COMPETITION PLUS
Sheldon Silver, Speaker
COMPETITION PLUS
Sheldon Silver, Speaker
Michael J. Bragman, Assembly Majority Leader
Paul D. Tonko, Assembly Energy Chair
March 1996
1. Competition Plus: Standards for Competition and Restructuring the
Electric Industry
2. Competition Plus: Restructuring the Power Authority of the State of
New York (PASNY)
3. Competition Plus: The Energy 2000 Fund
1. Standards for Competition
2. Customer Savings and Benefits
3. Restructuring of Utility Companies
4. Safe and Reliable Electric Service for Customers
5. Consumer Protection
6. Quality Workforce Maintained
7. Environmental Protection and Energy Efficiency
8. Informed Implementation of Competition
1. Custodian of Hydropower Resources
2. Additional Services
3. Honoring Existing Contracts and Commitments
1. Hydropower Facilities Remain with PASNY
2. Purchase of New Hydropower Assets
3. Administrator of the Energy 2000 Fund
4. Support for Transmission System
5. Training of Electric Industry Workers
1. Sale of Non-hydro Facilities and Transmission Facilities
2. Nuclear and Transmission Assets in a Competitive Electricity Market
3. Criteria for Eligible Purchasers of PASNY’s Assets
1. Amount of Funds Available
2. Use of the Fund
3. Fund Operation
1. Energy Efficiency
2. Renewable Energy Resources
3. Worker Transition
4. Electricity Commodity Exchange
5. Research and Development
6. Electric Vehicles
1. Write-off of Stranded Investment
2. Reducing Utility Management Costs
1. Renegotiating Contracts with Utilities
2. Renegotiating Contracts with Gas Suppliers
New Yorkers need relief from the high cost of electricity. Electricity rates in this state, among the most expensive in the nation as illustrated by Figure 1, damage New York’s business climate and burden its citizens. Details on state average utility rate rankings are provided in Table 1 at the back of this report.
The Assembly Majority has developed a comprehensive plan to reduce the high electricity costs paid by our residents and businesses.
Competition Plus is a detailed blueprint to:
These goals will be met through a three-part plan to:
To make New York more competitive, Competition Plus will reduce electricity costs by at least 25 percent. When Competition Plus is fully implemented, New York's average electric rate will be more level with the rest of the nation, as Figure 2 shows.
This rate reduction will be implemented in a manner which increases fair competition in the electric industry, ensures safe and reliable service to customers, and benefits all classes of customers.
This plan increases New York’s competitiveness, while avoiding barriers to competition, such as bankruptcy and excessive new public debt issuances.
Competition Plus puts consumers first.
Competition Plus will give residents, businesses, schools, farms and hospitals access to safe and reliable sources of low-cost electricity. Lower rates will attract new businesses to the State and will generate savings for existing businesses that in turn will spur job retention and job creation. Competition Plus features an immediate rate freeze that will halt escalating electricity prices for all customers.
To enhance the level of competition in the electric industry, the structure of PASNY must be changed. Competition Plus will:
Focus PASNY on its original mission:
Establish PASNY’s new mission in light of a competitive electric industry market:
Deposit into two accounts revenues derived from reshaping PASNY to:
The Competition Transition Account will:
The Beneficial Technologies Account will:
Participants in the electric industry must reduce electricity costs to business and residential consumers.
Utilities must write down the value of assets which are potentially uneconomic in a competitive market to lower their costs and reduce electric rates.
The Public Service Commission (PSC) must address limiting management costs for the regulated segments of the industry through a proceeding to:
IPPs should renegotiate contracts with utilities to:
IPPs should renegotiate contracts with gas suppliers for IPP plants by forming consortiums to:
The Assembly Majority has developed a comprehensive plan to reduce the severe burden of high electricity costs on our State’s residents and businesses. Figure 3 shows that New York's average utility electricity rate is significantly higher than the rest of the region.
In developing this plan, the Speaker of the Assembly held two Electric Energy Roundtables. The Roundtables were attended by a broad representation of electric industry participants, including businesses, utilities, IPPs, PASNY, academic experts, as well as consumer and environmental advocates. The Assembly Standing Committee on Energy conducted six public hearings: four to seek comments on reducing costs through fair competition within the electric industry and two to specifically address electricity costs on Long Island. The discussions at the Roundtables and testimony at the hearings greatly influenced the development of Competition Plus.
During the first week of the 1996 Legislative Session, the Assembly Majority unveiled its proposal to reduce electricity rates by 25 percent or more by introducing competition to the electric industry. The proposal is one component of a comprehensive plan to bring together government and industry in a joint effort to make New York competitive with its neighboring states. After Competition Plus is fully implemented, New York's average utility electricity rate will be more competitive with other states in the region, as illustrated by Figure 4.
