities Incentives - Utilities should be provided with performance-based
incentives for customer migration and the quality of services provided to
aggregators, marketers as well as other customers marketer (O&R
settlement). This will permit an alignment of marketer and utility goals.
Utilities should advocate on behalf of the energy marketers and actually
help to switch interested customers in a competitively neutral way to the
service of participating energy marketers.
In light of state and federal do-not-call programs, the utilities and the
regulatory commissions must support a means of encouraging consumers to
allow energy marketers to contact them for energy choice programs. The
promotion of efforts that obtain consumer consent for inbound energy
choice telephone solicitation should be encouraged.
E. Public Utility Commission Advocate for Energy Marketers - The PUC's
role as advocate for consumers should extend to marketers (that are also
customers of the utilities). In this role, the PUC should ensure creation of a
level playing field for all. This could include designation of a Staff level
person as a Marketer Advocate.
F. Renewable Portfolio Standards - (Wemple) As a general matter, it is
preferable not to interfere with the workings of the free market in
determining the availability of these products. However, if a RPS is
adopted it should be phased in on a gradual basis and it should ensure the
measures are implemented in the most cost-effective fashion possible. The
RPS should be implemented on a competitively neutral basis. Power
should not have to be schedulable into New York to satisfy the
requirement.
IV. General Challenges Confronting Competitive Suppliers - Wholesale/NYISO
Issues
1. Utilities should compete under the same wholesale rules as marketers
(Wemple) - e.g., in the hourly metering proposal for large C&I customers,
utilities should settle real-time usage against the real-time price, not the
day-ahead price (NIMO is not charging the balancing incentive to these
customers - the charge is included in delivery rates)
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2. Four-month settlement - (Kinneary) Auditing problems exist at the ISO
level. Meetings have been scheduled on the issue with NYISO.
3. Seams Issues (Green) - The most substantive benefits that are achievable
through markets can best be achieved by large seamless markets. New
York is well positioned between ISOs/RTOs in New England, PJM and
Ontario to take advantage of regional markets. Despite the fact that all of
these are relatively mature markets and that seams have been a high priority
ever since the market was started, seams issues continue to represent a
barrier to trade.
We know that the PSC has been supportive of these initiatives to address
the seams. The PSC has been particularly supportive of recent initiatives to
eliminate through and out transmission tariffs. We appreciate this effort
and hope that the parties will be able to successfully conclude the necessary
negotiations with neighboring States.
Another major seams initiative is the issue of Price Convergence at the
borders. The lack of convergence is largely due to incompatible market
rules, principally scheduling time frames, which increase the risks for
market participants seeking to trade across the borders. The NYISO and
ISO-NE have been promoting Virtual Regional Dispatch (VRD) as a
solution to this problem. Interestingly, PJM has demonstrated no interest in
this approach at all. NEM recognizes the problem but is not convinced that
VRD is the most market-friendly alternative. The NYISO has delayed
implementation of 15 minute scheduling on intertie transactions that may
represent a low-cost way to let the market solve the problem.
4. In-City Rebates (Wemple)
Note: NYISO Creditworthiness Requirements - (Storie) NYISO proposal
would require three months (90 days) of security from "non-investment
grade" or "unrated" participants. A requirement for a three-month security
deposit is unreasonable and could pose a barrier to entry for smaller
competitive entrants. The NYISO should accept prepays, provide
weekly/daily settlement, and accept surety bonds (with a pay now, fight
later provision). ISOs/RTOs should permit netting of a participant's
position among ISOs/RTOs as it is extremely expensive for small
marketers to post multiple security deposits.
V. Conclusion (Goodman)
NEM reiterates its commitment to work cooperatively with the utilities and the
Commission to find and implement mutually beneficial strategies to improve the
market structure through this transition period to the market end-state.
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