ADMINISTRATIVE LAW JUDGE JUDITH A. LEE
TABLE OF CONTENTS
III. PUBLIC INPUT
1. Rate Plan
d. Rate Design
G. Other Issues
- http://www.dps.ny.gov/ConEd_Settlement_A_file.pdf">Settlement document A(3,771,733 bytes PDF)
- http://www.dps.ny.gov/ConEd_Settlement_B_file.pdf">Settlement document B(2,882,642 bytes PDF)
- http://www.dps.ny.gov/ConEd_Settlement_C_file.pdf">Settlement document C(2,356,957 bytes PDF)
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
CASE 96-E-0897 - In the Matter of Consolidated Edison Company of New York, Inc.'s Plans for (1) Electric Rate/ Restructuring Pursuant to Opinion No. 96-12; and (2) the Formation of a Holding Company Pursuant to PSL, Sections 70, 108 and 110, and Certain Related Transactions.
APPEARANCES: See Appendix A
JUDITH A. LEE, Administrative Law Judge:
This proceeding was established to investigate issues related to competitive opportunities for electric service for Consolidated Edison Company of New York Inc. (Con Edison).(1) The Commission encouraged interested parties to attempt to reach a negotiated resolution of the complex issues raised by the transition toward increasing competition, and after considerable efforts, a settlement(2) was reached among certain major parties to this proceeding.
Although there is significant opposition to various parts of the Settlement, the signatories deserve praise for resolving numerous issues in anticipation of expected changes in the provision of electric service. The difficulty of their accomplishment must be recognized and should not be minimized.
The interrelationship of issues being addressed(3) simultaneously at both federal and state levels, the numerous parties with significant financial interests at stake, and the impact that this proceeding will have on the well-being of the State and its citizens all result in an extremely complex situation.
In the soon-to-be-established competitive world, it is imperative that electric utilities, such as Con Edison, find ways to accommodate the needs of their customers, both large and small. It is also critical that the Commission ensure fair treatment of potential competitors and ensure continuation of service reliability.
There is great difficulty in crafting solutions to complex problems where conflicting interests are so strong and entrenched. However, a solution which does not sufficiently remove competitive barriers and establish a fair environment for competitors is not optimum. Yet this is the situation which could result if the Settlement is adopted without changes, and the intention of this recommended decision is to offer suggestions for those areas where the parties should make additional efforts to reach an acceptable resolution.(4)
In reviewing the submissions, it is significant to note that staff acknowledges that the Settlement is not complete in that open issues remain,(5) specifically regarding matters involving the New York Power Authority and New York City.(6) Additionally, generic policies being implemented by the Commission with the goal of establishing a robust competitive market have not been considered in the parties' negotiations. In light of this, additional discussions among all interested parties are recommended.
Due to the careful balancing necessary in crafting any negotiated solution, particularly one of this complexity, the parties themselves should renew their work toward accomplishing a settlement that more fully complies with the Commission's vision and goals for the future regulatory regime.(7)
Opinion No. 96-12(8) required Con Edison, among other utilities, to file a proposed plan for rate/restructuring, no later than October 1, 1996. The Commission asked the utilities to address in their filings the following matters: (1) the utility's structure for both the short and long term; (2) a schedule for retail access and a set of unbundled tariffs; (3) a rate plan including mechanisms to reduce rates and address strandable costs; (4) identification of public policy programs needing special rate treatment and mechanisms to recover associated costs; (5) examination of load pockets and proposals to mitigate market power; and (6) a plan for the provision of energy services.(9)
Con Edison's filing was submitted on October 1, 1996,(10) and shortly thereafter the Commission established procedures and a schedule for addressing the filing.(11) The Commission stated that it had a "strong interest in expeditiously negotiated resolutions of the individual utility filings" and expressed its explicit preference for a negotiated resolution over a litigated outcome.(12) To further that goal, the notification procedures of the Commission's settlement guidelines were waived.(13)
The Commission also stated that it was desirable to allow an opportunity for interested parties and the public to participate. Accordingly, the Commission set a 90-day period for discovery on and analysis of the filings, and for settlement negotiations; and a subsequent 60-day period for closing the record if a settlement by major parties was reached.(14) The 90-day period was subsequently extended by a series of notices issued by the Secretary at the Chairman's direction.(15) Finally, on March 11, 1997, dates were set for a settlement to be filed by March 13, 1997 and for procedures to be followed to test the reasonableness of a proposed settlement.(16)
In accordance with this schedule, a Settlement dated March 12, 1997, was filed by Con Edison.(17) Statements and prefiled testimony supporting the Settlement, due March 25, 1997,(18) were filed by Con Edison; Department of Public Service staff (staff); New York State Department of Economic Development (DED); the Utility Workers Union of America, AFL-CIO, Local 1-2 (Utility Workers); Owners Committee on Electric Rates (Owners Committee); and Cogen Technologies Linden Venture, L.P. (Cogen).(19)
Statements and prefiled testimony in opposition to the Settlement, due April 9, 1997, were filed by American Association of Retired Persons (AARP); Cogen;(20) New York State Consumer Protection Board (CPB); Coordinating Housing Services, Inc.; State of New York Department of Law (DOL); In-Novo Engineering and Development Company (In-Novo); Independent Power Producers of New York, Inc. and Enron Capital & Trade Resources (IPPNY/Enron); Joint Supporters; National Association of Energy Service Companies, Inc. (NAESCO); New Energy Ventures, Inc. and Entek Power Services, Inc. (New Energy Ventures/Entek); New York City (NYC); New York City Transit Authority (MTA Intervenors); New York Energy Buyers Forum et al.;(21) New York Power Authority (NYPA); Prudential Securities Incorporated (Prudential); Public Interest Intervenors;(22) Public Utility Law Project of New York, Inc. (PULP); Retail Council of New York (Retail Council); Strategic Power Management; Travelers Group, Inc. (Travelers); Wheeled Electric Power Company (WEPCO); and Westchester County.(23)
Rebuttal statements and prefiled testimony, due April 18, 1997, were filed by Con Edison, staff, Owners Committee, and New York Energy Buyers Forum et al.(24)
Evidentiary hearings were held in New York City from April 30 through May 5, 1997, in accordance with a notice issued March 20, 1997.(25) The evidentiary record in this proceeding consists of 2,769 pages of transcript(26) and 46 exhibits.
Post-hearing briefs, due May 13, 1997, were filed by the following proponents of the Settlement: Con Edison; staff; Multiple Intervenors; DED; and Utility Workers. The following opponents of the Settlement filed briefs: AARP; CPB; New York Citizens Utility Board (CUB); In-Novo; IPPNY/Enron; Joint Supporters; NAESCO; New Energy Ventures/Entek; NYC; New York Energy Buyers Forum et al.;(27) NYPA; Prudential; Public Interest Intervenors; PULP; Retail Council; Travelers; WEPCO; and Westchester County.
Finally, by notice to the parties, issued May 27, 1997, the Commission decided that a recommended decision would be issued in this case, after which there would be a 35-day period for exceptions and replies.(28)
III. PUBLIC INPUT
Through two series of educational forums and pubic statement hearings,(29) along with correspondence both by hard copy and electronically, considerable input from the public was received.
Many consumers expressed skepticism and confusion about the complex new world of competitive opportunities for electric service, while some customers questioned how they would benefit specifically in terms of lower rates. Still others set forth their concerns about potentially negative environmental impacts.
Through informal comments at the ten educational forums, and in letters, telephone calls to the Commission's opinion line, and comments on the Commission's home page on the World Wide Web, approximately 260 individuals, including representatives of residential groups, small businesses, local economic development agencies, and weatherization and conservation groups, provided input on the Settlement and expressed their thoughts generally about competitive opportunities for the provision of electric service. The most common concerns expressed included: the proposed rate decreases for residential and small business customers are too low, with some consumers advocating across-the-board rate reductions, and others claiming that affordable electricity is not ensured for low-income consumers; the phase-in period for retail access is too long; the proposed delivery charges are anticompetitive; incentives for environmentally sound power should be included; and a disproportionate share of stranded costs would be charged to ratepayers.
At public statement hearings held in November and early December, 1996, consumers were asked to provide input about competition in general, and specifically regarding Con Edison's filing of October 1, 1996. Some of the points raised included: concerns about the future treatment of low-income customers, senior citizens, and disabled people; the need for additional education about the issues raised and for better publicity about the hearings and forums; concerns about competition in the telephone industry; and the importance of programs supporting energy efficiency, renewable resources, and weatherization.(30)
In May 1997, public statement hearings were also held concerning the reasonableness of the Settlement. Each hearing was held immediately following an educational forum; the forums and hearings were held in White Plains, Staten Island, Manhattan, Brooklyn, and Queens. A total of 26 members of the public spoke at the hearings, and most of them opposed the Settlement in every respect.(31) Among the speakers were Brooklyn Borough President Golden, representatives of Borough Presidents Ferrer and Shulman, and State Assembly members Mark Weprin (Queens) and Sandy Galet (Westchester). A majority of the other speakers were commercial customers, including real estate cooperatives, and consumers who assert the Settlement should be modified in a variety of ways aimed at improving the environment.
One key theme expressed was that the achievement of retail access and broad customer choice is deferred for too long under the Settlement (to 2002) in comparison with the Commission's prior commitment to an early-1998 deadline and requirements in other states. Several retail establishments, including shopping centers, grocery stores, and shoe stores, explained at length why they believed retail access should be expedited.
The projected overall revenue decreases were also considered inadequate given Con Edison's relatively high rates, while several speakers considered the allocation of the revenue decrease unfair. Commercial and residential customers complained about the relatively small decreases they expected in comparison with the 25% decrease proposed for industrial customers. Speakers also raised questions about the reasonableness of methods to be used to ascertain the level of strandable costs and the small share of strandable costs to be absorbed by Con Edison's shareholders.
Other speakers, including members of the Sierra Club or those affiliated with the New York Energy Efficiency Council, expressed concerns about the proposed rate design, contending that the Settlement contains insufficient support for demand side management programs, and insufficient support for a variety of tax, rate design, and other incentives aimed at increased reliance on renewables and less fossil fuel generation.
Numerous miscellaneous comments were offered as well. Speakers questioned whether competition will actually benefit customers, expressed support for and opposition to time-of-day rates, favored job security for Con Edison's employees, supported competition of the metering and billing and collection functions, opposed the gradual phase-out of some economic development rate offerings, and requested minority representation in the electric reliability council and in the distribution of new business in a competitive energy market.
IV. SUMMARY OF RATE/RESTRUCTURING SETTLEMENT(32)
The Settlement, dated March 12, 1997, was signed by Con Edison, Department of Public Service staff, New York State Department of Economic Development, Multiple Intervenors, Association for Energy Affordability, Owners Committee on Electric Rates, Inc., U.S. Generating Company, Cogen Technologies Linden Venture, L.P., and Utility Workers Union of America, AFL-CIO, Local 1-2. The term of the Settlement is five years (until March 31, 2002).
The Settlement provides for a cumulative revenue reduction of $655 million. For large industrial customers, there will be an immediate 25% rate reduction. For commercial and general service customers, there will be a 10% rate reduction over the term of the Settlement. For residential customers and smaller businesses, there will be a 3.3% rate reduction over the term of the Settlement.
Common equity earnings in excess of 12.9% (net of any shortfalls below 11.9% from prior rate years), will be shared, with 50% being retained by shareholders, 25% being applied to benefit customers, and 25% being applied to reduce (as depreciation expense) generation plant balances.
For retail competition, there is a five-year phase-in with full retail access at the end of 2002. Full retail access could also be reached earlier, within 24 months after a fully operational independent system operator (ISO) is established. A capacity and energy retail access program for up to 500 MW will begin no later than 12 months after Commission approval of the Settlement. Retail access is initially limited to 10 to 15 large time-of-use customers. The program will be expanded by 500 MW beginning with the establishment of a fully operational ISO or April 1, 1999, whichever is later. In April, 2000 and in each subsequent April, retail access will be expanded by 1000 MW or more. By January 15, 1998, unbundled tariffs will be available for all classes of customers, to become effective April 1, 1998.
In order to ensure system reliability, the Settlement requires that for in-City load, load serving entities must contract for generation capacity from in-City sources equaling 80% of the peak load to be supplied.
Over the five-year Settlement period, depreciation on fossil plants will be accelerated by $350 million and on nuclear plants by $9 million so as to minimize strandable costs. Con Edison is permitted to recover 90% of the above-market IPP contract costs and could reduce its risk for 10% of above-market IPP contracts costs or $300 million in 2002 dollars, whichever is lower. The potential IPP disallowance can be offset by IPP contract mitigation during the five-year period and 10% of the gross proceeds from the sale of generating assets. After the five-year period, recovery of strandable costs is through a non-bypassable wires charge.
There is a non-bypassable system benefits charge to fund required environmental and public policy programs, including demand side management, research and development, and low-income programs. The level of funding for these programs, built into the rate plan, is about 1 mill per kWh, through October 1999. The Settlement provides that this is subject to future modification by the Commission upon resolution of system benefits charge issues generically.
Con Edison will form a holding company subject to shareholder and regulatory approvals. The holding company may form subsidiaries, including an energy service company (ESCO). Within the regulated company, generation will be functionally separated from transmission and distribution.
Con Edison will divest at least 50% of its in-City fossil-fueled generating capacity to third parties no later than the end of 2002. Further, within a year of approval of the Settlement, Con Edison will submit to the Commission a divestiture plan, with the objective of divesting and transferring all plants, except Indian Point No. 2 and its associated gas turbines, to unregulated entities, including third parties and affiliates.
The Settlement includes specific provisions regarding nuclear plants: as to fixed costs, they are in rate base during the five-year period; after five years, they are to be recovered over a period no longer than the expiration of the term of the license of the Indian Point No. 2 nuclear plant in 2013. As to on-going costs, they are expensed during the five-year period; after that time, customers are to pay. It is anticipated that when the independent system operator assumes control of energy dispatch, the parties will revise the framework of the fuel adjustment clause (FAC).
Financing savings from potential securitization legislation will be used to reduce rates for residential and smaller business customers.
V. OVERVIEW OF MAJOR POINTS RAISED BY PARTIES(35)
In general, proponents of the Settlement state that the Settlement represents a reasonable balancing of interests by normally adversarial parties; furthers the Commission's vision for the future regulatory regime; and includes a commitment from Con Edison to develop a transition process to a competitive electric market in a reasonable amount of time, while protecting utility workers.
Proponents state that the Settlement includes a careful and orderly implementation of retail access for all customers without sacrificing service reliability, along with achievable rate reductions and reasonable stranded cost mitigation. Proponents also emphasize Con Edison's commitment to divesting its electric generation and the separation of its competitive and regulated operations.