Now, the Assembly Majority announces a three-part legislative package called Competition Plus, that will:
This report provides a detailed summary of legislation which will implement the restructuring of the electric industry, establish the new role of PASNY, and commence the operation of the Energy 2000 Fund.
New Yorkers need relief from the high cost of electricity. Electricity rates in this state, among the most expensive in the nation, damage New York's business climate and burden its citizens. Current regulatory practice allows utilities to request rate hikes to recover the revenues lost when high electric costs drive their customers away. In other words, the remaining residential and small business consumers are forced to bear a greater proportion of their utility's fixed costs. The result is a vicious cycle that benefits neither customers nor utilities.
Increasing competition in the electric industry, with proper safeguards, will result in lower electricity costs for ALL New Yorkers.
The Assembly's proposal carefully phases in competition over several years. It ensures the continued safety and reliability of the electric system and guarantees that every customer will have access to electric service at reasonable prices. All consumers will benefit, or the transition to competition will not proceed. The electric industry will be restructured in a manner which introduces fair competition, allows all customers to choose their electricity suppliers, and prohibits any further rate increase until competition is fully implemented.
To start the restructuring process, the Assembly's proposal establishes standards for competition among the State's electricity producers. The Assembly proposal freezes electricity rates immediately and introduces Customer Choice Pilot Programs. Through Customer Choice, residents, farms, hospitals, businesses and schools can join together to create "buying consortiums" that will enable them to identify and purchase less costly electricity. Lower rates will attract new businesses to the State and generate savings for existing businesses that in turn will encourage job retention and job creation.
The PSC will determine the competitive market structure that best addresses the policy standards enumerated by the Legislature. Competition will proceed only to the extent that the standards for competition are being met.
Competition Plus specifies standards under which fair competition will be implemented.
The PSC must certify that Customer Choice and any pilot programs are consistent with these standards:
Electricity rates will be frozen immediately for each utility. The freeze will remain in effect until competition is fully achieved.
Wholesale competition will be implemented as soon as possible, but not later than September 1997.
During the period of wholesale competition, the Customer Choice Pilot Programs will help groups of customers save money on electricity and encourage businesses to retain and create jobs.
Customer Choice will be implemented no later than September 2000, with PSC certification of competition standards.
Electricity costs will be reduced in a manner that gives priority to consumer savings, while offering electric industry participants an opportunity to recover stranded costs. Stranded costs are expenses which were incurred by utilities under the regulated monopoly structure and which will not be fully recoverable in a competitive market. The extent to which the utilities will be able to recover stranded costs will be determined by taking into account the following conditions:
Costs to ratepayers for high priced power purchase contracts between IPPs and utilities will be reduced through the imposition of additional requirements on these contracts. These requirements will ensure that IPP contracts are fulfilled in a manner which benefits ratepayers and which maintains safety and reliability of the electric system. Specifically, these requirements include:
To promote and ensure fair competition, utilities will restructure.
Functional separation of generation and transmission will be implemented during wholesale competition by 1997.
Between 2003 through 2005, utilities will be required to split off their various functions into separate corporations, including electric transmission and distribution, electric generation, and natural gas.
At a minimum, current reliability criteria will remain in place. For purposes of maintaining reliability, the PSC will have jurisdiction over all generation and transmission facilities in the State, including those owned by PASNY and IPPs (over which the PSC currently has no jurisdiction). Requirements include:
Before implementing Customer Choice, the PSC must certify that all customer classes will benefit and that all customers will retain access to service at reasonable prices. If a class of customers does not have access to reasonably-priced service, the PSC must re-regulate to the extent necessary to eliminate the problem. The State may impose just and reasonable conditions on any future contract for energy services, if the PSC finds that the number of qualified competitors in the market is insufficient and the lack of competition is producing unreasonable prices. In addition, the following requirements must be met:
The PSC will implement competition in a manner that minimizes inequitable dislocations of electric industry workers. Each utility will implement a transition program, including skills upgrades, apprenticeship and training, voluntary severance, and job banks, to coordinate and facilitate the placement of employees throughout the State.
The PSC will implement competition in a manner that fosters the development of cleaner power plants and promotes the implementation of energy efficiency programs. To achieve these goals, environmental impact statements will be required prior to both wholesale competition and Customer Choice, and each utility will implement energy efficiency and research and development programs.
If the PSC finds that competition is resulting in imports of power that are contributing to acid rain or non-attainment of the health standard for ozone, then New York utilities and customers will not purchase electricity from those states or provinces where the controls of emissions are less stringent than the controls in New York.
The State Energy Planning Board will make recommendations, by January 31, 1997, on the treatment of nuclear plants in a competitive market and on the adequacy of the State’s transmission capacity.
Regarding nuclear plants, the Board will examine:
Regarding the transmission system, the Board will examine:
Prior to the implementation of Customer Choice on or before September 1, 2000, the PSC will submit a report to the Governor, the Legislature, and the Competition Advisory Council. The report will detail the PSC’s plans for implementing competition. The report will include an evaluation of wholesale competition and Customer Choice Pilot Programs and will be accompanied by an environmental impact statement.
