Competition Plus
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Sheldon
Silver
NYS Assembly Speaker
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Michael
J. Bragman
Assembly Majority Leader
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Paul
D. Tonko
Assembly Energy Chair
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June 1999
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The NYS Assembly’s
Plan
• Reduces electric rates for residential
customers by 13-20% through a Universal Service Rate.
• Expands the Power for Jobs Program,
targeting low-cost power for preserving and creating jobs.
• Allocates a new 150 megawatts of
Power for Jobs according to local and regional economic
development plans and economic need.
• Reduces the sales tax paid by commercial
businesses.
• Creates an “Electric Consumers’
Bill of Rights.”
• Stimulates competition and lower
prices by providing a “shopping credit.”
• Maintains electricity system reliability
through an expert work force.
• Creates the Energy 2000 Fund to develop
new technologies and to foster energy efficiency.
• Restructures the Power Authority
of the State of New York, including the sale of non-hydro
assets.
• Provides accountability of industry
regulators by requiring their election.
Competition Plus/ ENERGY 2000 Goal:
To reduce the gap between New York State’s
electricity costs and those of the rest of the nation
and to create jobs, while providing fair competition and
quality service.
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Governor
Pataki has failed to help electricity consumers
Governor Pataki’s Public Service Commission (PSC) has failed
to reduce electricity costs for all consumers and to initiate
effective competition. The PSC has limited opportunities for electric
suppliers to enter the market. The PSC has failed to foster the
competition that can yield lower costs. While customers wait for
competition, the utilities continue to recover their noncompetitive
costs through monopoly rates, closing off opportunities for lower
rates.
Governor Pataki ignored the need to reform State law. His PSC
acted unilaterally, without statutory authority, to negotiate
with the State’s utilities on how competition will be introduced
in New York. In six separately negotiated settlements, the PSC
restructured the electricity industry in New York. Numerous critics
and the Assembly’s report Shedding Light on the Governor’s
Failed Electric Utility Restructuring have pointed out the
PSC’s failure to provide adequate benefits to the vast majority
of electric consumers. Especially hurt were small businesses and
residential customers. Despite irreversibly altering the electric
industry’s structure, the PSC failed to provide a foundation
for retail competition.
The meager competition that does exist in the Con Edison service
territory arises from a tax loophole. Although Governor Pataki’s
administration decided to close this loophole on January 1, 1999,
it later reversed its position and decided to re-institute the
loophole temporarily, in order to prevent the mirage of competition
from vanishing completely.
The Assembly Majority remains committed to the development of
competition as the best opportunity to reduce electricity costs
substantially. All ratepayers require relief from New York’s
outrageously high rates. The Assembly’s revised plan will
overturn the inequities imposed by the PSC’s bureaucratic
actions.
The Assembly Majority’s modified plan attempts to correct
the failings of the PSC by providing real rate reductions to all
ratepayers and “jump-starting” competition. Our plan
also ensures system reliability and consumer protection. The Assembly’s
comprehensive approach eases the strain of high electricity prices
on New York’s economy and its consumers. It creates and retains
jobs statewide, including in Western New York.
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Putting
Consumers First
I. Increased Customer Savings
A. Universal Service Rate
The inequitable rate structures imposed by the PSC’s utility settlements
favor very large business consumers over all other consumers. The Assembly
Majority contends rate relief must also be provided to residential customers
and to small businesses, which are the job creation engine of the State’s
economy.
Specifically, Competition Plus/Energy 2000 includes
a Universal Service Rate which provides a 40 percent rate cut for the
first 200 kilowatt-hours of electricity used by all customers for eight
years. Because 200 kilowatt-hours represents an amount needed to maintain
the basic necessities of a small household, the Universal Service Rate
will provide energy security to customers, including seniors living
on fixed incomes, while providing substantial rate relief to all residential
customers and many small businesses.
Families, businesses, and farms will have access to safe,
reliable and affordable electricity to improve their standard of living
and to reduce operational costs. Lower rates will encourage existing
businesses to retain and create jobs and help New York attract new companies
and new jobs.
B. Expansion of the Power for Jobs Program
Although average electric rates for industrial customers have been declining
relative to those paid by other customer classes, average industrial
rates remain high when compared to those of the nation and competing
states. The Assembly Majority proposes to add 200 megawatts to the Power
for Jobs Program to provide more low-cost electricity to larger businesses
that create and retain jobs.
One hundred fifty of those megawatts will be made available
for allocation by counties or cities with population over 30,000 so
that they can assess and meet local economic development needs. Economic
development planning entities designated by the counties and cities
will submit plans to the Power Authority’s Economic Development
Power Allocation Board to obtain the allocations.