While acknowledging a variety of criticisms of the Settlement, proponents consider them not sufficiently serious to warrant outright rejection, yet sufficient to dismantle the Settlement if accepted.(36) Staff points to the "enormous work ahead" in state and federal arenas to smoothly implement competition in generation and energy services.(37)
Opponents of the Settlement generally claim that the Settlement did not satisfy the Commission's vision and goals as expressed in Opinion No. 96-12.
A variety of concerns were raised about the Settlement, including the following: (1) the rate reductions are inadequate and improperly allocated among customer classes; (2) the retail access program is implemented too slowly and the transportation/ delivery charge component is not consistent with the opening of a competitive market; (3) the requirement that 80% of generation capacity continue to be located within New York City is too high; (4) the stranded cost recovery plan assesses too much of a financial burden on ratepayers and places an insignificant burden on shareholders; (5) the funding for environmental and public policy programs is too low to be consistent with the Commission's vision; (6) the divestiture plan and affiliate transaction protections are inadequate to address market power concerns, especially since the service territory is a load pocket; (7) the customer service protections are contrary to law; and (8) NYPA's government customers and Economic Development Delivery Service (EDDS) customers are not treated appropriately.
Most of the opponents are concerned that customers will not receive sufficient benefits of a competitive electric market for generation and energy services if the Settlement is approved and implemented.
The standard used to test the reasonableness of any proposed settlement is as follows:
a. A desirable settlement should strive for a balance among (1) protection of the ratepayers, (2) fairness to investors, and (3) the long term viability of the utility; should be consistent with sound environmental, social, and economic policies of the Agency and the State; and should produce results that were within the range of reasonable results that would likely have arisen from a Commission decision in a litigated proceeding.
b. In judging a settlement, the Commission shall give weight to the fact that a settlement reflects the agreement by normally adversarial parties.(38)
This standard has been previously used to judge proposed settlements involving matters of significant complexity.(39)
It is not surprising that under the circumstances of this proceeding, proponents and opponents argue with equal fervor that the test for approving or disapproving the Settlement has "clearly" been met. The key to the Commission's standard is that an appropriate balance of competing interests must be accomplished, in order to ensure the resultant Settlement is truly in the public interest. There are many varied ways in which to reach an appropriate balance within the context of any settlement.
In the context of a rate/restructuring plan designed to implement the Commission's expectations regarding competitive opportunities for the provision of electric service, the proper balance will aim to accomplish the following goals: (1) result in a fair distribution of costs; (2) sufficiently remove competitive barriers; (3) establish and maintain a fair environment for competitors;(40) and (4) ensure customer protections. Meeting these goals should result in greater availability of competitive alternatives, a maximization of the effectiveness of competition, and a minimization of any harmful effects. These goals will be used to evaluate the Settlement.
Furthermore, in accordance with the Commission's standard for reviewing settlements, this recommended decision focuses only on fundamental areas of concern, and refrains from offering suggestions that may result in only minor improvements to the Settlement.
Consistent with the Commission's organization of significant issues in Opinion No. 96-12, the issues raised by the Settlement are addressed in the following order: competition in general (including the rate plan and retail access program); system reliability; strandable costs; environmental and public policy programs; market power/corporate structure (including divestiture of assets and affiliate transaction protections); and obligation to serve (including matters related to energy service companies and consumer protections). Other issues, including specific provisions in the Settlement with unique applicability to customers in the Con Edison service territory, are addressed at the end of this section.
The Commission has emphasized that customers should benefit from lower rates under a competition regime as opposed to a regulatory one.(41)
The Settlement provides for rate reductions for all classes of customers, with a total revenue reduction of $655 million.(42) Industrial customers will receive a 25% reduction immediately, while commercial and general service customers will receive an average bill reduction of 10% over the five-year term. Residential and smaller businesses will receive an average bill reduction of 3.3% over the five-year term.(43) The Settlement also allows earnings in excess of a 12.9% return on equity to be shared in the following way: 50% will be retained by shareholders; 25% will be credited to customers; and 25% will be used to write down generation assets.
The Settlement's achievement of lower rates is addressed in this recommended decision in terms of the amount of the rate reduction, return on equity, revenue allocation, and rate design.
Many parties claim that the proposed rate reduction is insufficient.(44) For example, CPB asserts that there should be an immediate five percent rate reduction across all customer classes based on its proposed adjustments.(45) IPPNY/Enron claims that about 20% of the rate reduction would have occurred even without the Settlement, because of discounts for payments as part of a contract between Sithe Energies, Inc., and Con Edison.(46) NYPA also contends that a significant portion of the rate reductions would have occurred anyway as a result of the 1994 rate case agreement.(47)
Proponents of the Settlement argue that no party has specifically identified additional savings. Staff claims that it has thoroughly scrutinized the utility's operations and the cumulative savings of $655 million is consistent with its careful examination.(48)
The amount of the rate reduction is supported by the record and appears to be reasonable under the circumstances,(49) given staff's close examination of potential additional sources of revenues and cost savings.(50) As staff states, the record does not include any specific alternative analysis of Con Edison's operations showing where additional reductions could reasonably come from. Although consumers would prefer rates to be lower, it would be speculative to conclude that rates must be reduced by a greater amount, without a specific source of the reduction supported by record evidence.
Some opponents claim that customers should receive a greater percentage of the return on equity sharing. CPB states that the equity return should be no greater than 10%,(51) and Westchester County agrees.
Proponents respond that the financial parameters of the Settlement are reasonable. Con Edison states that a 10% return on equity is not in line with allowed returns nationwide and would result in "implicit spreads over bond yields that are understated by objective standards."(52) Con Edison points to the need for a financially strong utility for there to be a smooth transition to competition.(53)
Staff states that under the Settlement's terms, Con Edison is provided "a reasonable opportunity to earn an allowed return on common equity in the range of 10.3 to 11 percent."(54) According to staff, this range is adequate for the maintenance of Con Edison's financial integrity and is also consistent with risks expected to be incurred as competition emerges.
The return on equity contained in the Settlement is reasonable under the circumstances, as is the sharing mechanism. These provisions appear to represent a balanced approach incorporating economic and financial considerations. While certainly the goal of any settlement is to improve the situation for consumers in the form of lower rates, there is also an obligation to ensure that a return on equity is sufficient to preserve the financial integrity of Con Edison. Any other result would not be appropriately considering "the long term viability of the utility," which is one of the factors a desirable settlement should aim for.(55)
Some parties claim that the revenue allocation under the Settlement unfairly benefits only certain large customers.(56) They cite to the large disparity between reductions for large industrial customers and small residential customers as evidence of a general unfairness in outcome. Some also assert that the Settlement should have done more to address the problem of high residential rates.(57)
Proponents, however, claim that the revenue allocation is consistent with the goal of economic development(58) and results in all classes covering their marginal costs.(59) Proponents state that an even allocation of revenues across all service classification results on a 4.6% decrease,(60) which is not a significant difference from the 3.3% allotted to residential customers under the Settlement's terms. Staff also points to the treatment of any future decreases due to securitization legislation (which will flow to residential and smaller business customers) as negating any perceived differences among classes.(61)
The Commission's long-standing objective has been for prices to more fully reflect actual costs. Since the cost of serving residential customers has generally been subsidized by large industrial customers, the disparity in the rate reductions for different customer classes can be seen as an attempt to correct that imbalance. Given that the goal is to eliminate subsidies across customer classifications, it is reasonable for the Settlement to seek to correct the disparity, and at the same time strive to accomplish the economic development goals the proponents favor.
The record in this proceeding can support the Settlement's rate reductions of 25% for industrial customers, 10% for commercial customers, and 3.3% for residential customers. However, it would be preferable, even in light of the policy goals encouraging economic development, for the gap between reductions for industrial customers and residential customers to be smaller than it is under the Settlement, resulting in a more gradual correction in rate disparity. The difficulty inherent in this situation is that the record shows that with an overall rate reduction of $655 million, an even allocation would be only 4.6% for all customers. So that a gradual correction to the rate disparity can be accomplished and non-industrial customers can receive greater rate reductions, the parties should renew their discussions aimed at a resolution that ensures a more moderate difference in the rate reductions between industrial, commercial, and residential customers.
As to the Settlement's treatment of the impact of future securitization legislation, this should not be relied upon to support the disparity between rate reductions for industrial customers and other customer classifications. The Legislature may decide to include in any future legislation a variety of provisions that may or may not comport with the preferences of the signatories to this Settlement. Dependence on potential future legislative action as a justification for the differences in the proportion of the rate reduction is thus not appropriate.
The Settlement incorporates rate design principles that have previously been in place.(62)
Alternative rate designs are proposed by IPPNY/Enron and others. IPPNY/Enron argues that a complete revision of the current rate design is required because the rate design proposed in the Settlement, which is generally consistent with the rate structure that has been in place in the past, is anticompetitive in that it does not allow efficient competition and consumer choice to develop.(63) CPB, however, is concerned that IPPNY/Enron's rate design proposals would result in significant burdens on residential and small commercial customers.(64) In-Novo claims that certain rate design revisions in the Settlement would thwart the competitive development of on-site generation.(65)
Certainly parties will have different perspectives on how rates ought to be designed, which can be supported by various economic theories. As long as prices are aimed toward reflecting costs, a particular rate design approach may be found to be in the public interest. Additionally the design of rates should not thwart competition entirely by resulting in complete barriers to entry and totally skewed playing fields.
Overall, the rates as designed in the Settlement meet the test of being in the public interest and are supported by the record in this proceeding.(66) They are not in and of themselves anticompetitive, in that they cannot be said to benefit only Con Edison to the detriment of all potential competitors.(67)
The Commission stated that the benefits of moving toward retail access outweigh the risks, and that "the movement to increased competition should, at the onset, be designed to accommodate retail access in such a way as to maintain bulk system reliability and avoid 'rate shock' for any customer class."(68) The Commission also stated that while simultaneous retail access is preferable, temporary limitations "at the start for administrative or practical reasons" may be unavoidable, but will need to be justified by the utilities proposing such limitations.(69)
The Settlement provides for a retail access program,(70) with a capacity and energy program for up to 500 MW beginning no later than 12 months after Commission approval of the Settlement.(71) The program will expand by 500 MW either when a fully operational ISO is established or by April 1, 1999, whichever is earlier.(72) The program will be expanded by 1000 MW or more in April 2000 and in each subsequent April, with the result that retail access will be available to all customers either 24 months after the implementation of a fully operational ISO or by the end of 2002, whichever is earlier.(73) The Settlement points to the lack of significant actual experience with retail access and states that flexibility to change the program schedule described above is essential.(74)
Opponents assert that the schedule for full retail access is much too slow.(75) IPPNY/Enron argues that retail access should be afforded to all customers no later than April 1999, because there are no technical impediments to prevent this. IPPNY/Enron points to testimony by Con Edison, asserting that the utility itself admitted that retail access could technically be implemented much quicker than the Settlement provides, and specifically within about two years.(76)
Proponents assert that the phase-in procedure is carefully crafted to ensure reliability and results in a transition to a competitive market within a reasonable timeframe.
While some parties assert that a quicker movement toward retail access is preferable from their perspective, the Commission was aware that there may be administrative or practical reasons for certain limitations. In this situation, moving deliberatively toward retail access is advisable, considering the numerous risks connected with a rapid transition. The record in this proceeding supports the phase-in schedule proposed in the Settlement, and significant harm resulting specifically from the retail access phase-in schedule has not been demonstrated. The availability of full retail access for all customers by either 24 months after the establishment of an independent system operator or by the end of 2002, whichever date is earlier, is a reasonable timetable under these circumstances. At this point, the Federal Energy Regulatory Commission has not yet decided issues related to New York's independent system operator, and decisions by that agency, along with other events, will have an impact on the speed by which New York's competitive agenda can proceed.(77)
Considerable concern is expressed about the transportation/delivery charge component of the retail access tariff.(78) Specifically, parties perceive the energy backout provision to be too low to attract meaningful participation in the retail access program, and would prefer to back out more capacity costs. Several parties consider the backout credit to be significantly flawed.(79)
According to IPPNY/Enron, it is difficult to set a price for the generation backout credit because a generation market is not yet in existence; however, IPPNY/Enron claims the backout credit must represent that minimum going forward costs and the value of reliability.(80) IPPNY/Enron emphasizes the need to set this rate in such a way as to promote efficient competition.
IPPNY/Enron states that the Settlement contains "a too low price for its competitors and a too high price for Con Edison's customers."(81) IPPNY/Enron's alternative proposal is to adjust the rate upward by 25% before an independent system operator is established.(82)
This is the only part of the Settlement that Strategic Power Management objects to. Strategic Power Management proposes an alternative charge that it claims should avoid financial harm to Con Edison, result in savings for participants, and avoid cost-sharing by non-participants.(83)
Proponents claim that the charge is appropriate and staff states that it has many reasons to believe that the retail access program will attract many participants, pointing to the fact that two potential competitors signed the Settlement (Cogen and U.S. Generating Company).(84) According to staff, the fundamental principles used to develop the backout mechanism (that the best market evidence or a reasonable proxy should be used, and that there should be no subsidies) are sound.(85) Multiple Intervenors asks for clarification that the transportation/delivery charge is not applicable to NYPA's current economic development power (EDP) customers.(86)
Although, as staff points out, two of Con Edison's potential competitors signed the Settlement, many others, including the trade organization representing many independent power producers, actively oppose it, arguing that the backout rates will deter competitive entry.
It is impossible to envision a successful competitive market if competitors are not permitted entry. If the backout rate is set too low, Con Edison will be advantaged and will more easily retain a monopoly in the generation sector.
The evidence in the record establishes persuasively that the backout credit is set too low to result in fair competitive entry into the market. By relying on the buy-back energy rates to set the backout credit, the Settlement purports to be defining the projected market price of energy in the short term. I am persuaded by IPPNY/Enron's position that the backout credit in the Settlement is less than the actual avoided energy costs,(87) and this unduly disadvantages potential competitors to the benefit of Con Edison.
The result is a price that appears to be excessive for consumers. This matter is especially important in the beginning of competition, as the price will set the stage for a future market in New York State. The parties would be well advised to consider reasonable alternatives that will result in efficient competition and will not unduly disadvantage potential competitors. The appropriate price may well be different before and after the establishment of an independent system operator, due to the changes to the market that are expected to result in conjunction with this event. If the parties are unable to develop an appropriate backout credit for the period after the establishment of an independent system operator, they may wish to leave an opener in any revised Settlement, providing for a specified period of time to accomplish this.
Related to the development of the backout credit is the definition of going forward costs or "to go" costs. At the evidentiary hearings, it became apparent that the absence of a definition in the Settlement of "to go" costs resulted in some confusion and possible different interpretations by Con Edison and staff.(88) In any renewed settlement negotiations, this matter should be discussed and clarified, so that the elements to be included are not left up to Con Edison's interpretation.
Finally, the intent of the provision in the Settlement referred to by Multiple Intervenors(89) clearly appears to be to exclude NYPA EDP customers from this charge, whether there is purchase of NYPA power pursuant to a currently effective contract, a renewal, or a new contract.