The Competition Advisory Council will review PSC plans to implement competition and will make recommendations on Customer Choice Pilot Programs.
PASNY is a public power authority that owns electric generating and transmission facilities, provides energy efficiency services, and promotes the development of renewable energy resources.
PASNY, as a public authority, enjoys numerous market advantages over other industry participants that have enabled it to undertake activities and provide services not generally provided in a competitive market. PASNY will be required to continue these activities and to focus its role in a competitive marketplace.
In a competitive electric industry, the market structure for the delivery of electricity services must be reorganized to achieve true competition among participants. For example, one goal of restructuring is to minimize the potential for self-dealing. Self-dealing occurs when an entity benefits from an organizational structure not available to all participants in the electric industry, such as, providing its own generating plants preferential access to transmission services.
Competition Plus requires utilities to separate their generating facilities from their transmission and distribution facilities to prevent a utility which owns both from preferring to transmit its own power first, ahead of that of a competitor.
The structure of PASNY must be changed to enhance the level of competition in the electric industry and to assist in a smooth transition to a competitive marketplace.
Furthermore, the sale of PASNY’s non-hydro facilities will support the Energy 2000 Fund created by Competition Plus to reduce electric rates for consumers and to assist in the restructuring of the electric industry.
PASNY was created to be the custodian of the Niagara and St. Lawrence River hydropower projects and to support economic development programs funded through the development and sale of hydropower from those facilities. Power from these facilities is allocated primarily through long-term contracts through 2013.
Since PASNY was created, the Authority has taken on a number of other responsibilities. Currently, PASNY owns two nuclear power plants, two large conventional-fueled plants, and a large transmission system. One element of the restructuring of PASNY will be the sale of these facilities to the private sector.
PASNY’s contracts for low-cost power and for energy efficiency services associated with municipalities, State agencies, public authorities, and businesses must be honored.
The Niagara Power Project and the St. Lawrence-Franklin D. Roosevelt Power Project will continue to be managed by PASNY on behalf of the State and its residents. PASNY’s statute stipulates that this natural resource shall remain in the hands of the State and its residents.
PASNY will also retain its other hydro facilities, such as the Blenheim-Gilboa Pumped Storage Power Project, the Ashokan Project, the Kensico Project, the Gregory B. Jarvis Plant, the Crescent Plant, and the Vischer Ferry Plant.
Consistent with its current mission, PASNY may expand its hydro generation capacity by purchasing, through voluntary sale by current owners, small hydro facilities statewide. The new hydro facilities will be self-supporting in a competitive market.
As the custodian of the State’s natural energy resources, PASNY will emerge as a provider of energy efficiency services, renewable resources, industry worker transition programs, research and development, electric vehicles, and will assist in the development of an electricity commodity exchange. PASNY will continue to operate in circumstances and areas where the competitive electricity market does not perform adequately or where a compelling public purpose exists. PASNY will also facilitate the transition to a competitive electricity market by promoting private-sector financial restructuring and consortiums.
These programs will be financed by the Energy 2000 Fund, created as part of Competition Plus, which PASNY will administer.
One of the areas in which a competitive electricity market will not function effectively is in load pockets. A load pocket occurs when the reliability of electric service for a particular group of customers is primarily dependent on a particular generating facility, effectively giving that facility a monopoly over a captive group of customers.
Competition Plus requires that all customer classes, including areas of the State which are load pockets, must benefit from competition and have access to reasonably priced electric service.
Consistent with its mission to provide services to meet a compelling public purpose, PASNY will purchase or construct generating facilities and will provide other needed services, particularly energy efficiency, to ensure that safe, reliable and economic electric service is available to areas of the State which are load pockets. These areas are also portions of the State where a competitive electricity market may be difficult to implement because transmission constraints limit the amount of electricity which can be delivered from sources other than the local utility. PASNY will coordinate these activities from its facilities at the Frederick R. Clark Energy Center.
Competition Plus requires training programs for all workers which affect the safe and reliable operation of generating and transmission facilities. Workers will be provided with skills upgrades and placement services. These programs will be coordinated at the Clark Energy Center to facilitate the placement of employees throughout the State.
A restructuring plan will be developed by the Power Authority Restructuring Board, in consultation with the State Energy Planning Board, consisting of the Chairperson of the Authority, an appointee of the Senate, and an appointee of the Assembly. The plan will be reviewed by an independent consultant chosen by the Restructuring Board. The plan will require unanimous approval by the Restructuring Board.
By January 31, 1997, the restructuring plan, as well as an environmental impact statement, will be submitted by the Restructuring Board to the Governor, the Legislature and the Competition Advisory Council. The PSC will ensure that PASNY’s plan does not adversely affect the safety and reliability of the electric system.