In the two years since this Assembly initiative was enacted,
the Power for Jobs Program has created or secured over 200,000 jobs
across the State. This additional allocation will provide more economic
stimulus to those areas of the State with the greatest need and could
secure an additional 50,000 jobs.
C. Phase-in of Sales Tax Cut
Non-industrial business customers, on average, pay the highest electric
rates. The sales tax is imposed upon electricity used by non-manufacturing
businesses. The Assembly Majority proposes a phased reduction that will
cut in half (a savings of about $112 million) the State sales tax on
electricity to lighten the energy cost burden on these customers and
especially to improve the competitiveness of small businesses.
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II. Fair Treatment For Customers
A. Enhancement of Customer Protections
The PSC has allowed energy marketers to operate without strict
adherence to the consumer protection requirements of the Public
Service Law under the Home Energy Fair Practices Act. These protections
include the right to have billing disputes resolved by the PSC,
rather than exposing customers to the risk of unfair and intimidating
practices by collection agencies and credit rating services or
to the cost of resolving differences in court.
The Assembly Majority’s plan upholds these
necessary minimum protections for the customers of any competitive
energy supplier. The Assembly’s plan enables customers to
choose their power supplier, knowing that consumer protection
and customer service have been preserved. The Assembly’s
plan also requires simple uniform power bills, as well as disclosure
of environmental impacts.
In addition, Competition Plus/Energy 2000:
• Requires the PSC to evaluate ratepayer benefit of restructured
independent power producers (IPP) contracts, while ensuring
that IPPs meet their contractual obligations to provide steam
to businesses for their operational or heating needs;
• Implements utility transition programs for energy efficiency,
research and development, worker transition, and public participation
funding; and
• Requires specific ratepayer savings in exchange for
allowing utilities the opportunity to compete for access to
up to $5 billion of credit enhancement through limited securitization
of specific assets.
B. Limited Stranded Cost Recovery
In nearly ever case, the PSC has assigned most of the responsibility
for stranded cost to electric ratepayers; only Niagara Mohawk’s
(NiMo’s) shareholders are expected to shoulder a significant
share of stranded costs. Even then, NiMo will be allowed to recover
its original investment costs from customers. The Assembly Majority
proposes to end the opportunity for utilities to recover stranded
costs after July 1, 2006. This date limits utility stranded cost
recovery to the period over which NiMo would recover the costs
allowed by the PSC.
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An Electric Consumer’s
Bill of Rights
• Establishes a Universal Service
Rate to cut rates by 40% for the first 200 kilowatt-hours
(the minimum required for a small household).
• Ensures that electricity services
are provided only upon terms that the customer approves.
• Guarantees adequate and reliable
service to all customers. Competition for electricity
services must not be implemented at the expense of safety
and reliability.
• Preserves the “Home Energy
Fair Practices Act” to ensure that necessary customer
protections apply to all competitors.
• Prevents utilities from charging
customers for excessive costs that cannot be recovered
in a competitive market.
• Prevents subsidiaries and affiliates
of utilities from cashing-in the market value of their
name recognition, which was developed with
ratepayer money.
• Requires standard contracts for
electric service to avoid confusion and deception.
• Assures public participation in
the process of establishing competition.
• Regulates marketing of electric
service to prevent fraud.
• Requires disclosure of environmental
effects of electric power supply.
• Allows municipalities to serve
as electricity marketers for local customers.
• Ensures that ratepayers and businesses
who use steam benefit from renegotiated independent
power producer (IPP) contracts.
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C. Preventing Unfair Market Advantages for Utilities
The Assembly’s plan would prohibit utility affiliates and subsidiaries
from using the utility’s name and logo, unless utility customers
are compensated for their fair value. The use of a utility’s name
provides significant marketing advantages to an affiliated electric
company.
III. “Jump-starting” Competition
A. Enhanced “Shopping Credit”
To improve the inadequate competitive structure created by the PSC,
the Assembly Majority proposes to set the “shopping credit”
at a level which enables customers to save by choosing a competitive
supplier and which allows those suppliers to remain financially viable.
The Assembly plan requires the PSC to establish an additional “shopping
credit” of 0.4 cents per kilowatt-hour above the “back-out
rate” already established by the PSC. To improve competitive electricity
options on Long Island, this “shopping credit” also applies
to customers of the Long Island Power Authority. The cost of the “shopping
credit” would be reimbursed to utilities through a credit against
the State sales tax. The supplemental “shopping credit” will
be in effect for two years, the period electricity marketers have suggested
is required to “jump start” the retail competitive market.