The Commission emphasized the need for continued high levels of reliability of the bulk electric system and pointed to the need for "a properly designed and functioning independent system operator" to ensure this.(90)
The Settlement includes a requirement that capacity equaling at least 80% of the in-City peak load be located within New York City, in order to maintain reliable electric service.
This requirement was contested by New York Energy Buyers Forum et al., and others. According to testimony and argument by IPPNY/Enron and New York Energy Buyers Forum et. al., a requirement for in-City generation of more than 65% to 70% is not supported by the record.(91) IPPNY/Enron claims that a 65% to 70% requirement is a reasonable interim level, which can be re-examined subsequently by an independent system operator after it is established.(92)
Proponents claim that the 80% requirement is needed to prevent deterioration in reliability, a matter that is of great importance to customers.(93) Con Edison relies on Stone & Webster's reliability analysis to support the 80% in-City generation capacity requirement.(94) Staff states that the in-City capacity requirement is justified, pointing out that this provision is only applicable in the beginning of the retail access program (since it is expected to be replaced by ISO governing rules). Staff also believes Con Edison's study supports the in-City requirement.(95)
Although system reliability is certainly of paramount importance, it is not clear from the record that continuing the 80% requirement for in-City generation capacity is essential to maintain reliability in the beginning of a competitive market.
Testimony presented by New York Energy Buyers Forum et al. is convincing that there are flaws in the Stone & Webster study. The criticism of certain assumptions made in the study and the need for consideration of alternative assumptions and input variables lead New York Energy Buyers Forum et al. to make the reasonable suggestion that there should be an analysis conducted by an independent task force.(96) This is particularly persuasive when one realizes that continuing the 80% requirement benefits Con Edison, on whose behalf the Stone & Webster study was prepared. It is essential that the Commission know whether a slightly lower in-City revenue requirement would have an insignificant impact on reliability. There may also be other ways to ensure the continuation of high levels of reliability which result in fewer barriers to entry to the New York City market. For example, the addition of transmission capacity would also presumably reduce the need for 80% in-City capacity.
The problem with the 80% requirement is that it has the potential to cause serious market power concerns. Although it merely continues a current reliability requirement, it does result in a possible barrier to competition because there are difficulties for new entrants to locate in New York City.
Even though, as staff points out, the 80% requirement would be applicable only until the ISO governing rules are in place, it is important that the Settlement send the correct signal to potential suppliers that they are encouraged to serve New York City customers and there are no significant barriers to entry, especially at the beginning of the competitive market. The parties should discuss acceptable ways to remedy this part of the Settlement. There may be a variety of reasonable resolutions, such as a provision that slightly lowers the requirement until the ISO governing rules are in place or agreement to arrange for an analysis performed expeditiously by an independent consultant.
The Commission stated that recovery for strandable costs (or "those costs incurred by utilities that may become unrecoverable during the transition from regulation to a competitive market for electricity"(97)) is ultimately dependent upon individual utility circumstances.(98) The Commission stated that strandable investment must be prudent(99) in order to be eligible for rate recovery, and that a recovery mechanism might be assessed to customers via a charge by the transmission and distribution company.(100)
The Settlement initially deals with strandable costs by accelerating depreciation on fossil and nuclear plants by $350 million and $9 million, respectively, over the five-year Settlement period. Con Edison would be allowed recovery for 90% of its above-market IPP contract costs and could reduce its risk for either 10% of above-market IPP contract costs or $300 million in 2002 dollars, whichever is lower. Additionally, the potential IPP disallowance can be offset by IPP contract mitigation during the transition period and 10% of the gross proceeds from the sale of generating assets.(101) After the five-year period, recovery of strandable costs would be permitted through a non-bypassable wires charge.
Opponents are concerned that the Settlement results in almost all of the potential stranded costs being paid for by ratepayers.(102) Estimates of stranded costs range considerably, as do the potential impact on rates due to different recovery scenarios.
Proponents assert that the Settlement reasonably balances the responsibility for stranded costs between shareholders and ratepayers. According to Con Edison, write-offs of prudent investment would result in a much higher cost of equity and would not result in fair treatment of equity investors. Con Edison emphasizes the harm caused by write-offs to investors, ratepayers, and the service territory.(103) Also, according to Con Edison, "the potential for further mitigation of NUG contracts is very limited, in light of the steps already taken. The settlement agreement puts the recovery of a significant portion of the remaining stranded NUG costs at a reasonable degree of risk unless such costs are further mitigated."(104)
The issue of strandable cost recovery is very contentious. This may well be one of the compromises inherent in achieving a negotiated resolution of this proceeding, which the Commission has stated is its explicit preference.(105)
The benefit of reaching a negotiated resolution in this proceeding is that full litigation, which is likely to be extremely contentious, time-consuming and costly, is avoided. Litigation of issues related to strandable costs could well be protracted, causing delays in the transition to a competitive market. A negotiated resolution is more likely to result in the implementation of more creative solutions to the complex dilemmas presented.
Litigation would result in the calculation of the amount of recoverable stranded costs, with factual disputes being addressed at evidentiary hearings. In a litigated case, Con Edison would be entitled to present its case and make arguments showing why it would be reasonable for the Commission to allow recovery of specific costs, in accordance with the Commission's requirements.(106) The appropriate recovery period would also need to be examined.(107) Finally, the impact of recovery of stranded costs on rates for each customer class would need to be made part of the evidentiary record.
Since the Commission's preference is for a negotiated resolution of rate/restructuring issues, a wide range of outcomes regarding strandable costs is possible, depending on compromises made by the parties. The Settlement's resolution of this matter is not inconsistent with the Commission's statements in Opinion No. 96-12, and while ratepayers may prefer that shareholders absorb more of the costs, the Commission did not mandate a particular outcome under all circumstances. The Commission explicitly left the resolution of strandable costs up to the individual utility cases, and, under these circumstances, the record in this proceeding supports the resolution reached by the parties.
The Commission stated that a system benefits charge should be put in place during the transition to retail competition, to provide a funding source "for public policy initiatives that are not expected to be adequately addressed by competitive markets."(108) According to the Commission, this charge should be set initially at about "the level of current utility expenditures, with the expectation that these charges will be closely scrutinized with respect to their impacts on rates."(109)
The Settlement provides that about 1 mill per kWh will be spent, on average, through October 1999 on the following programs: research and development, energy efficiency, low-income, and environmental protections.(110) This funding is built into the rate plan and is subject to a future decision by the Commission in the generic system benefits charge proceeding.(111)
Some opponents (most notably Public Interest Intervenors and the National Association of Energy Services Companies, Inc.) assert that adequate funding for environmental and public policy program should be set at 1.5 mills per kWh for the five years of the Settlement. CPB claims that these programs should be funded at 1995 levels.(112) New York City claims that under the Settlement, energy conservation programs receive cuts that are too severe.(113) As a separate matter, NYPA objects to being subject to system benefits charges for environmental protection and low-income program costs.(114)
Proponents contend the level set for the system benefits charge is sufficient under the circumstances of the case. Although reductions in spending for these programs will result, proponents claim that the reductions are reasonable given the market changes occurring. Con Edison emphasizes that under the Settlement, "consumers who benefit from energy efficiency will pay its cost directly."(115) Con Edison also claims that with increased participation by competitive providers of demand side management services, utility spending levels should be reduced accordingly. Con Edison states that the objectives of demand side management programs, in conserving energy and minimizing future need for generation resources, will continue to be met by the combined efforts of energy service providers and utility programs.(116) Finally, in response to NYPA's request that it be excluded from being subject to charges for environmental and low-income programs, Con Edison responds that the intent of the Settlement was to make the system benefits charge generally non-bypassable, and thus NYPA should only be excluded from generation-related costs.(117)
Multiple Intervenors expresses a strong concern about any increase in funding levels over the Settlement amount because of the resultant rate impact. Multiple Intervenors also questions what the specific expense levels would be for demand side management, research and development, and low-income programs if funding were to be increased to 1.5 mills per kWh.(118)
As to the proper amount of the system benefits charge to cover public policy programs not addressed currently by the market, there is a persuasive argument that funding should be higher than the 1 mill per kWh in the Settlement, in order to support needed programs during the transition to a competitive environment until the market will fund them. This is arguably consistent with the legislative mandate contained in the Public Service Law.(119) A higher level of funding may be needed to be consistent with the Commission's expectation in Opinion No. 96-12, which states that the system benefits charge would initially be set at approximately current levels and scrutinized as to the resultant rate impact.(120) It does appear that 1.5 mills per kWh could be appropriately spent on needed environmental and public policy programs, but the record is not fully developed regarding how this money would be spent and whether this would result in a minimal increase on bills overall when compared with the Settlement's 1 mill per kWh.
However, the record also supports the Settlement's resolution of this matter, especially because it leaves open the possibility for modification due to a future Commission decision addressing system benefits charge issues generically.
As part of any renewed negotiations, the signatories should engage in an open dialogue with the Public Interest Intervenors and all other interested parties, in a further attempt to arrive at a resolution that is satisfactory to all concerned, consistent with the explicit provision contained in Public Service Law and the Commission's expectation set forth in Opinion No. 96-12.
The Commission strongly encouraged divestiture of generation and energy services assets, particularly of generation. It stated that "incentives for divestiture should be worked out individually" for each utility.(121) The Commission also stated that the parties should "pay particular attention to market power concerns" in the downstate area because of transmission limitations.(122) Mitigation methods and other innovative solutions to protect ratepayers were expected to be analyzed by parties.(123) Where divestiture of generation was not proposed, the Commission asked that there be "effective mechanisms that adequately address resulting market power concerns."(124)
The Settlement provides for divestiture of at least 50% of its in-City electric generating fossil-fueled capacity by the end of 2002. A divestiture plan is required to be submitted by Con Edison, within one year of Commission approval of the Settlement, for Commission approval or modification.(125)
New York City, among other parties, states that the Commission should require Con Edison to develop a more definitive divestiture plan in less time. According to New York City, a year is far too long for the development of a divestiture plan for a utility such as Con Edison which is located in a load pocket. Concerns about resultant market power and anticompetitive behavior are paramount for these parties.
Proponents emphasize the reasonableness of the divestiture requirements, pointing to the provision allowing the Commission to modify the plan as deemed necessary to address future concerns about market power. Con Edison claims that the provisions of the Settlement "will facilitate the development of a competitive electric market in the Company's service area in a fair and reasonable manner."(126) Con Edison defends the 12-month time period allotted for the proposal of a divestiture plan, characterizing it "as abbreviated as reasonably possible."(127)
Cogen, a signatory to the Settlement, "views divestiture as a quintessential measure to ensuring fair competition and maximizing ratepayer benefits."(128) Although its preference is implementation of "a more aggressive schedule for divestiture," Cogen believes the Settlement's terms should be strictly implemented.(129)
A utility's potential to dominate the power market may be a serious impediment to competition. Divestiture of generation assets is key to a future system where competitors are treated fairly. If assets are not transferred from the regulated company, the Commission and its staff will need to carefully monitor the generation operations to ensure there is no market power concentration.
Con Edison should be put on notice that this Commission has significant concerns about market power in the new competitive world where reliance on a properly established generation market is essential for the benefits of competition to flow to consumers.
The proponents have not convincingly explained how market power concerns will be alleviated through divestiture of only 50% of its in-City fossil-fuel generation by the end of 2002.(130) These concerns can be addressed, however, by an aggressive and thorough divestiture plan, prepared within a short time period and designed to implement promptly the Commission's policy of encouraging divestiture of generation. Waiting a year for such a plan is not reasonable, and Con Edison should be directed to submit a plan within three months of the Commission approval of any settlement.(131)
The Settlement does allow for Commission review of the divestiture study after it is filed, and the Commission could presumably order divestiture of a different percentage of generating plants as a result of this review. However, a prompt submission of such a plan is needed in order to sufficiently allay concerns that unregulated monopoly will not result.
The Settlement provides for the formation of a holding company, which will consist initially of Con Edison (the regulated company) and several unregulated subsidiaries, including an energy service company and an energy supply company.(132) Within the regulated company, there is functional unbundling of the operation of the generation system from the transmission and distribution systems during the five-year term.(133) Specific standards for competitive conduct will govern the relationship between the regulated company and any energy supply and energy service affiliates.(134)
IPPNY/Enron and WEPCO express concerns about anticompetitive behavior resulting from insufficient affiliate transaction protections in the Settlement. The State of New York Department of Law asserts that the formal separation of regulated and unregulated functions would eliminate the potential for self-dealing.(135) Potential competitors are also concerned Con Edison will receive considerable advantages in the absence of complete separation between generation services and transmission/ distribution services.
The proponents point out that the opponents stand to gain financially by a requirement that Con Edison's unregulated affiliates be subject to additional restrictions or prohibitions. Con Edison claims that the Settlement "properly addresses the separation of competitive and non-competitive services in the short and long term, and establishes affiliate transaction rules and standards of competitive conduct reasonably designed to prevent cross-subsidies and anticompetitive conduct."(136)
According to staff, the safeguards in the Settlement fully protect customers and competitors from potential abuses, and an additional study suggested by IPPNY/Enron is unnecessary. Additionally, staff asserts any and all potential transactions between the regulated company and its affiliates need not be prohibited since this would "negate inherent synergies and efficiencies that may benefit Con Edison ratepayers."(137)
The Commission is responsible for ensuring that effective competition exists in order to protect consumers adequately from overreaching and anticompetitive behavior, such as price fixing. As competition commences, it is critical that protections be established and codes of conduct be strictly enforced. While the Settlement's provisions are reasonable in this regard, there are ways that it could be improved to allay potential competitors' concerns.
For example, while Con Edison asserts the importance of flexibility to transfer personnel within the holding company structure,(138) there is an inherent danger in allowing this type of relationship between regulated and unregulated parts of the company. The anticompetitive effect of this type of activity could outweigh the overall potential benefit for Con Edison. This is particularly true at the beginning of a competitive market, as opposed to one that has already been established. The parties should consider other creative ways to add protections to minimize the potential for consumer harm.(139)
In any event, it is inevitable that during the next few years, disputes over fair treatment of competitors will result,(140) and a detailed process for resolving those disputes fairly and expeditiously is critical.(141) Because of the importance of this, in any renewed negotiations, parties should review this section of the Settlement to see if improvements can be made. There may be creative ways, for example, to devise specific alternative dispute resolution mechanisms, including use of mediation and/or arbitration, to result in a system that accommodates the inevitable conflicts which will arise.
As to the separation of generation assets from transmission and generation, functional separation requires considerable regulatory oversight due to the potential for anticompetitive behavior in the form of cross-subsidies and self-dealing. This is certainly less preferable than structural separation during the five years of the Settlement. It is not optimum to rely on staff's ability to monitor the situation during the five-year term of the Settlement to ensure that cross-subsidies and other anticompetitive behavior do not exist with functional separation of generation assets.