The plan will detail how PASNY will:
In addition, PASNY’s plan will analyze its effects on:
Throughout the restructuring process and after its completion, PASNY will honor all collective bargaining agreements.
The sale of PASNY’s assets will be done according to the Power Authority Restructuring Board’s approved plan and will be contingent upon the PSC’s determination that the plan's implementation maintains the safety and reliability of the electric system.
PASNY’s facilities, such as the James A. FitzPatrick Nuclear Power Plant, the Indian Point 3 Nuclear Power Plant, the Charles Poletti Power Project, the Richard M. Flynn Power Plant, as well as its 1,400 circuit miles of transmission facilities, will be sold to reshape PASNY as a more equal participant in the competitive electricity market.
Qualifications on the sale of non-hydro facilities will include the defeasance of PASNY’s outstanding bonds and the guarantee that all contracts and commitments associated with customers currently served by the facilities and all collective bargaining agreements be honored.
Under Competition Plus, the State Energy Planning Board will make recommendations, by January 31, 1997, for the operation of nuclear and transmission facilities in a competitive marketplace. The recommendations should be taken into account when determining the future ownership and purchase price of PASNY’s assets.
PASNY's restructuring plan must include these minimum criteria for new owners and operators of PASNY’s facilities:
Experience in operating facilities in a safe and reliable manner;
As part of Competition Plus, the Assembly identifies public-private partnership opportunities to foster competition and to reduce costs to consumers from the electric industry. The Assembly recommends the creation of the Energy 2000 Fund, which is designed and structured to achieve these goals.
The Energy 2000 Fund is a competitive initiative which will facilitate the implementation of the provisions of Competition Plus by electric industry participants, while generating additional savings to consumers. It is structured to avoid barriers to a smooth transition to competition and to prevent bankruptcy, hostile cancellation of contractual obligations, protracted litigation, condemnation of facilities, and excessive new public debt issuances.
The Assembly recognizes that participants in a newly competitive electric industry will need to be on a firm financial footing to maximize the benefits of competition to consumers. For a number of reasons, many existing companies may need to undertake financial restructuring to compete effectively. To accelerate benefits of competition to New York’s residential and business electricity consumers, the Energy 2000 Fund will assist this private-sector refinancing.
In addition, the Fund will provide financial assistance for energy projects which are cost-effective and create or retain jobs, such as energy efficiency, electric vehicles, renewable energy resources, research and development, worker transition, and assisting the development of an electricity commodity exchange.
The transition to a competitive market means that certain plant investments and power purchase contracts will no longer be economical. It will be difficult to recover the associated capital cost. The PSC's preliminary estimate of total stranded investment costs is $16.8 billion. This includes $3.1 billion for utility generation assets, $6.4 billion associated with IPP contracts, and $7.3 billion for regulatory assets. These costs are a barrier to competition and lower rates.
The accuracy of the PSC figures is impossible to confirm because of several unknown factors related to the electric industry and its transition to a competitive market. However, if the existence of stranded investment leaves some participants financially unable to operate in a competitive market or if the PSC allows recovery of stranded costs, rates will not decrease as significantly. Loan guarantees to facilitate the private restructuring of financial balance sheets will expedite the industry’s transition to competition and reduce electricity costs.
Through these financing proposals, the Assembly seeks to:
Consumers will benefit from lower electricity costs because less stranded investment may be recovered from ratepayers. Additionally, benefits will be available to all parts of the State, and no new State debt will be issued for stranded investment.
Electricity costs will be reduced through the implementation of energy efficiency programs.
Cleaner air will result from the development of electric vehicles and renewable energy resources, as well as from the research and development of efficient, cost-effective and environmentally sensitive generation and transmission technology.
These energy projects will result in the creation of jobs.
Sale of PASNY’s non-hydro facilities could raise over $2 billion, after the defeasance of PASNY’s bonds, depending on facilities sold. Earnings on the Energy 2000 Fund are anticipated to be $50 million to $100 million annually, depending on the size of the Fund.
Excess revenues from PASNY’s hydro facilities, which are not needed to meet PASNY’s obligations, will also be available to reduce electric rates.
The Fund will be used to provide financial assistance through an open competitive process to electric energy generators, transmitters, and distributors to:
The Fund will be organized into two accounts: the Competition Transition Account and the Beneficial Technologies Account.
The Competition Transition Account will:
The Beneficial Technologies Account will support statewide energy projects, which create or retain jobs and which produce energy savings, such as:
The Fund will be in the custody of the Chairperson of PASNY. Expenditures from the Beneficial Technologies Account of the Fund will be subject to appropriation by the Legislature.
PASNY will allocate and administer the Energy 2000 Fund on a competitive basis to the entities that demonstrate the greatest potential for significant cost savings and rate reductions, relative to the amount of financial assistance requested. Applications can include joint proposals by utilities, IPPs, and others.