B. Uniform Rules for Competition
The PSC’s vision for competition is hampered by varying rules and
schedules for the introduction of competition in each region of the
State. The Assembly Majority proposes a more uniform competitive structure
which allows competitive markets to develop simultaneously statewide
to ensure all customers get the rate relief they deserve.
Specifically, Competition Plus/Energy 2000:
• Implements competition by 2000, without compromising the safety
and reliability of the electricity supply;
• Requires the PSC to establish uniform operating agreements
and uniform rules for utility subsidiaries and affiliates;
• Requires the PSC to examine potential benefits of mergers
between utility distribution companies;
• Continues to regulate the transmission and distribution of
electricity;
• Requires functional separation of the generation and transmission
business; and
• Requires studies by the State Energy Planning Board on the
future of nuclear plants and the transmission system in a competitive
market.
IV. Election of PSC
The PSC’s actions in relation to competition have
treated consumers unfairly. The PSC attempted to implement competition
behind closed doors, shutting out customers. To ensure greater responsiveness
to consumer needs, the Assembly Majority proposes that the PSC be elected,
instead of allowing the Governor to continue to appoint its Commissioners
without any public accountability.
V. Quality Work Force Ensures System
Reliability
A. Maintaining Quality Service
Reliable electric service is essential in a competitive electricity
market. The utilities currently employ a very experienced work force
who are experts in maintaining system reliability. As new power providers
enter the competitive market, the Assembly Majority seeks to ensure
that customers can continue to rely on quality electric service. This
level of service reliability demands that the expertise of the existing
utility work force be fully utilized. The Assembly’s plan protects
electricity workers from unfair job dislocations and honors collective
bargaining agreements.
B. Evaluation of Management Costs
As competitive pressures increase, utilities may resort to additional
labor cost reductions to increase their profits. The Assembly Majority
highlights the need for the PSC to control management costs, instead
of curtailing the utility work force in a manner which could endanger
system reliability and sacrifice quality customer service.
Focusing
the Power Authority’s Mission
VI. The Power Authority
The Power Authority of the State of New York (PASNY) generates
about 25 percent of the electricity used in New York State. The Authority
operates hydropower resources, nuclear plants, and other electric generating
facilities and controls large segments of the transmission system.
Under Competition Plus/Energy 2000, a Power Authority
Restructuring Board will be created to develop a plan that:
• Refocuses the Authority on its original mission of preserving
the State’s natural energy resources by retaining ownership
of the State’s hydro facilities;
• Sells the Authority’s non-hydro-generating and transmission
facilities, placing these generating facilities into the new competitive
market for electric energy. All sales will be contingent upon finding
qualified operators, repayment of the Authority’s outstanding
bonds, and the guarantee that all existing contracts, commitments
and agreements will be honored;
• Administers the Energy 2000 Fund, which will be supported
primarily by the proceeds from the Authority’s sale of its
non-hydro-generating facilities and excess revenues; and
• Supports the transmission system, particularly in areas
(load pockets) where transmission constraints make competition difficult.
Stimulating
High-Tech Job Growth
VII. The Energy 2000 Fund
Based on an examination of the Power Authority’s
asset structure, the Assembly estimates that the sale of the State’s
non-hydro facilities could finance the Energy 2000 Fund with at least
$2 billion. The Fund also would contain the Authority’s excess
revenues from its hydro-electric operations and interest and earnings
on the Fund. Expenditures would be subject to appropriation.
Under Competition Plus/Energy 2000, the Energy
2000 Fund would provide low-interest loans, loan guarantees, or grants
for statewide energy projects that are cost-effective and would lead
to the creation or retention of a significant number of jobs. Such
projects would include: energy efficiency, renewable energy resources,
research and development, the creation of an electricity commodity
exchange in New York State, emission reduction by in-state power plants,
and a worker transition program.
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The Fund would reduce energy costs for consumers
and improve the State’s economic competitiveness. For example,
the Fund would help make energy more affordable for fixed income
households through “weatherization” improvements.
In particular, the Fund would assist businesses in making investments
to improve the energy efficiency of their operations, thereby
making them more competitive and more able to create and retain
jobs.
Jobs also could be created through the attraction
of industries which manufacture components of renewable and
innovative energy equipment, such as solar, wind, and fuel cells.
The Assembly Majority has already passed a bill
to require PASNY to provide $100 million per year for five years
for loans to customers who install energy efficiency and renewable
energy resources. The Energy 2000 Fund would provide additional
resources for these types of programs.
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