Accordingly, because of the importance of establishing a fair environment for potential competitors, if there is no agreement to fully divest generation plants, structural separation of generation from transmission and distribution should be the minimum arrangement the Commission should accept. The difficulty, of course, is that in a settlement, where compromises are made, one cannot suggest a definite modification to a settlement in the abstract, without considering the overall context of the bargaining environment. It should be up to the parties to re-craft the settlement to ensure a corporate structure that treats competitors fairly, and includes, at a minimum, structural separation of generation assets for the next five years.
In Opinion No. 96-12, the Commission stated that the transmission and distribution company should continue to be the provider of last resort, while other options and matters regarding energy service companies are explored further by interested parties.(142) The Commission recently issued an opinion which establishes regulatory policies for the provision of retail energy services.(143) The policies include requirements that the transmission and distribution company remain the provider of last resort, at least for the time being, and in that regard be responsible to accept customers subject to applicable customer protection rules, supply electricity needs, and provide low-income assistance programs as determined by the Commission.(144) Additionally, the Commission stated that energy service companies must agree to provide specific and limited protections as a condition of using transmission and distribution facilities, and only a transmission and distribution company would be allowed to terminate electric service.(145) The Commission also found specifically that all Home Energy Fair Practices Act (HEFPA) provisions were to continue to protect consumers, but that a formal rulemaking would be initiated to consider rule modifications applicable to a provider of last resort.(146)
IPPNY/Enron claims that the unbundling of metering, billing, and information services is needed in order for the Settlement to fulfill the Commission's vision and goals set forth in Opinion No. 96-12.(147) According to IPPNY/Enron, competitive offerings of metering, billing, and information services will result in substantial consumer benefits, in that this will stimulate innovation and lower costs.(148)
Staff responds that all issues related to the provision of electric service by energy service companies, including those regarding metering and billing, are being addressed by the Commission generically.
As to metering issues, the Commission recently decided to approve staff's recommendations in the generic phase of the Electric Competitive Opportunities proceeding.(149) These recommendations appear to be designed to protect ratepayers, continue the safety, reliability, and security of the system, and promote the move to competition.(150) They are as follows: the development of proposals to promote competitive metering is encouraged; large customers are provided the option of owning their own meters; for small customers, the host utility owning the meter is required to add functionality if requested; data about usage and load is required to be available, as long as appropriate privacy protections are maintained (and a charge is allowed for extraordinary requests); enhanced meters will be allowed if additional stranded costs do not result, and third-party leases will be permitted, after review by staff; and Commission regulations are being changed to allow ESCOs to request meter approvals. The reason for approving these recommendations appears to be to assist in the development of a robust competitive market, while technical hurdles are addressed by staff and interested parties during the next 18 months.
Since these recommendations were not approved by the Commission until after the hearings were completed and post-hearing briefs were submitted in this proceeding, parties have not had an opportunity to address specifically the impact of these actions on the Settlement. In any renewed negotiations, parties should take into account the decisions reached by the Commission for the development of a robust competitive market for metering.
Similarly, statewide issues related to billing continue to be investigated by staff and interested parties, and a report on the provision of billing services in a competitive market place is expected to be issued by staff. Thus, it is not possible at this point in time to assess the impact of any generic resolution of billing issues on the Settlement.
The Commission has stated that under the Public Service Law, residential customers are afforded certain protections, and these must continue during the transition to a competitive market.(151) The Commission has also stated that cost-effective and competitively neutral approaches to address the needs of customers facing financial hardship must continue to be examined.(152)
Pursuant to the Settlement, relevant sections of the Commission's rules would be waived in several situations, including where a rule conflicts with Con Edison's ability to require "reasonable proof of [an] applicant's identity as a condition of service."(153) According to Con Edison's testimony in response to questioning by PULP, an oral application for service would be denied under the Settlement if a customer refuses to provide a Social Security number.(154)
DOL is concerned that, if adopted, the Settlement "would mark a backward step for consumer protection," pointing to the waiver of many consumer protections.(155) According to DOL, at a minimum, the Commission should continue existing consumer protections and remain at the nation's forefront in this area.
PULP states that the Commission does not have the authority to waive compliance with a statute, and argues that denial of an oral application because an applicant did not provide a Social Security number violates state and federal law.(156) According to PULP, a change in the rule requires full compliance with the State Administrative Procedure Act (SAPA), which would include an opportunity for the public to be advised that Con Edison intended to deny oral applications for service for failure to provide a Social Security number.
Staff argues that the Commission does have the power to waive its own regulations without a formal rule change,(157) but staff does not explicitly address PULP's legal argument regarding the denial of oral applications for failure to provide a Social Security number.
While staff is correct that the Commission can decide to waive its own rule, the issue raised by PULP appears to be whether the Commission is actually waiving a requirement of federal or state law. The justification in the Settlement for waiving the Commission's rules is to allow Con Edison to implement the rate plan. The legal issue of how to interpret the service application requirements of the Public Service Law along with any federal limitations as to the use of Social Security numbers has not been fully addressed. This should be a subject of briefs on exceptions, so that the Commission can have the benefit of the parties' arguments before a final decision is reached on the legality of this provision of the Settlement.
The Settlement preserves the current low-income program, which includes both a targeted rate component and an energy efficiency component.(158)
According to AARP, low-income customers are not adequately protected by the Settlement and at least $40 million (instead of about $10 million) should be allocated for low-income programs, which is about the amount of money allocated for targeted industrial discount programs.(159) PULP agrees that low-income rates should be adopted that would decrease prices significantly for eligible customers.(160)
Under the circumstances presented, the proposed low-income program is reasonable because it continues the existing funding. The Settlement does address the needs of customers facing financial hardship as competition emerges, consistent with the suggestion in Opinion No. 96-12.(161) It would be different if, under the Settlement, the low-income program was either eliminated or its funding was decreased.
AARP expresses its concern that "procedural short cuts" have effectively foreclosed the opponents' participation, and is especially concerned about the possibility of involvement by Commissioners in the negotiations of the Settlement.(162) AARP points out that questions about such involvement were not allowed at the hearings, after objection by staff and Con Edison.(163)
As to AARP's overall concerns about the compressed pace of this proceeding, the interested parties have been granted a full opportunity to submit any relevant and material facts or argument. All parties had ample opportunities to submit factual matter through testimony and legal argument through statements and briefs; there was also opportunity at the evidentiary hearings for cross-examination of witnesses. Under these circumstances, the process followed to test the reasonableness of the Settlement was sufficient.
The purpose of the hearing procedure is to provide the Commission with an evidentiary record so it can render a final decision as to whether approval of the Settlement is in the public interest. Speculation regarding who participated in the actual negotiations is irrelevant to whether the terms of the Settlement are in the public interest.
Related to these concerns about the procedure followed during the previous part of this proceeding, it is important that any future negotiations involve all interested parties to produce a reworked settlement that takes into account the suggestions made in this recommended decision.
Given the Commission's interest in expedited treatment of these matters, there is a need to set the process in motion as soon as practicable. Accordingly, the parties should be encouraged to negotiate among themselves for 30 additional days. If a revised agreement is reached, an abbreviated schedule should be established, to allow an opportunity for evaluation of any new settlement. The record already established should be used as a basis for further evaluation, and a procedure for supplementing the record for consideration of any revisions to the Settlement that was already subject of litigation should be devised and implemented expeditiously.
This section addresses matters specific to NYPA's government and business customers, to the extent they are treated differently in the Settlement in comparison with other classes of customers.
According to staff, discussions are continuing regarding the following "open" issues:
First, the $9 million increase to NYPA is subject to Commission review of whether and how to implement the increase, and Con Edison's depreciation commitments would be adjusted accordingly should the Commission not implement the increase. Second, the parties intend to leave open for further discussion whether and to what extent Con Edison may charge NYPA for supplying capacity to comply with the locational requirements established by an ISO; the crediting mechanism would remain in place if revenues are obtained by Con Edison and there would be no 'absorption' by Con Edison shareholders.(164)
As to the $9 million increase to NYPA, NYPA states that Con Edison admitted that the cost-of-service study relied on to justify this increase was used "to single out NYPA."(165) NYPA is concerned with its customers being treated differently from non-NYPA customer classes and claims this is completely unjustified. NYPA's review of the cost-of-service study leads it to the conclusion that a delivery service rate increase is unwarranted. NYPA complains that its governmental customers are the only customers to receive an increase under the terms of the Settlement.(166) New York City is also very concerned about the Settlement's impact on NYPA's governmental customers, who it claims would collectively be burdened with millions of dollars of additional costs.(167)
As to the issue of charging NYPA for supplying capacity to comply with locational requirements established by an independent system operator, NYPA claims that this could result in a significant increase for NYPA's government and business customers when all other customers will be paying the same or lower rates.(168)
Apparently these two issues have been highlighted by staff for continued discussion because of their significance to NYPA's customers, who may be considered an important segment of Con Edison's customer base.
Resolution of these issues may impact other interested parties as well, as part of any compromises inherent in negotiations. Thus signatories should not discuss these issues with NYPA alone but should re-open the negotiations to all interested parties so that creative ways of resolving these and other areas of concern highlighted in this recommended decision can be addressed.
Travelers and Prudential, two NYPA customers receiving Economic Development Delivery Service (EDDS), complain about how the Settlement affects them specifically and are concerned about the provision that allows Con Edison to receive its strandable costs from customers of its competitors, including NYPA.(169)
According to Travelers, the Settlement establishes a new Commission policy that had been rejected previously because it was found to eliminate cost savings intended by law.(170) Travelers also contends that the result of the Settlement is that a NYPA EDDS customer "would be required to pay for Con Edison generation costs, contrary to State policy, and would not even receive the 25 percent discount on Con Edison T&D service as a partial offset to the Con Edison generation costs it would have to pay for."(171) According to Travelers, there is no rational basis for this result.
Prudential, while supporting the idea of a comprehensive settlement in this proceeding, disagrees with the Settlement, claiming "it would unfairly subject existing economic development customers to stranded-cost recovery."(172) Prudential claims that the Settlement has the potential to severely harm important economic developments sought by NYPA and New York City.
Con Edison claims that the Settlement provisions regarding EDDS customers are reasonable in that they "balance the customers' interests and the need for economic development with the Commission's efforts to align NYPA's role with the transition to competition."(173) Con Edison also emphasizes that strandable costs would only be allocated to EDDS customers if NYPA exceeds its own forecasts, which is not expected.(174)
The provisions in the Settlement are supportable by the record and appear to be consistent with economic development. However, in the new competitive world, it may be in Con Edison's interest to try to create attractive incentives for these customers.
Westchester County is concerned that customers within its borders may be charged more for transmission and distribution than customers within New York City because of the stranded cost recovery method proposed.(175) Westchester County urges consideration of its unique situation.
According to Westchester County, Con Edison considers the county not to be a load pocket, while staff considers it to be part of a very large one.(176) Westchester County points out that while there is an 80% in-City capacity requirement, there is no comparable requirement within Westchester County. Westchester County believes the Settlement results in Westchester County customers paying a higher delivery service charge in order "to equalize costs in the County with costs in-City."(177)
While the Settlement's provisions are reasonable and supported by the record, Con Edison may be able to work with Westchester County to accommodate some of its concerns, taking into consideration the characteristics that distinguish the county from the rest of Con Edison's service territory.
The Settlement terminates the modified high tension program under which customers were allowed to take high tension service through non-standard high tension service installations.(178)
Joint Supporters claims that this change is both unjustified and unwarranted. According to Joint Supporters, this service benefits those customers receiving it, while protecting Con Edison and non-participants in the program, since all costs are covered by participants. Joint Supporters points to the absence of any cost studies supporting any need for a change in this program and argues that the rationale used by the Commission for its initial approval in 1985 continues to be sound.(179)
Con Edison claims the rate "is not cost-based and is no longer an appropriate market stimulus for economic development."(180) Con Edison asserts that the way the program is being withdrawn is reasonable because customers are allowed to continue on the rate either if they already receive it or have applied for it. In response to the claim of New York Energy Buyers Forum et al. that a cost basis existed for the rate when it was established in 1985, Con Edison responds that its basic concern is service deterioration, which imposes a cost on the system.(181)
Although both staff and Con Edison say they are concerned with possible service deterioration, the Settlement itself states the service "is no longer necessary given the other economic development programs now available."(182) However, customers apparently are not satisfied with the other available service options and prefer to continue the modified high tension service. While the record supports the Settlement's resolution of this matter, it would also be reasonable for Con Edison to work with these customers to see if particular arrangements can be made to satisfy their concerns.
IPPNY/Enron argues that the presumption of state action immunity should be removed so that all entities, including Con Edison, should be subject to the provision of anti-trust laws. As a policy matter, according to IPPNY/Enron, if the Commission adopts a plan intended to foster competition, this should result in potential for enforcement by "all legal means necessary and available."(183)
It is premature to remove state action immunity under the circumstances of this case. As stated previously, the Settlement should be revised to reduce the potential for anticompetitive behavior. If the Commission so chooses, this appears to be an issue to be addressed as a matter of law generically.
This recommended decision addresses major points raised by the parties. To the extent that points are not explicitly covered here, the Settlement's resolution was found to be sufficient overall and supported by the record. Considering that the Settlement consists of a package containing numerous compromises, this approach is appropriate. Given the complexity and detailed nature of the Settlement, there is no need to go line-by-line to address insignificant comments.
My conclusion, after a thorough analysis of the entire record in this proceeding, is that the Settlement represents an extraordinary step toward resolution of complicated and contentious issues involving rates and competition.(184) Its resolution of issues is certainly superior to Con Edison's October 1 filing intended to implement the Commission's vision for competitive opportunities.(185)
While the Settlement does result in a reduction of rates, however, it does not allow competition for generation and energy services to commence in a way that is fair to competitors or in the best interests of Con Edison's customers. In order to succeed as a plan that opens up a market to new participants, the Settlement should create a fair environment for competitors at the starting point and eliminate as many barriers to entry as possible.
Department of Public Service staff states that discussions are continuing regarding two issues concerning the New York Power Authority and New York City. Parties should additionally focus on the areas where persuasive objections have been surfaced by the parties. These areas are, most notably, those sections of the Settlement involving market power concerns, specifically regarding the transportation/delivery charge component of the retail access tariff, the 80% in-City capacity requirement, the divestiture plan, and corporate structure. These provisions should be reviewed to see if resolution can be reached to allay concerns of potential competitors and create an environment to foster competition, thus allowing the inherent benefits to be reaped in Con Edison's service territory.
Also, due to the timing, the impact of generic policies being decided by the Commission could not be incorporated into consideration of the Settlement. Specifically, the Commission issued its decision addressing policies related to energy service companies on May 19, 1997; discussed issues related to metering at its public session on May 20, 1997 (and an opinion and order is expected to be issued shortly); and is planning to address billing issues in a report that has not yet been issued. These generic policies as a whole are intended to create a robust competitive market. Their effect on certain terms included in the Settlement in this proceeding is not apparent. This is yet another reason for the parties to renew their negotiations.