The PASNY Restructuring Board will approve the proposals to ensure that they meet the standards established for the Fund.
The monies of the Fund will remain in the public domain.
No action will be taken by the Fund that might adversely impact the safety and reliability of the electric system.
Many utilities can no longer borrow at reasonable interest rates. They will need access to lower-cost financing to be competitive and to reduce costs to customers.
Private-sector refinancing through loan guarantees from the Energy 2000 Fund will reduce capital costs and assist in stabilizing the financial structure of industry participants in the transition to competition, as well as, accelerate the reduction of electricity costs.
Financing would be awarded to utilities on a competitive basis based on the amount of rate reductions the proposal will provide for customers. In order to submit competitive proposals, utilities will have to write down some of the recoverable value of their assets.
The majority of outstanding debt associated with all IPP generation projects is held by private lenders at high interest rates over relatively short terms. It is highly unlikely IPPs will be able to refinance their debt without some form of bond insurance, given the uncertainty in the electric industry.
IPP debt may be refinanced through the issuance of bonds by the private sector. The private-sector refinancing of short term debt at lower interest rates and at terms that more appropriately match the useful life of the assets could result in a 15 percent reduction in estimated overpayments by ratepayers. This issuance of refinancing bonds by the private sector will not be public debt but will be secured by a loan guarantee supported by the Energy 2000 Fund.
Earnings from the Energy 2000 Fund will provide financial assistance to support energy projects which are part of PASNY’s new mission.
The main criteria for projects which will receive financial assistance are:
The Energy 2000 Fund will provide low-interest loans to encourage and facilitate the development of projects and programs, including electrotechnologies, to reduce energy costs, to create jobs, to remove market barriers for the implementation of energy efficiency measures, and to alleviate transmission constraints. The following projects will be among the energy efficiency projects eligible for financial assistance:
Low-interest loans will be available to develop and implement programs related to renewable energy resources, including solar, wind, fuel cell, and bio-mass. Eligible projects will create jobs, improve the environment, promote fuel diversity, and decrease the State’s dependence on imported fuels.
Financial assistance will be available for activities which coordinate and assist placement of electric industry employees throughout the State and which provide for skills upgrades, apprenticeship and training programs, buy-outs, and job banks.
An electricity commodity exchange located in New York, serving the needs of State and national energy buyers, has the potential to create many jobs. The exchange will coordinate financial transactions for power purchases with the independent system operator to maintain the reliability of the electric system. The development of the exchange will require the building of infrastructure and facilities necessary for its operation as a national trading floor. Financial assistance for the development of an electricity commodity exchange would provide incentive for it to locate in New York.
Financial assistance will be available for research and development of cost-effective, cleaner, and more efficient generation and transmission technology. Eligible projects would create jobs and reduce impacts on the environment.
The Energy 2000 Fund will make available low-interest loans to encourage and facilitate the development of the alternative fuel vehicle industry in New York. This assistance can include funding for research and development of electric cars, hybrid and electric buses, and high speed rail and magnetic levitation trains. Eligible projects will create jobs and reduce the State’s reliance on imported fuels.
Competition Plus provides New York with a framework for moving to a competitive electricity market, ensuring all customers share in the benefits, while preserving public policy goals such as the safety and reliability of the system. We have proposed Competition Plus in an atmosphere in which all participants in the industry are discussing the seeming inevitability of a competitive market. In part, this is a result of the Competitive Opportunities proceeding undertaken by the PSC. While the PSC has not yet acted, the recommendations for restructuring made by the Administrative Law Judge on the proceeding would lead to a restructuring similar in some ways to that which we propose. However, Competition Plus addresses the movement to competition in a more comprehensive way by dealing with issues beyond the scope of the PSC’s jurisdiction. A comparison of Competition Plus with the recommended decision is attached to this report.
The businesses engaged in the production, transmission and distribution of electricity will need to cope with the transition to competition. Key issues will include stranded costs, high management costs, the contracts between IPPs and existing utilities, and the high cost contracts the IPPs have for the natural gas they burn to generate electricity. Because all industry participants will need to contribute to reduced electricity costs, they will have to address these issues. Competition Plus addresses stranded costs through the Energy 2000 Fund and ensures that the State’s business and residential consumers benefit through its standards for competition.
The capability of a utility to profitably operate its generation plants in a competitive marketplace rests upon its ability to control both the variable and fixed costs of operation. Generation assets, which are uneconomical to operate in a competitive marketplace because of high fixed costs, are generally considered to be stranded investments. These fixed costs consist of depreciation, interest on debt, dividends on common stockholder equity, and taxes.
To reduce the amount of potentially uneconomic assets which may not be recovered in a competitive marketplace, utilities will be expected to reduce the value of these assets on their financial statements. This results in a reduction in depreciation expense and a one-time reduction in retained earnings. For example, Niagara Mohawk Power Corporation has recently proposed writing off portions of its potentially stranded investment in return for significant IPP contract concessions.
New York’s utility companies have some of the highest administrative costs in the nation.
Competition Plus requires the PSC to conduct a proceeding to examine utility management costs in relation to other states, to explain why administrative costs for our utilities have increased excessively, and to evaluate whether and how management costs will be limited based on an index of average management costs in other regions.
Utility workers have already undergone extensive layoffs, and the remaining experience and expertise of industry workers should be preserved. Maintaining an adequate level of non-managerial staff support is vital to providing the level of safe, reliable, and quality service expected by consumers.
The PSC estimates $6.4 billion in stranded investment costs associated with contracts for sale of IPP power to utilities. To cope with the uncertainty related to the restructuring of the electricity industry and the associated risk to all participants of utility bankruptcy, IPPs must restructure their finances to accelerate the reduction of electricity costs paid by consumers, to facilitate the transition to competition, and to ensure their own stability as competitors in a competitive market.
To achieve a more competitive financial structure, the IPPs must renegotiate existing uncompetitive contracts with the utilities. Renegotiation of IPP contracts to eliminate potential overpayments by utility ratepayers to IPPs could result in significant savings to ratepayers.
The restructuring of the contracts also provides an opportunity for IPPs to operate with more flexibility. During certain months, IPPs may be able to generate higher earnings by selling on the spot market the gas they receive under long term contracts, instead of using it to generate and sell electricity. More flexible contract terms would allow them to pursue this option.
IPPs may also have some opportunities to simply renegotiate their contracts with natural gas suppliers, especially as the electric industry restructuring in New York proceeds.
In some instances, long term contracts between IPPs and natural gas companies are at rates substantially above market prices. Fuel costs account for approximately 50 percent of the average IPP gas fired plant’s total production cost, and renegotiation of the terms of these gas contracts will reduce this cost by up to 30 percent using current market prices. The price of contracts between IPPs and utilities will be reduced through these savings to the benefit of consumers.
In order to achieve a significant reduction in costs, the IPPs should consider forming a consortium for purchasing gas and for negotiating better terms than the current high cost contracts offer. IPPs will have increased power to renegotiate more favorable terms due to volume purchases. They will also have the ability to purchase only the “minimum take” amount of gas, which is currently approximately 60 percent of the amount negotiated through contracts with gas suppliers for IPP plants.
A. Comparison of Competition Plus with the Recommended Decision of the PSC’s Administrative Law Judge
B. Glossary of Terms
C. Table 1: States and D.C. Ranked by 1994 Average Utility Electric Rate
Issue |
Assembly Bill |
ALJ Recommendation |
| Rate Freeze | immediate, effective until custom choice is implemented | no rate freeze |
| Type of Competition to be Implemented | wholesale first, then Customer Choice; PSC has flexibility in developing mechanisim | wholesale first, then retail |
| Divesting Generation | functional separation by 1997, devestiture by 2003, except ancillary services and load pockets | functional separation at a minimum: each utility will make a proposal regarding divestiture |
| Divesting Gas | divestiture by 2005 | no divestitutre |
| Independent System Operator | coordinates and maintains reliability of transmission system | coordinates and maintains reliability of transmission system |
| Pilot Program | approved by PSC; subject to recommendations of Competition Advisory Council | no pilot programs; retail competition to be implemented as soon as possible |
| Certification | PSC must certify that all legislatively established policy standards will be met or retail competition cannot go forward | PSC will determine if competition meets its own policy principles; PSC must also comply with basic legal mandates of adequate service and just and reasonable rates for all customers |
| Environmental Impact Study | must be performed prior to wholesale competition and again prior to retail competition | must be performed prior to PSC decision |
| Protection of Environment and Public Health | power producers in upwind areas that have less stringent emmission controls may not be eligible to compete, if competition is contributing to non-attainment of a health standard or to acid rain | mitigation of environmental impacts through a non-avoidable system charge |
| Transmission and Distribution | remains regulated; non-discriminatory access | remains regulated; non-discriminatory access |
| Reliability | must not be impaired; current system standards must be maintained; restrictions on imports if in-state power generation is not sufficient to maintain reliability of transmission system | must not be impaired; current system standards will be used |
| Impacts on Customer Classes | all customer classes must benefit | competition must be in the best interest of all ratepayers; specific classes should be protected from short-run transitional harm |
| Load Pockets | study; customers in load pockets must share in benefits of competition; PSC may require regulated service in load pockets; PASNY may provide services | study; a variety of solutions are discussed but none is recommended |
| Universal Service | all customers must have access to power at reasonable prices | PSC principle: "a basic level of reasonably priced service must be maintained for all New Yorkers"; could be addressed through a system benefits charge |