The recommendation that continued discussions should take place is not meant in any way to be a criticism of the accomplishments already made. The next stages of negotiations should build constructively on the progress already achieved in crafting a rate/restructuring plan that will have a monumental impact on Con Edison's customers, and proponents should try to craft solutions that are acceptable to more stakeholders.
As to outcomes regarding such matters as the rate plan and funding for environmental and public policy programs, these are areas where the Commission's policy judgment will control, and the record in this proceeding can rationally support a variety of outcomes.
Despite opponents' concerns about many provisions in the Settlement, it should also be noted that there are numerous other provisions that were not the subject of comment at all. This is significant considering the circumstances at hand, where the document is so complex and where the enormous stakes involved engender a high potential for controversy.
In order to address the concerns identified in this recommended decision, parties would be well advised to attempt to devise a resolution to accommodate their most important concerns, since the alternative is for the Commission to impose its determination.
June 20, 1997
FOR AMERICAN ASSOCIATION OF RETIRED PERSONS:
Ward, Sommer & Moore, L.L.C. (Douglas H. Ward, Attorney), Plaza Office Center, 122 South Swan Street, Albany, New York 12210.
FOR ASSOCIATION FOR ENERGY AFFORDABILITY, INC.:
David Hepinstall and Rhona Saffer, 505 Eighth Avenue, Suite 1801, New York, New York 10018.
FOR CITIZENS UTILITY BOARD:
Robert Ceisler, Executive Director, 146 Washington Avenue, Albany, New York 12210.
FOR CITY OF NEW YORK:
John R. Low-Beer, Counsel, 100 Church Street, Room 3-170, New York, New York 10007.
FOR COGEN TECHNOLOGIES LINDEN VENTURE, L.P.:
Ross D. Ain, Senior Vice President, 1050 Thomas Jefferson Street, N.W., Suite 700, Washington, DC 20007.
Oxman, Geiger, Natale & Tulis, P.C. (by Thomas M. Geiger, Esq.), 245 Saw Mill River Road, Hawthorne, New York 10532.
FOR CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.:
Edwin Scott, Vice President and General Counsel (by John McMahon, Attorney; Chanoch Lubling, Attorney; Marc Richter, Attorney; Sara Schoenwetter, Attorney; Mary Krayeske, Attorney; Neil Butterklee, Attorney); 4 Irving Place, New York, New York 10003.
FOR CONSOLIDATED NATURAL GAS COMPANIES:
Whiteman, Osterman & Hanna (by Thomas O'Donnell, Esq.), One Commerce Plaza, Albany, New York 12260.
FOR INDEPENDENT POWER PRODUCERS OF NEW YORK, INC. AND ENRON CAPITAL & TRADE RESOURCES:
Read & Laniado (by Sam Laniado, Esq.), 25 Eagle Street, Albany, New York 12210.
FOR THE IN-NOVO ENGINEERING & DEVELOPMENT COMPANY:
Howard Rapaport, Pro Se, 216-09 67th Street, Bayside, New York 11364.
FOR JOINT SUPPORTERS AND NATIONAL ASSOCIATION OF ENERGY SERVICE COMPANIES, INC.
Ruben S. Brown, Executive Director, The E Cubed Company, 201 West 70th Street, Suite 41E, New York, New York 10023.
FOR MULTIPLE INTERVENORS:
Couch, White, Brenner, Howard & Feigenbaum (by Algird F. White, Jr., Esq. and Barbara S. Brenner, Esq.), 540 Broadway, P. O. Box 22222, Albany, New York 12207-2222.
FOR THE NEW YORK ENERGY BUYERS FORUM AND GREATER NEW YORK HOSPITAL ASSOCIATION:
Kudman, Trachten & Kessler (by Phyllis J. Kessler, Esq.), Empire State Building, 350 Fifth Avenue, Suite 1423, New York, New York 10118-1487.
FOR NEW YORK POWER AUTHORITY:
Edgar K. Byham, Esq. and Edward J. Schmaler, Esq., 1633 Broadway, New York, New York 10019.
FOR NEW YORK STATE CONSUMER PROTECTION BOARD:
Ann Kutter, Director (by Alfred Levine, Counsel), 5 Empire State Plaza, Suite 2101, Albany, New York 12223-1556.
FOR NEW YORK STATE DEPARTMENT OF ECONOMIC DEVELOPMENT:
Gloria Kavanah, Attorney, One Commerce Plaza, Albany, New York 12245.
FOR NEW YORK STATE DEPARTMENT OF LAW:
Dennis C. Vacco (by Richard Golden, Assistant Attorney General), 120 Broadway, Room 3-114, New York, New York 10271.
FOR NEW YORK STATE DEPARTMENT OF PUBLIC SERVICE:
Richard C. King, Managing Counsel and William Bouteiller, Special Counsel, 3 Empire State Plaza, Albany, New York 12223-1350.
FOR NEW YORK STATE ELECTRIC & GAS CORPORATION:
Huber Lawrence & Abell (by Kevin J. McNeely, Esq.), 605 Third Avenue, New York, New York 10158.
FOR NIAGARA MOHAWK POWER CORPORATION:
M. Margaret Fabic, Esq., 300 Erie Boulevard West, Syracuse, New York 13202.
FOR OWNERS COMMITTEE ON ELECTRIC RATES:
Seham, Seham, Meltz & Petersen (by Martin Seham, Esq., Scott Petersen, Esq., and Catherine Campbell, Esq.), 380 Madison Avenue, Suite 17, New York, New York 10017-2513.
FOR PUBLIC INTEREST INTERVENORS:
Fred Zalcman, Pace Energy Project, Pace University Center for Legal Studies, 78 N. Broadway, White Plains, New York 10603.
FOR PUBLIC UTILITY LAW PROJECT OF NEW YORK, INC.:
Gerald Norlander, Esq., 90 State Street, Albany, New York 12207.
FOR RETAIL COUNCIL OF NEW YORK:
Cohen, Dax & Koenig (by Paul Rapp, Esq.), 90 State Street, Suite 1030, Albany, New York 12207.
FOR SITHE ENERGIES, INC.:
Robert E. Fernandez, Esq., 450 Lexington Avenue, 37th Floor, New York, New York 10017.
FOR STRATEGIC POWER MANAGEMENT, INC.:
Daniel F. Duthie, Vice President & Senior Counsel, and L. Mario DiValentino, Esq., 51 Greenwich Avenue, Goshen, New York 10924.
FOR THE TRAVELERS GROUP, INC.:
Bell, Boyd & Lloyd (by Charles A. Zielinski, Esq.), 1615 L Street, N.W., Suite 1200, Washington, D.C. 20006-5610.
FOR UTILITY WORKERS UNION OF AMERICA, AFL-CIO, LOCAL 1-2:
Seth Goldstein, Esq., 386 Park Avenue South, Suite 401, New York, New York 10016-8846.
FOR WESTCHESTER COUNTY:
David J. Prior, Assistant County Attorney, 148 Martine Avenue, White Plains, New York 10601.
FOR WHEELED ELECTRIC POWER COMPANY:
Joel Blau, Esq., 32 Windsor Court, Delmar, New York 12054.
LIST OF ABBREVIATIONS
AARP - American Association of Retired Persons
AEA - Association for Energy Affordability, Inc.
BIR - Business Incentive Rate
Cogen - Cogen Technologies Linden Venture, L.P.
Con Edison - Consolidated Edison Company of New York, Inc.
COS - cost of service
CPB - New York State Consumer Protection Board
CUB - New York Citizens Utility Board
DEC - New York State Department of Environmental Conservation
DED - New York State Department of Economic Development
DOL - New York State Department of Law
DSM - demand side management
EAF - Environmental Assessment Form
EDDS - Economic Development Delivery Service
EDP - Economic Development Power
EIS - Environmental Impact Statement
Enron - Enron Capital & Trade Resources
ESCO - energy service company
FAC - fuel adjustment clause
FERC - Federal Energy Regulatory Commission
HEFPA - Home Energy Fair Practices Act
In-Novo - The In-Novo Engineering & Development Co.
IPP - Independent Power Producer
IPPNY - Independent Power Producers of New York, Inc.
ISO - Independent System Operator
KW - kilowatt
kWh - kilowatt-hour
LSE - load serving entity
MBIS - metering, billing, and information services
MI - Multiple Intervenors
MTA Intervenors - New York City Transit Authority
NAESCO - National Association of Energy Service Companies, Inc.
New Energy Ventures/Entek - New Energy Ventures, Inc. and Entek Power Services, Inc.
NUG - non-utility generator
NYC - The City of New York
NYPA - New York Power Authority or the Power Authority of the State of New York
NYPP - New York Power Pool
NYSERDA - New York State Energy Research & Development Authority
Owners Committee - Owners Committee on Electric Rates, Inc.
Prudential - Prudential Securities Incorporated
PSC - New York State Public Service Commission
PSL - Public Service Law
PULP - Public Utility Law Project of New York, Inc.
PURPA - Public Utility Regulatory Policies Act of 1978
QF - qualifying facility
R&D - research and development
RegCo - regulated company
Retail Council - Retail Council of New York
SAPA - State Administrative
SBC - system benefits charge
SC - service classification
SEQRA - State Environmental Quality Review Act
Staff - New York State Department of Public Service staff
T&D - transmission and distribution
TOU - time-of-use
TOD - time-of-day
Travelers - Travelers Group, Inc.
Utility Workers - Utility Workers Union of America, AFL-CIO, Local 1-2
WEPCO - Wheeled Electric Power Company
SUMMARY OF MAJOR POINTS RAISED BY PARTIES(186)
Summary of Support for Settlement
(listed alphabetically by party)
Cogen Technologies Linden Venture, L.P. (Cogen)
STATEMENT IN SUPPORT
Settlement is an acceptable set of compromises and should be adopted (except for paragraph 14). Divestiture is a quintessential measure for ensuring fair competition and maximizing ratepayer benefits.
PSC should ensure Con Edison implements all terms of the Settlement, particularly those dealing with divestiture of assets, in strict conformance with the schedule in the Settlement.
Consolidated Edison Company of New York, Inc. (Con Edison)
STATEMENTS IN SUPPORT (Initial and Rebuttal)
Settlement lays foundation for most significant change in provision of electric service in New York City in last half-century. Settlement clearly and fully implements PSC's vision for competition and advances PSC's vision of lower electric prices. Signatories represent a broad array of interests.
Transition to competition must balance need for deliberation with desire for speed. Service reliability must be placed at forefront of objectives.
PSC's involvement will be essential in implementing Settlement during transition to competition.
Settlement includes trade-offs, extensive balancing, and compromise. The signatories are normally adversarial parties. The opposing legal arguments have no merit. There are considerable safeguards against cross-subsidization.
panel: Joan Freilich
Tr. 569 - 1146
Explains major provisions of the Settlement, in the following categories: the rate plan to be in effect for five years and the recovery of strandable costs thereafter; retail access; divestiture of generating assets; and the formation of a holding company.
Rebuttal testimony responds to opponents' views regarding rate levels, the rate plan, allocation of additional depreciation, rate design, revenue allocation, rate changes, NYPA loads and embedded cost-of-service study issues, Westchester rates, interruptible rate pilot program, modified high tension service, S.C. 3 (back-up service rates and the minimum monthly charge), unbundled tariffs, pace of transition to retail access, consumer protections and ESCO licensing, system benefits charge, provider of last resort and universal service, corporate structure, IPP mitigation, fuel adjustment clause, generation market power, stranded cost recovery, environmental issues, divestiture, retail access program, and wholesale competition.
Robert G. Rosenberg
Tr. 460 - 492
Addresses testimony of CPB and Westchester regarding issue of disallowance of stranded cost recovery; cost of common equity of Con Edison; common equity ratio of Con Edison; and financial effect on Con Edison.
Tr. 493 - 544
Responds to issues raised by New York Energy Buyers et al., Travelers, and Prudential, regarding the 80% in-City capacity requirement, and presents Stone & Webster's reliability analysis as it relates to the determination of generating capacity requirements for New York City.
Tr. 544- 568
Addresses schedule for transition to full retail access, responding to comparisons with other jurisdictions.
There is very little to complain about in terms of the overall scope of the settlement (it embodies a transition process that will create a competitive market in a reasonable time frame; it divests generation, implements full retail access, accepts further unbundling of customer services, lowers rates, and structurally separates competitive and regulated operations).
Rate plan balances ratepayer and investor interests in a reasonable manner consistent with the PSC's settlement guidelines. Ratemaking and related adjustments advanced by opponents should not override the settlement. The stranded cost recovery provisions and financial parameters (including the return on common equity and the common equity ratio) are reasonable.
Rate design and revenue allocation provisions are reasonable (including the allocation of rate reductions to customers, the minimum charge provision, the modified high tension provision, the provisions respecting NYPA delivery rate levels, the provisions regarding EDDS customers, the application of in-City generation requirements, the treatment of fuel adjustment issues, the treatment of the system benefits charge, and the disposition of proposals for interruptible service).
The retail access provisions are reasonable (including the schedule, the 80% in-City generation requirement, the transportation/delivery service, the provisions regarding unbundling of metering, billing, and information services).
Process for divestiture is reasonable. Divestiture provisions will facilitate the development of a competitive market in a fair and reasonable manner.
Provisions for customer service and service quality are reasonable.
Treatment of ISO and wholesale competition issues is reasonable.
Corporate structure and affiliate relations provisions are reasonable.
Department of Public Service staff (staff)
STATEMENT IN SUPPORT
Settlement satisfies PSC's vision and goals, and serves the public interest. Its implementation balances ratepayers' interest in reduced prices, continued service reliability, and competitive choice of suppliers and services; utility's interest in continued viability and new opportunities for growth; and the public's interest in the efficiency and fairness engendered by competition. It should be adopted (it meets the standard for judging settlements, since it has been endorsed by parties with diverse interests; it avoids full litigation which would cause needless delay, expenditure of resources, and uncertainty).
panel: Harvey Arnett
Jesse P. Decker
Tr. 1147 - 1404
Objectives in negotiating the settlement were met: reducing rates and beginning the transition to an effective competitive retail market. Settlement balances interests of consumers and competitors; provides an orderly transition to competition; establishes flexible corporate structure; maintains service quality levels; promotes economic development; protects environment; creates real opportunity for new firms to enter market. Also shifts risks from customers to shareholders while permitting Con Edison opportunity to benefit from efficiency and successful business decisions.
Rebuttal testimony responds to opponents' views regarding delivery rates and Westchester rates, NYPA issues, backout approach to develop delivery rates, price cap plus plan, and IPPNY/Enron issues.
This is a settlement of parties with diverse interests who have already compromised; Con Edison's management, given its fiduciary responsibilities, could not legally accept many "ratepayer protections" advanced by opponents; there is enormous work ahead to enable the implementation of a competitive generation market and other competitive services in Con Edison's service area.