| Stranded Costs | rate reduction must come first; no presumption of full recovery; Energy 2000 Fund will assist in mitigating costs if matched by utility write-offs and contract renegotiation | must be fully mitigated as a condition for recovery; no entitlement to full recovery; must be balanced against interests of ratepayers |
| Customer Service Standards | must not be impaired; PSC will establish standards in several categories | should initially continue to be regulated; vital protections should be maintained |
| Industry Workforce | displacement should be minimized; transition program for workers, which must be in place prior to recovery of any stranded costs; training requirements for all jobs that could effect reliability; transition program also funded through the Energy 2000 Fund | no provisions |
| Research and Development | will be funded through the transition program and through the Energy 2000 Fund | should be funded through a system benefits charge |
| Energy Efficiency | will be funded through the transition program and through Energy 2000 Fund; all cost-effective measures should be implemented | should be funded through a system benefits charge; no standard |
| Regulation of Electric Plant | PSC will have jurisdiction over all facilities for purposes of maintaining reliability, regardless of whether the owners of the facilities are utilities | monitoring and reporting requirements for industry participants |
| Default Provider | all customers must have access to reasonable service; PSC will have flexibility in determining the mechansim; PSC will have authority to order any industry participant to offer services under regulated terms | all customers must have access to reasonable service; T&D utility should have the obligation to serve, at least in the short term |
| Marketing Practices | PSC will have authority to regulate marketing practicies | no provision |
| Licensing | all retail suppliers must be licensed by PSC | defer a decision until retail competition is implemented |
| IPP Costs | monitoring of Qualifying Facility status; security for tracking accounts; curtailment; Energy 2000 Fund will assist in reducing costs in exchange for renegotiation | utilities must mitigate to the extent possible |
| Advisiory Council | advisory council will oversee implementation of competition and make recommendations on Customer Choice pilot programs | no provision |
| Treatment of Nuclear Plants | Energy Planning Board will study and issue a report before implementation of competition | should be studied |
| Adequacy of Transmission Network | Energy Planning Board will study and issue a report before implementation of competition | subject to ongoing review |
| Ownership of Transmission Network | Energy Planning Board will study and issue a report before implementation of competition | options are discussed; no recommendation |
| Public Participation | hearings are required; funding for public interest intervenors | hearings and forums are recommended; no intervenor funding |
| PASNY Role in Competition | sell all transmission and non-hydro generating facilities; retain hydro facilities and purchase other hydro facilities from voluntary sellers; provide transmission system suport | PASNY role must be considereed, but PSC has no jurisdiction over PASNY |
| PASNY Role: Reducing Stranded Costs | establish an Energy 2000 Fund to provide loan guarantees for private-sector refinancing of utility costs and IPP debt | PSC has no jurisdiction |
| PASNY Role: Job Creation and Consumer Savings | interest and earnings from Energy 2000 Fund will finance energy efficiency, renewable resources, worker transition programs, research and development, electric vehicles, and will assist the development of an electricity commodity exchange | PSC has no jurisdiction |
| Utility Management Costs | PSC will consider capping utility recovery for management costs based on average costs in other regions | no provision |
Federal law requires electric utilities to buy all power produced by certain IPPs, with whom utilities have power purchase contracts.
However, under certain circumstances when supplies of electricity exceed demand, federal law allows utilities to reduce, or to curtail, the purchase of unneeded power.
By September 1, 2000, all electric customers will be able to buy electricity services from any supplier of electricity. Every electric utility would be required to transmit power to customers from any supplier of electricity. The specific mechanism by which this would be accomplished, for example a “pool-co” approach or a “bilateral contract” approach, would be determined by the PSC.
PASNY has outstanding bonds, obligations, and financial commitments. The restructuring of PASNY and the sale of non-hydro assets would have an effect on the bonds, obligations, and financial commitments associated with those assets.
These bonds, obligations, and financial commitments would have to be paid off before their normal time period by PASNY with revenue from the sale of the assets.
A national trading floor for the purchase and sale of options to buy electricity and for the coordination of financial transactions for power purchases.
Processes which use electricity as the primary energy source, rather than fossil fuels, where their use is more efficient, cost-effective, and environmentally beneficial.
Although still part of one company, transmission business will be separate from generations, so that the operators of transmission will be indifferent about whose power is being transmitted.
Private electricity producers which are not regulated electric utilities and which provide power they produce to regulated utilities through contracts authorized by federal law. IPPs which operate co-generation facilities provide low-cost steam to their thermal hosts.
Many of the long-term contracts entered into in the late 1980’s were based on energy price forecasts that were too high, as well as, a minimum price mandated in law that is higher than today’s market prices. As a result, utilities are now paying more for independent power than if they were to generate the energy themselves or purchase the power on the spot market.
The coordinator of electricity supply throughout the State to ensure the reliability of the transmission system and to provide electricity suppliers access to transmission.
This entity would operate much like the current New York Power Pool.
Areas of the State where a competitive electricity market may be difficult to implement because transmission constraints limit the amount of electricity which can be delivered from sources other than the local utility.
Money set in reserve to ensure the repayment of a loan, if the loan recipient is not able to repay the loan.
Some power purchase contracts between utilities and IPPs have contract provisions for “tracking accounts” to keep track of larger payments made in the early contract years. In the later years of these contracts, IPPs are to return the amount of tracking accounts to ratepayers by accepting lower payments from ratepayers for IPP power in proportion to the tracking account amount.
It may be the case that some IPPs will not continue to operate their facilities beyond the point at which they would begin accepting these lower payments for their power. If this is the case, the larger payments in the early contract years would not be returned to ratepayers.
To ensure that ratepayers receive their money in the later contract years, IPPs would provide security, so that these amounts would be repaid.
May occur if an entity has an organizational structure which allows it to use its resources to provide preferential benefit to itself in ways that its competitors are not able to benefit from, because they do not have access to such an organizational structure.
For example, self-dealing could occur when a utility, which owns both generation facilities as well as transmission and distribution facilities, has the ability to transmit it own power ahead of its competitors who depend on access to those transmission and distribution facilities to deliver their power.
Coordinates development of energy policy and planning for future energy supply. Consists of heads of the PSC, the Department of Environmental Conservation, the New York State Energy Research and Development Authority, the Department of Transportation, and the Department of Economic Development.
Expenses which were incurred by utilities under the regulated electricity industry structure and which will not be fully recoverable in a competitive market.
Entities, such as institutional facilities, manufacturing firms, multi-family housing, hospitals, bakeries, hotels, universities, schools, laboratories, retail stores, restaurants, community centers, and nursing homes, that are located in close proximity to IPP cogeneration facilities and receive the steam produced as a by-product of electricity production. This steam is used by the entity in its operational process or for space heating. Access to this low-cost steam has resulted in lower operational or heating costs and in the creation or retention of jobs at the host’s site.
Some IPP contracts allow for larger payments for power in the early years of the contract and for smaller payments in later years. These contracts have provisions which keep track of the difference between the contract price for power and what it would cost the utility to generate the power itself. The amount of this difference is kept in an account called a “tracking account.”
Utilities purchase electricity in an open competitive market and resell to consumers at regulated rates.
Utility costs which are not recovered from ratepayers.
| Rank | State | Average Utility Electric Rate |
| Worst | New York Today | 11.68 |
| 2 | Alaska | 11.51 |
| 3 | New Hampshire | 11.26 |
| 4 | Hawaii | 10.68 |
| 5 | California | 10.38 |
| 6 | Connecticut | 10.31 |
| 7 | Rhode Island | 10.24 |
| 8 | Massachusetts | 10.15 |
| 9 | New Jersey | 10.06 |
| 10 | Maine | 9.69 |
| 11 | Vermont | 8.88 |
| -- | New York (Competition Plus Goal) |
8.76 |
| 12 | Arizona | 8.50 |
| 13 | Pennsylvania | 7.54 |
| 14 | Illinois | 7.39 |
| -- | U.S. Average | 7.14 |
| 15 | D.C. | 7.12 |
| 16 | Michigan | 7.10 |
| 17 | New Mexico | 7.10 |
| 18 | Maryland | 6.99 |
| 19 | Florida | 6.84 |
| 20 | Arkansas | 6.73 |
| 21 | Nevada | 6.69 |
| 22 | Mississippi | 6.49 |
| 23 | Delaware | 6.44 |
| 24 | Kansas | 6.41 |
| 25 | Missouri | 6.39 |
| 26 | Texas | 6.39 |
| 27 | South Dakota | 6.38 |
| 28 | Georgia | 6.23 |
| 29 | Ohio | 6.19 |
| 30 | North Carolina | 6.14 |
| 31 | Virginia | 6.09 |
| 32 | Colorado | 6.02 |
| 33 | Louisiana | 5.83 |
| 34 | North Dakota | 5.79 |
| 35 | Iowa | 5.77 |
| 36 | South Carolina | 5.60 |
| 37 | Alabama | 5.59 |
| 38 | Oklahoma | 5.55 |
| 39 | Wisconsin | 5.43 |
| 40 | Washington | 5.39 |
| 41 | Minnesota | 5.33 |
| 42 | West Virginia | 5.23 |
| 43 | Utah | 5.20 |
| 44 | Indiana | 5.05 |
| 45 | Oregon | 4.88 |
| 46 | Montana | 4.73 |
| 47 | Tennessee | 4.35 |
| 48 | Wyoming | 3.93 |
| 49 | Idaho | 3.88 |
| 50 | Kentucky | 3.78 |
| -- | Nebraska (no investory-owned utilities) |
-- |
| Source: Energy Information Administration. | ||