As to retail access, the "backout" mechanism for providing the contestable generation component is reasonable, given two fundamental principles (the best market evidence or reasonable proxy should be used, and there should be no subsidies).
There are many reasons to believe the retail access program will attract participants at all levels (two potential LSE competitors signed the settlement, and the nationwide movement toward competition has spurred the development of numerous ESCOs that may offer attractive packages to customers).
As to the in-City capacity requirement, it was not overstated and would not unreasonably favor Con Edison's generation (it would apply only in the early stages of the retail access program and would be replaced by ISO governing rules on capacity; staff reviewed Con Edison's study and believes the requirement is reasonable; any revenues enabling retail customers to meet this requirement will be credited to such customers in the delivery rate).
Any further unbundling of metering, billing, and information services were the subject of an ESCO working group and will be separately addressed by the PSC.
As to divestiture and affiliate relationship provisions, the settlement contains substantial safeguards to ensure the development of a competitive market for electricity and the ability of customers to choose among competing providers. The provisions fully protect customers and competitors from potential affiliate abuses. There is no need for an additional study and IPPNY/Enron suggests. There is also no need to prohibit any and all potential transactions between the regulated company and its affiliates, as this would negate inherent synergies and efficiencies that may benefit ratepayers.
The rate reductions are consistent with staff's close examination of the company's operations. No opponent has provided an analysis of the company's operations to support any greater rate reductions. Settlement provides Con Edison only a reasonable opportunity to earn an allowed return on common equity in the range of 10.3 to 11%.
Reducing generation station plant balances provides substantial benefits to customers in the transition to competition and is superior to NYC's proposal to assume a restructuring gain to fund current rate decreases. Settlement permits far fewer cost reconciliations, updates, and allowances than any predecessors. Con Edison assumes substantial risk for inflationary cost increases up to 4% annual inflation.
As to the distribution of rate decreases, the settlement's $655 million is equitably distributed among customer groups and will result in all classes more than covering their marginal costs (ensuring no subsidies). Any perceived difference among classes is negated by the proposed treatment of any decreases available as a result of securitization legislation.
Any legal arguments about PSC's authority to authorize retail access, lessen regulation over ESCOs and LSEs, and waive customer service rule requirements are baseless.
Discussions are continuing regarding two NYPA/NYC matters ($9 million increase to NYPA, and charge to NYPA for supplying capacity to comply with locational requirements established by an ISO).
Multiple Intervenors (MI)
Settlement effectuates PSC's vision as set forth in Opinion No. 96-12 (reduced prices resulting in improved economic development and effective competition for generation and energy services). It is consistent with the PSC's vision to allocate decreases in greater proportion to industrial customers.
The transportation/delivery charge component of Con Edison's retail access tariff is not applicable to NYPA's current economic development power (EDP) customers. As long as a current NYPA EDP customer purchases NYPA power, whether pursuant to a currently, effective contract, a renewal, or a new contract, the delivery rate applicable to these customers should not include the stranded cost recovery which is inherent in the transportation/delivery charge component of Con Edison's retail access tariff.
The PSC should reject any modifications that would increase rates above the level established in the settlement (should reject Public Interest Intervenors' proposal to increase the system benefits charge to 1.5 mills/kilowatthour).
New York State Department of Economic Development (DED)
Jeffrey P. Schnur
Tr. 397 - 409
Discusses manner Settlement will further economic development in Con Edison's service territory (addresses importance of targeted lower rates to exchange economic development in the transition to customer choice, and Settlement's provisions on NYPA power for businesses and its impact on economic development).
Settlement is an integrated document; it will further economic development (through lower rates in the transition to competition, and the development of a clear and rapid plan resulting in full competition for generation and energy services).
Settlement provides a specific timetable to foster wholesale and retail competition by year-end 2000 at the latest. Settlement contains mitigation measures regarding market power (including formation of a holding company with regulated functions separate from unregulated ones; adherence to standards of competitive conduct; further functional unbundling; and divestiture of at least 50% of in-City fossil-fueled MW capacity by year-end 2002). Settlement also develops an action plan for stranded cost recovery.
Settlement provides rate reductions for economic development (there is a rational basis for the rate reduction for large industrial customers); discounted rates for economic development (it is premature to determine whether the business incentive rate may be implemented in a way that is predatory or anticompetitive as IPPNY/Enron claims).
Owners Committee on Electric Rates (Owners Committee)
STATEMENTS IN SUPPORT (Initial and Rebuttal)
As important as electricity cost is, any measure of unreliability cannot be tolerated. Dependability of service is more important than the rate. The future (competition) inevitability means more threats to continued reliability.
Urges approval of Settlement emphasizing that the proposal is a transition plan, not a final solution.
Process followed was one of negotiation, compromise, and settlement. As a whole, the Settlement is reasonable and fair to all affected consumers and groups.
U. S. Generating Company
Believes Settlement will benefit all stakeholders. Encourages PSC to continue measures that will expedite the transition to a fully competitive market in the electric generation sector.
Utility Workers Union of America, AFL-CIO, Local 1-2 (Utility Workers)
Tr. 410 - 429
Settlement contains sufficient protections for workers in the transition to competition by including worker protection standards and recognition of a collective bargaining agreement.
Employee protections included in settlement should be adopted because they are fair, reasonable and in the public interest. (They are in Section VI.2 on page 48 of the Settlement; also V.6 on pages 41-42.) Cites to Flaherty's prefiled testimony, which was not subject to cross-examination.
Summary of Opposition to Settlement
(listed alphabetically by party)
American Association of Retired Persons (AARP)
Dr. Mark N. Cooper
Consumer concerns about restructuring:
Need to ensure universal, reliable service (affordable service for all; targeted programs; provider of last resort obligations).
Need consumer protections to protect from marketplace abuses (including provision of information; minimum quality standards; fair marketing; prevention of fraud; fair billing and collection practices; dispute resolution).
Need institutions and mechanisms to ensure that residential ratepayers can purchase low cost power; residential customers are least likely to benefit from competition and need a head start.
Need clear conditions to promote competition and
preserve regulation where competition does not become effective.
Rates for transmission must reflect a reasonable share of cost of facilities and functionalities used between point of generation and point of consumption.
As to the Settlement, it violates four basic principles affecting rates for consumers:
1. A 50/50 split of stranded costs between ratepayers and stockholders is the point of departure for appropriate sharing;
2. Allocation of the burden of recoverable strandable costs between customer classes should be based on consumption or cost causation;
3. Protection of residential customers should be provided in providing competitive alternatives and in preventing transactional abuse;
4. Additional protection for low-income consumers to preserve universal service in the newly deregulated market.
Dr. Richard A. Rosen
Tr. 1673 - 1808
As to stranded costs -- the rate plan misuses the term mitigation as it applies to stranded cost recovery; gives Con Edison a very high degree of assurance that it will eventually be able to recover 100% of its stranded costs as long as it makes good faith efforts in implementing provision leading to the development of a competitive electric market in the service area (weak standard; implies ratepayers will be likely to pay all stranded costs, which would be grossly inequitable; implies ratepayers will probably not save any money due to restructuring); maximum risk Con Edison faces is only 10% of above market costs after rate year five of all Con Edison's now existing IPP contracts; revenue reductions only serve to defer accelerated recovery of stranded costs, rather than to mitigate or reduce stranded costs; declines to quantify stranded costs prior to the onset of retail access; does not prescribe how stranded costs will be computed either now or at the end of the five-year period.
As to market power -- Settlement will not likely lead to a competitive market in generation; does not appropriately mitigate Con Edison's market power, especially within the large in-City load pocket; owning 50% of generation still leaves a very large potential for the exercise of market power.
Majority of participants strongly oppose Settlement because it provides disproportionate benefits to Con Edison and a few select industries, while burdening most consumers with an unfair proportion of costs. It is the antithesis of the PSC's vision in Opinion No. 96-12.
Settlement procedure lacks due process and is unfair. Compressed adjudicatory proceedings appear to affirm a pre-ordained conclusion. PSC imposed a number of procedural short cuts, which served to foreclose meaningful participation, inquiry or comment by those with different views from settling parties. Concerned that members of the PSC may have improperly participated in or facilitated the settlement negotiations.
Settlement is unfair to residential consumers and fails to meet restructuring goals (including equitable choice and rate reductions for all, fair allocation of strandable costs, and protections for residential ratepayers and the poor).
Settlement is unlikely to reduce rates except for a very few participants, disproportionately allocates rate reductions to favor a small segment of industrial consumers, results in residential ratepayers as a whole being worse off than under traditional rate setting (due to accelerated depreciation of power plant assets of $395 million beyond the normal rate).
Contrary to PSC's vision of restructuring, Settlement unreasonably allocates strandable costs to ratepayers instead of to Con Edison.
Settlement ignores interests of low-income customers, contrary to statements in Opinion No. 96-12. As matter of equity, must allocate at least $40 million for low-income programs. Consumer protections are inadequate.
PSC should reject parts of Settlement as premature, in that it cannot reasonably determine the rationality and effects of the Settlement unless it first resolves market power and market structure issues. Without knowing market structure in 2002 (when Con Edison must divest at least 50% of in-City generating capacity), PSC cannot rationally determine that the divestiture plan will mitigate Con Edison's serious market power advantage in the NYC load pocket. PSC should preserve its option to address market power issues through price controls.
Cogen Technologies Linden Venture, L.P. (Cogen)
STATEMENT IN OPPOSITION
The Settlement should not require Con Edison to be at risk for the disallowance of IPP costs.
Placing Con Edison at risk for QF contracts is inconsistent with the goals of PURPA.
Placing Con Edison at risk for disallowance is unsound and short sighted regulatory policy.
Placing Con Edison at risk for disallowance fosters regulatory uncertainty and has a destabilizing effect on energy prices.
Fundamental principles of fairness and equity demand that Con Edison not be at risk for disallowance.
Consumer Protection Board (CPB)
panel: Stephen A. Berger
Dr. Richard W. Bossert
Tariq N. Niazi
Joseph F. Thorne, Sr.
Tr. 1593 - 1653
19 recommendations to improve Settlement: immediate revenue reductions by five percent and possibly another five percent rate reduction for equitable sharing of stranded costs; equity return no greater than 10%; one-half investor share of excess earnings used to write down stranded costs; any earnings deficiency in one year not offset against excess earnings in another year; retail access available to more residential and small business ratepayers initially and in each subsequent year; complete retail access within 12 months of ISO establishment; rate levels for all service classifications reduced equally; notice and opportunity to be heard by any customer opposing a revenue shift; sharing of stranded costs more equitable; IPP costs shared more equitably; royalty on unregulated subsidiary; ratepayers receive maximum benefit from sale of generating units; sale of generating units must not impair ability to satisfy obligation to serve; monopoly prices not charged in load pockets; allow increase in rates if inflation exceeds 4% and actual return for same period falls below 9%; adopt procedures to prohibit "slamming;" provide comparative price information; provide environmental information; fund SBC programs at 1995 levels ($67.6 million).
Unless Settlement is modified as proposed, few residential and small business ratepayers will be able to realize significant benefits from lower rates or by switching to a competitor. Adopting their modifications would stimulate job creation, encourage a competitive market, promote economic growth, and provide rate relief to residential and small business ratepayers. Would also assure consumers that safe and reliable service will be maintained, without the loss of essential environmental and consumer protections. Modifications are consistent with results of consumer surveys and discussions, and consistent with PSC vision for future in Opinion No. 96-12.
Con Edison's claims regarding CPB's proposal to ensure PSC authority to control prices and to reflect appropriate cost of service adjustments in rate are without merit. (CPB refers to points regarding market power, the $62 million of expiring amortizations, Roseton units, workers' compensation, and future use plant.)
Con Edison's other claims regarding various CPB recommendations should be rejected (PSC obligation to allow for the recovery of "locked-in capital," claim that investors have not been compensated for potential restructuring losses, criticisms of CPB's equity return analysis -- referring to allowed returns authorized by other Commissions, risk premium, dividend yield, "business as usual" growth rate, capital asset pricing model. Also, there is no basis for the claim that Con Edison's bonds would be derated to BBB or lower if CPB's stranded cost and equity return recommendations are adopted.)
IPPNY and Enron's transition rate design proposals would impose extraordinary burdens on residential and small commercial ratepayers.
Coordinating Housing Services, Inc.
STATEMENT IN OPPOSITION
Settlement fails to meet PSC's vision of a prompt transition to competitive retail access in NY (too slow a transition, and insufficient access by NYC residents; lacks economic incentives to inspire viable retail access program; ignores effort by Coordinating Housing Services, Inc. to establish a workable retail access pilot project in typical NYC high-rise residential housing).
Citizens Utility Board (CUB)
Settlement is unjust, unreasonable, and unfair to residential customers. Settlement does nothing to alleviate problem of high residential rates. Disparity in rate treatment is unfair, discriminatory, and completely unsupported by the record. Residents should receive at least the same percentage rate cut as all other customer classes.
Residential customers should receive a 20% rate cut, which would result if shareholders absorbed all stranded costs. Consumers must be kept totally harmless in the transition to competition (therefore responsibility for investments in uneconomic power plants must be borne by shareholders rather than ratepayers). PSC should not authorize an anticompetitive pass-through for the existing monopoly provider.
Settlement should be rejected because it fails to provide residents with funding to aggregate during the transition to competition. The non-bypassable system benefits charge is the appropriate funding mechanism for residential customer aggregation.
State of New York Department of Law (DOL)
STATEMENT IN OPPOSITION
Proposal fails to balance the interests of Con Edison and its customers.
This proceeding is uniquely important; the Settlement offers almost nothing that residential and small business customers would not receive anyway, while insulating Con Edison against both competition and just and reasonable rate decreases.
Commission should formulate a plan with the following necessary elements: significant electric base rate decreases immediately; introduction of full retail electric competition as soon as technically feasible; stranded costs should not be a barrier to competition; the potential for self-dealing should be eliminated by the formal separation of regulated and unregulated functions.
In-Novo Engineering and Development Company
Tr. 1411 - 1415
Disputes Settlement's revision of the firm customer rate in SC 4 and SC 9 classes to discourage the transition to on-site generation in order to reduce competition
Settlement thwarts competitive development of on-site generation technology (citing pages 21-22, paragraph 25, rate design flexibility; Appendix A, paragraph 1) This discriminates against on-site generators. Con Edison is attempting to restore without approval the SC 3 rate it rescinded previously.
Urges PSC to encourage a pilot program of 500 on-site generators similar to the 500 MW of competitive power.
Independent Power Producers of New York, Inc. (IPPNY) and Enron Capital & Trade Resources (Enron)
STATEMENT IN OPPOSITION
Settlement should be rejected; it defeats the PSC's vision for competition; it is a bad deal for ratepayers.
Settlement should be modified as follows:
Con Edison generation should be structurally separate and operate on a competitive basis during the transition (Con Edison will threaten the competitive market; functional separation is a regulatory nightmare; the Settlement does not require Con Edison generation to compete efficiently; Con Edison generation should be structurally separate and compelled to compete).
Con Edison should be provided an incentive to divest all of its in-City fossil generating units by 2002.
The credits applied to the delivery rates of retail access customers are understated.
Retail access should be afforded to all customers no later than April 1999.
Metering, billing and information services must be unbundled.
The state action immunity should be removed.
Dr. Miles O. Bidwell
Tr. 1855 - 1953
Settlement fails to promote competition by not providing a properly defined market with ease of entry and exit; by not providing a framework of properly unbundled rate elements; by not establishing economically sensible incentives; by not fully opening up market to retail competition by April, 1999.
As to market structure, elements in Settlement create barriers to entry, raise costs of potential competitors, and promote Con Edison's ability to hold onto market share.
Settlement provides perverse incentives (penalizes Con Edison by a potential $300 million unjustified disallowance, protects Con Edison from efficiency enhancing pressures that result from competition). Rate decrease is not based on efficiency improvements but is one-time transfer from shareholders to customers (denies customers larger rate decreases from vigorously competitive market).
Mark D. Younger
Tr. 1953 - 2000
Purpose -- to evaluate divestiture requirements and regulatory treatment of Con Edison's generating assets in the Settlement.
Addresses problems associated with Con Edison continuing to be a vertically integrated utility owning generation resources in the developing competitive generation market; proposes that stronger incentives for divestiture of fossil generation be adopted; proposes an interim regulatory treatment of fossil generation for the period before divestiture of generation to assure the development to a competitive electricity market.
Joseph J. Mantaro
Tr. 2032 - 2069
Recommends that fossil generation operations and any other competitive enterprises be fully separated from the regulated T&D company; that the competitive enterprises such as fossil generation and metering and billing stand independent from the regulated monopoly and that transactions between the competitive enterprises and the regulated business should be strictly limited to those which are absolutely unavoidable.
Prepared estimate of the magnitude of the potential problem regarding just the fossil generation business; describes risks to ratepayers and market; addresses structural separation and zero transactions.
Tr. 2001 - 2032
Addresses Settlement as it relates to metering, billing, and information services (MBIS); discusses potential for competition in the MBIS areas, the importance of unbundling these services, the rules or standards of conduct that should apply to the relationship between the regulated utility and its affiliated competitive marketing enterprises, and the benefits to consumers and the NYS economy from meaningful retail access.
Real retail access, including competition in MBIS services, should be instituted as soon as possible.
Settlement is a pro-Con Edison strategy to deprive ratepayers of a real competitive market.
Generation can be improperly subsidized under functional separation. Con Edison fossil generation should be transferred to a stand-alone, separate company, and the PSC's "zero transaction rule" should be applied.
Con Edison's regulated generation will impede competition. The Settlement encourages Con Edison to depress market prices. Staff and Con Edison did not offer convincing rebuttal to the argument that Con Edison has strong incentives to underbid its going forward costs ("to go") in order to sabotage the development of a competitive market. Going forward costs must be defined in advance (and not left to Con Edison's discretion).
The backout rates are understated, which will deter entry into the competitive market.
Full retail access can be provided in two years. According to Con Edison, there is no technical impediment to prevent this.
Con Edison is ready to compete for MBIS. MBIS should be unbundled. Customers should not pay twice for meters.
The 80% in-City reserve requirement should be modified, to 65 to 70%. The study relied upon by Con Edison contains important flaws. A 65 to 70% requirement represents a reasonable interim level that balances the need for reliability, the costs to ratepayers seeking retail access, and the interest in fostering competition. The level can be re-examined by a properly constituted ISO.
The state action immunity should be removed. Con Edison's status as a regulated utility should not provide a basis for it to engage in anticompetitive behavior. The Settlement should not be used as a shield to protect Con Edison from anti-trust laws. The public should have all legal means necessary and available to enforce PSC policy.
STATEMENT IN OPPOSITION
Proposed transportation delivery charge for retail access service is flawed; it penalizes retail access customers by assigning them an obligation to subsidize Con Edison's future costs of doing business beyond compensation for strandable costs.
Should have a phase-in schedule for implementation of industry restructuring and the opening of customers to competitive options (should add 10% of present customer peak demand, plus new growth, every six months for two years following initial implementation, with complete open access targeted for a specific date).
Imposition of minimum monthly demand charges will work against the rate reductions for partial load customers.
Settlement does not adequately acknowledge that future generic determinations by the PSC will affect this agreement (Case 97-E-0251 addressing the classification of facilities as to transmission and distribution).
Tr. 2262 - 2272
Proposed retail access program in Settlement contains significant flaw (transportation delivery charge would penalize customers by having them subsidize Con Edison's future costs of doing business); other features are likely to inhibit the development of retail competition in NY (phase-in schedule not sufficiently aggressive, and monthly minimum demand charge designed to disadvantage on-site generation)
PSC should reject the transportation delivery charge as fatally flawed. The charge is blatantly anticompetitive and is the most compelling reason the Settlement in its entirety should be rejected.
The charge preempts the PSC's responsibility to balance ratepayer and shareholder interests in the matter of strandable costs. The charge will force retail access customers to pay for costs which are unrelated either to services rendered or bona-fide stranded costs. It is virtually guaranteed to over collect strandable costs. It is expected to result in no energy savings to retail access customers.
The phase-in schedule for retail access should be completed no later than December 31, 1999 and should begin for Westchester County customers no later than December 31, 1997.
A date certain should be adopted for competitive metering and billing (should be concurrent with general opening of retail access for capacity and energy on April 1, 1998 and for opening Westchester County no later than December 31, 1997).
Introduction of the minimum monthly demand charge for demand-billed customers fails to meet the standards of FERC and the PSC in implementing PURPA.
PSC should reject introduction of minimum monthly demand charge because it exacerbates market power problems by discouraging on-site generation.
The unjustified and unwarranted proposal for ending modified high tension service should be rejected.
The in-City generating requirement should be lowered to 65 to 70% (this benefits customers in both NYC and Westchester County).
National Association of Energy Service Companies, Inc. (NAESCO)
STATEMENT IN OPPOSITION
Levels of funding between nonbypassable base rate collection and nonbypassable system benefit charge collection may be affected by treatment in this case.
Supports distribution of utility funds for energy efficiency in an open, competitive manner, including funds for DSM, low-income programs, and initiatives to provide load pocket relief.
Assertion that amounts for DSM, R&D, and low-income for collection in base rates are about 1 mill/kWh is flawed.
Distribution of energy efficiency funds via a standard performance contract with stipulated pricing provides a market levelization stimulus to competition at the customer level.
Concerned that Con Edison's unregulated energy services subsidiary would obtain an unfair, and overwhelming, competitive advantage in the marketplace.
Services available to affiliates from the RegCo should be available to all competitors who have equal access to RegCo services at no greater price than the price affiliates pay.
Customers should not be allowed to release data only to affiliates.
RegCo should only be allowed to disclose information from publicly available sources.
Concerned about certain standards of conduct in the Settlement.
Incremental funding for the system benefits charge (SBC) should be an increase in funding for programs and not simply revenue neutral shifts. If funding for all components shifts to the SBC in 1998, Con Edison should not control the distribution of funds thereafter.
New Energy Ventures, Inc. and Entek Power Services, Inc.
STATEMENT IN OPPOSITION
Settlement fails to fulfill PSC's vision in Opinion No. 96-12 regarding retail access.
Con Edison's proposed retail access prices are confusing and rates should be unbundled as actual, working tariffs (this is a necessary foundation to an open competitive market).
Con Edison will have excessive market power.
Con Edison's alleged "give-ups" do not justify the Settlement.
Key portions of the Settlement fail to advance and frustrate the policies and guidance in Opinion No. 96-12. The Settlement perpetuates Con Edison's market power indefinitely; proposes a confusing and conceptually flawed backout credit as a means to introduce retail access (instead of introducing usable, separately stated prices for each service offered); and arbitrarily restrains customer access to competitive suppliers by imposing an unsupported, slow schedule on the availability of retail access.
Divestiture plan is inconsistent with Opinion No. 96-12.
Schedule for retail access should be accelerated.
Tariffs should be unbundled to provide useful and usable prices for all services. Backout approach to pricing will likely cause the PSC's effort to promote retail access to fail. PSC should set a date certain for the calculation of bottom-up delivery rates and order that those rates should be in effect by the time full retail access is made available to all customers.
New York City
Bruce Edward Biewald
Tr. 2325 - 2349
Addresses issues of market power in the NYC load pocket; finds that market power is a major concern and there are polices that can effectively address the problem; with current ownership of generating capacity, Con Edison has a monopoly in supply; market power situation in NYC is improved by breaking up ownership of generation. Recommends that any economic deregulation of generation in NYS make special provisions for the NYC load pocket.
Paul L. Chernick
Tr. 2349 - 2479
Fatal flaws in Settlement: excessive rates (Con Edison would not absorb any costs; ratepayers would receive no benefit from restructuring for at least five years; the rate freeze is very soft; the modest rate reductions would be allocated inequitably); failure to mitigate market power in generation (inadequate divestiture; limitations on mitigation opportunities); failure to create effective competition.
As to stranded cost estimates, criticizes Con Edison's estimate as being too high (errors in approach and methodology; implausible projections of market prices); prefers Resource Insight, Inc. estimate.
Rate effects are unacceptable (rate reductions would have occurred under regulation; rate reductions are too small, occur too slowly, and are allocated unfairly; customers would unnecessarily and unfairly pay for the accelerated depreciation of generation; PSC should reject proposed rate reductions and require near-term rate decreases that reflect restructuring).
Settlement does not resolve problems with market power in in-City generation (the 50% divestiture requirement is inadequate; PSC should require additional mitigation; requirement for a divestiture plan is inadequate).
Proposed delivery rate mechanism will discourage competition.
Settlement unfairly burdens NYPA's government customers with millions of dollars of additional costs (the $9 million increase to NYPA should not be implemented; the de facto cap on NYPA sales to government customers should be eliminated; NYPA government customers should never be responsible for stranded costs; NYPA government customers should not be arbitrarily prevented from transferring accounts to NYPA; the City and its agencies should not have to pay an in-City generation charge until the end of their long-term contract; NYPA customers should not be subject to the system benefits charge).
Settlement would jeopardize the City's economic development activities (the Business Incentive Rate (BIR) allocation should be expanded; Con Edison should meet its past economic development commitments; the definition of new and vacant premises in Rider J should not be changed; industrial employment growth program could expand cross-subsidies).
Stranded cost charge and the in-City capacity charge should not be imposed on EDDS customers (the stranded cost charge exemption should not be limited to the EDDS load stated in NYPA's 1996 resource plan; the in-City capacity deficiency charge should not be imposed on EDDS customers).
Energy conservation programs have been cut too severely.
Metering and billing services should be unbundled.
PSC should craft a restructuring plan that includes the following elements: significant rate reductions; quick and simultaneous retail access; mitigation of market power; equitable sharing of stranded costs; proper design of the access charge; alleviate transmission constraints; maintain economic development programs; no rate increases for NYPA's government customers; ensure adequate funding for energy conservation programs.
New York City Transit Authority (MTA Intervenors)
STATEMENT IN OPPOSITION (with one exception)
Settlement is not reasonable as it unfairly burdens NYPA and its government customers with additional costs. Should be modified as NYPA proposes.
Supports agreement relating to 25 Hz service (in public interest because it will relieve New York City Transit Authority of the potential burden of $13 million annual revenue deficiency and will eliminate dependency of subways on an old system).
New York Energy Buyers Forum, Greater New York Hospital Association, New York University, and Montefiore Medical Center
Dr. Alan Rosenberg
Tr. 2116 - 2261
Settlement is flawed as it will thwart PSC's main objectives -- lowering rates and increasing competitive choice for all NY customers. Objects to allowing Con Edison to recover billions of dollars in uneconomic costs and its sanction of anti-competitive rate design. Recommends how Settlement could be modified as an appropriate rate plan that will lower rates now, facilitate competition later, and resolve the intractable problem of identifying, quantifying, and mitigating stranded costs. Also offers rate design changes for SC 3 (back-up rate for standby service).
The Settlement does not meet the standards for approval in Opinion No. 92-2.
The 80% in-City capacity requirement should be rejected and the maximum requirement for the pre-ISO period should be set at 65% to 70%.
The Settlement should be amended as to retail access charges (to provide for fair recovery of stranded costs) and to provide for additional rate reductions.
Unbundled tariffs should be implemented in rate year one. The competitive transition charge should be recovered on a demand basis. The minimum bill charge should be rejected. Modified high tension should not be eliminated. Demand charges should be retained for large commercial and industrial customers. The revenue allocation provisions should be modified. Interruptible rates should be included in the redesigned rates available on April 1, 1998. Deregulation should be implemented more quickly.
New York Energy Buyers Forum, Greater New York Hospital Association, Enron Capital & Trade Resources
Richard B. Bernhardt
Tr. 2081 - 2116
Addresses the 80% in-City generation requirement in the Settlement; discusses shortcomings in the Stone & Webster Study (including normalization of the existing New York Power Pool Loss of Load Expectation value) and proposes an alternative in-City capacity requirement; also addresses claim of staff that 80% is an appropriate place-holder until the ISO can review the in-City capacity requirement; also addresses mitigation of the in-City load pocket.
Initially, in-City capacity should be 65 to 70%; then should drop to 55 to 65%.
The 80% in-City capacity requirement should be rejected and the maximum requirement for the pre-ISO period should be set at 65% to 70%.
The Stone & Webster study relied upon made improper and unwarranted adjustments to data regarding Loss of Load Expectations for the New York Power Pool as a whole and for the Con Edison load pocket.
The 80% requirement should not be accepted before completion of an appropriate study with representation and participation by all interested parties and the PSC.
The level of the in-City capacity requirement should be set no higher than the percentage that NYPA's Poletti plant represents of NYPA's load (in no event more than 65 to 70%).
New York Power Authority (NYPA)
STATEMENT IN OPPOSITION (with one exception)
Settlement does not meet PSC's vision to reduce prices resulting in improved economic development for the state as a whole. It increases prices for NYPA's governmental and economic development customers and would severely limit the use of NYPA's lower-priced power to promote economic development in Con Edison's franchise area.
De Facto caps on NYPA economic development power sales should be removed.
The $9 million increase to NYPA scheduled for April 1997 should not be implemented.
De Facto caps on NYPA sales to government should be eliminated.
The in-City generation requirement on new NYPA customers should be eliminated until and unless one is set by the ISO.
NYPA customers should not be subject to the system benefits charge.
Con Edison is given excessive flexibility to reallocate its revenue requirement among service classes. (Only substantial changes should trigger a rate change.)
Memorandum of agreement between NYPA, Con Edison, and NYC Transit Authority about an alleged deficiency of $13 million for 25 Hz service is a reasonable solution which encourages the Transit Authority to convert its load to 60 Hz service in a timely fashion, while avoiding the burden of being the "stranded" customer on the 25 Hz system with the responsibility of paying for all of its costs.
panel: Douglas M. Kerr
James H. Yates
James J. Peterson
Gary C. Price
Tr. 1808 - 1850
Address the following issues: the applicability of Con Edison's stranded costs to NYPA's public and economic development power (EDP) business customers (Con Edison should not be allowed to charge stranded generation costs to any public customer served by NYPA, existing or new); the NYPA revenue deficiency under the alleged 1994 Con Edison cost-of-service (COS) study (COS study is not a historical study but a mix of historical and pro-forma data); the in-City capacity requirement (propriety of in-City generation charges and whether they should be applicable to NYPA public or business accounts should not be decided in this forum, but rather by NYPP or the ISO); applicability of SBC to NYPA public and EDP delivery service customers (should not be applied because none of cost components are allocable to NYPA delivery service); rate design flexibility during the rate freeze (all changes should be revenue neutral by class; only uniform, non-discriminatory discounting of distribution and transmission rate elements in accordance with FERC-approved tariffs should be allowed); and the multi-year rate freeze (third year increase from 1995 agreement should be withdrawn for all customers, including NYPA delivery service customers).
De facto caps on NYPA economic development power sales should be removed (the proposed cap is not consistent with sound economic policies of the PSC and state; capping economic development power does not "reflect agreement by normally adversarial parties;" elimination of the cap on economic development power would also be consistent with the PSC's balancing test; extension of an economic development power contract does not result in stranded cost charges; NYC's unallocated economic development power is at risk of being rendered useless unless the cap is removed).
The $9 million increase to NYPA scheduled for April 1997 should not be implemented (NYPA's alleged deficiency is not treated as are the deficiencies of others; the $9 million increase to NYPA governmental customers is not justified -- it is a significant change from PSC precedent; staff's own calculations support elimination of the alleged $9 million deficiency; the proposed in-City generation revenue credit is improper).
De facto caps on NYPA sales to government should be eliminated.
The in-City generation requirement on new NYPA customers should be eliminated until and unless one is set by the independent system operator.
NYPA customers should not be subject to the system benefits charge.
Disagrees with Settlement regarding rate flexibility.
The memorandum of agreement exempting the NYC Transit Authority from $13 million of the alleged $22 million NYPA deficiency (Settlement Agreement, Appendix D) should be approved.
NYPA should receive its share of the $655 million rate reduction (NYPA's government customers should be included in any rate reductions; NYPA's business customers should be included in any rate reductions).
The Settlement does not produce significant revenue savings (rate reductions) over what would have occurred during the third year of the Settlement agreement in the 1994 rate case.
Prudential Securities Incorporated
STATEMENT IN OPPOSITION
Concerned about application of stranded cost recovery requirements. It appears that if Prudential switches suppliers for the load currently served by New York City Public Utility Service, it would have to pay a stranded cost surcharge for that load, which would allow Con Edison to over-recover for stranded costs. Even if Prudential does not look to another supplier, it may incur stranded cost surcharges.
Concerned about in-City capacity requirement. Any in-City requirement is likely to raise NYPA rates, which in turn will raise New York City Public Utility Service's rates to Prudential. Amount of in-City requirement for a particular customer should not be based on that customer's peak demand, but rather should be based on that customer's demand during periods when in-City loads are likely to exceed the import capability into the city. Also, customers should be allowed to satisfy in-City capacity requirements with any reliable source of in-City generation, including emergency back-up generation. Finally, customers should be permitted to purchase or sell in-City capacity available to them, and Con Edison should be required to distribute any energy from that capacity under Con Edison's retail access tariff (this would reduce Con Edison's market power and is consistent with customer choice principles).
Generally supports positions taken by NYPA, NYC, and Travelers regarding Settlement's adverse impact on economic development customers. The State and Con Edison have already reaped substantial benefits from NYPA power delivered under Con Edison's Economic Development Delivery Service (EDDS) tariff.
As to stranded cost recovery, stranded costs should not be recovered from existing load served under the EDDS tariff (the Settlement's stranded cost recovery provisions for existing EDDS load is contrary to New York's economic development policy; the treatment of current EDDS customers is contrary to PSC policy; the EDDS stranded cost recovery provisions are inconsistent with competition for economic development load); if NYPA exceeds a cap for EDDS load, the pre-existing EDDS load should not be responsible for any stranded cost payments.
As to the in-City capacity requirement, existing EDDS load should be exempt from in-City requirements; in-City requirements should allow customers to manage their costs (customer-owned on-site generation should qualify as in-City capacity; customer-owned in-City capacity should be made available to third parties; the PSC should create incentives for an ISO to allow customers to manage their costs).
Public Interest Intervenors
STATEMENT IN OPPOSITION
Settlement is deficient in the following specific areas: effective competition in the generation and energy services sector; reduced prices resulting in improved economic development for the state as a whole; increased consumer choice of supplier and energy service company; continuation of a means to fund necessary public programs; and ample and accurate information for consumers to use in making informed decisions.
1. Con Edison should establish a non-bypassable system benefits charge of 1.5 mills/kWh, fixed for five years, to support energy efficiency, public benefit RD&D, and low-income affordability.
2. Con Edison should adopt a price caps plus mechanism.
3. Con Edison should not recover through regulated rates generation related operating and maintenance expenses and generation related capital improvements necessary for continued operations. Utilities should establish market value of continued capital investment in generation and exclude recovery from regulated rates.
4. Con Edison should recover any allowed stranded costs through a non-bypassable energy charge fixed as to the amount collected in any given year.
5. Con Edison should work with parties to develop standards for disclosure and labeling by electric service providers, allowing consumers to compare resource mix and environmental characteristics of purchases.
6. PSC should adopt an emission portfolio standard applied to all retail companies.
7. Con Edison should be held harmless for extra costs that it would incur by agreeing to any outages deemed necessary by DEC.
Con Edison's Environmental Assessment Form filing should be followed up with an Supplemental Environmental Impact Statement that meets the letter and spirit of SEQRA.
Tr. 2510 - 2546
Covers three areas: (1) system benefits charge -- a means of implementing the PSC's goal of funding certain public policy initiatives through a competitively neutral, non-bypassable system benefits charge (describes a market-compatible mechanism for supporting the commercialization of new energy efficiency technologies, public benefits research and development, and low-income affordability efforts; fund should be administered by an independent administrator through an existing state agency such as NYSERDA; SBC should initially be set at 1.5 mills per kWh); (2) environmental disclosure -- a mechanism to assist customers in making reasoned choices between energy service options in the newly emerging retail marketplace (asking that the PSC open an investigation to develop a protocol for environmental disclosure); and (3) environmental comparability -- several mechanisms holding market participants to comparable environmental standards (proposes these be adopted to redress the disparate regulatory treatment between older and newer generation, and the attendant environmental impact as markets are opened up to competition).
Tr. 2480 - 2510
Addresses two points: (1) regulation of the distribution utilities -- recommends price cap plus, which combines the benefits of a price cap and a revenue cap; must encourage customer choice and not discourage the use of localized resources and energy efficiency; and (2) establishing the conditions for effective wholesale competition -- generators must be subject to the same environmental standards regardless of their vintage; generation owners must collect going forward costs in the marketplace rather than through extra-market mechanisms; To the extent recovery is permitted, stranded costs should be recovered through a non-bypassable mechanism and fixed as to the amount to be collected in a given year.
Tr. 1851 - 1854
Need PSC policy regarding costs of outages necessary at Indian Point 2 in order to protect Hudson River fish stocks; need mechanism to assure Con Edison is not financially penalized for costs incurred and/or incentives that would otherwise be foregone by agreeing to any outages deemed necessary by DEC and parties to the Hudson River Settlement; Indian Point 2 should be taken off-line during critical spring spawning periods, and all associated costs should be borne by all customers.
Settlement establishes unnecessarily low levels of funding for public policy initiatives (should be funded at 1995 levels; future funding should be determined based on neutral criteria).
Settlement must be modified to encourage appropriate investments by the distribution utility (PSC should adopt price cap plus form of performance based regulation in order to minimize long-term and future stranded costs associated with distribution system investments).
PSC should require Con Edison and staff to work with interested and affected parties in developing a protocol for environmental disclosure and informed customer choice.
Should modify Settlement to ensure all participants in wholesale market play by the same rules (Settlement unfairly subsidizes Con Edison by allowing it to collect going forward operation and maintenance costs; Settlement fails to properly mitigate adverse environmental consequences resulting from differential applications of environmental standards to generating facilities.)
Settlement should clearly provide adequate protections for Hudson River fish populations.
Public Utility Law Project of New York, Inc. (PULP)
STATEMENT IN OPPOSITION
Settlement is inconsistent with law and policy.
PSC lacks statutory authority to approve general retail wheeling to all customer classes.
PSC lacks power to deregulate or lighten regulation on new generation providers.
25% "industrial employment growth" credit for large industrial customers is unlawful and contrary to established policy.
PSC lacks power to waive compliance with HEFPA law and regulations.
PSC lacks authority to allow Con Edison to "include non-tariffed items in a bill."
Any new "non-discriminatory procedures which require an applicant to provide reasonable proof of the applicant's identity as a condition of service" are rules of general applicability requiring full compliance with SAPA.
Provisions allowing for rate design and revenue allocation changes make rates unpredictable, contrary to PSC policy.
Proponents have failed to demonstrate that the proposed rates are affordable.
Base rates should be reduced by the amount of existing low-income program costs to be recovered by any system benefits charge.
Settlement should be subject to any future legislation or PSC policy with respect to stranded cost recovery.
There is no basis to determine whether the results of the Settlement compare favorably with a litigated outcome or whether the rates proposed for the next five years are just and reasonable.
The Settlement lacks balance because of the disproportionate rate relief for large customers.
Settlement lacks broad support of normally adversarial parties.
Con Edison should not be allowed to form a holding company at this time, or without further conditions.
Rate plan is unbalanced, inequitable, and discriminatory.
Settlement is inconsistent with law and with the regulatory, economic, social, and environmental policies of the PSC and the state.
Bottleneck delivery services should be neutrally priced to foster development of efficient competition for energy sales, and there should be no further unbundling of metering, billing, and information services at this time.
PSC lacks power to waive compliance with the Home Energy Fair Practices Act (HEFPA).
There is no basis to determine whether the results of the Settlement compare favorably with a litigated outcome or whether the rates proposed for the next five years are just and reasonable.
The holding company concession to Con Edison is unjustified, and provides inadequate protection to ratepayers.
Retail Council of New York (Retail Council)
STATEMENT IN OPPOSITION
Sees issue of stranded cost recovery as over-arching, since the Settlement puts only a small amount of the recovery at risk and the risk is dubious.
Also, retail access scheme is inadequate; as is the nature of unbundling. Nature of availability of aggregation of load among smaller customers and treatment of savings is unclear. Timing of the plan is slow and advent of competition in the provision of electric service should be accelerated. These factors, along with the treatment of stranded costs, results in wholly inadequate rate reductions.
Dr. Dennis W. Goins
Tr. 2278 - 2324
Recommends that Con Edison be denied total recovery of stranded costs on the basis of both economic efficiency and equity considerations; if various stakeholders share stranded cost recovery responsibility, should design cost-sharing arrangements and related cost-recovery mechanisms to limit their effects on economic efficiency and the transition to competitive markets; should also establish mechanisms that encourage Con Edison to mitigate potential losses associated with noncompetitive production resources.
Settlement embraces and adopts a structure which is the status quo. It fails to deliver meaningful rate relief to most customers and does not accomplish PSC's objectives for opening the market to competition (no significant unbundling). The top-down approach provides for the automatic guaranteed recovery of essentially all stranded costs. Positions of staff and Con Edison regarding stranded cost recovery do not resemble Opinion No. 96-12.
The level of rate reductions are insufficient and essentially insignificant for all but a handful of industrial customers being given an immediate 25% rate decrease.
Settlement creates an anticompetitive environment in that the energy backout is too low to attract meaningful load serving entity (LSE) participation, so the development of retail access is doomed (agrees with WEPCO).
Without unbundling, would-be competitors will not have sufficient information.
Strategic Power Management
STATEMENT IN OPPOSITION
Only objects to the proposed determination of the retail access delivery charge called the "transportation/delivery service rate for all retail access customers." The delivery charge is designed to discourage the early development of a competitive retail access market in Con Edison's service territory. Proposes an alternative retail access delivery charge that will ensure Con Edison is not financially harmed in any manner; provide significant immediate savings for customer participants; and avoid subsidization or cost sharing by non-participants. Key is to start with unbundled tariffs, or at least with an identification of the generation component presently included in the unbundled rates. Asks that the PSC carefully review the Settlement's proposed delivery charge and consider the benefits of an alternative mechanism consistent with the introduction of real customer choice and competition as envisioned in Opinion No. 96-12.
Travelers Group, Inc.
STATEMENT IN OPPOSITION
Travelers is a NYPA customer, using Con Edison's economic development delivery service (EDDS). Under the Settlement, Con Edison could levy on these customers a transportation/delivery charge that would be used to recover alleged "strandable" generation costs. The Settlement would also establish a new in-City generation policy for service to customers in NYC. These raise serious issues.
As to strandable generation costs, the Settlement's treatment cannot be justified on economic efficiency grounds. Assessment of EDDS customers with a strandable cost charge is unfair and counterproductive. The transportation/delivery charge is simply the contract demand charge it proposed in its last electric rate case in another guise. It is also inconsistent with PSC policy established in 1986. Con Edison should not be allowed to have EDDS customers pay for generation costs by settlement of a few parties and without the agreement of major EDDS customers like Travelers. One possible solution is to permit Con Edison to write down its generating plant balances immediately to match with what it believes to be the competitive market value of its generating assets.
As to in-City generation requirement, this too establishes a new policy by compromise that could permit Con Edison to raise the costs and therefore the rates to customers of Con Edison's competitors. This is a new policy based on untested recent studies of the New York Power Pool. Instead, the ISO should be constituted as quickly as possible and directed to assess the need for a new in-City generation requirement. The ISO should determine whether a new policy is necessary and if so what that policy should be. The Settlement appears not to contemplate use of customer-owned generation to satisfy an in-City generation requirement. Without customer-owned generation as an alternative to Con Edison's in-City generation, Con Edison will have a monopoly on the means necessary to satisfy such a requirement.
Settlement adopts a strandable cost recovery policy for EDDS customers which has no rational basis, and it adopts an in-City generation requirement policy with no persuasive basis, because the policy is based on untested studies by parties that have anticompetitive incentives.
Tr. 1653 - 1673
Interested in how Settlement affects EDDS (economic development delivery service) rates, its proposed retail access rates, and its rights under its contract with NYPA. (Con Edison's charges for EDDS to NYPA are ultimately paid by Travelers.)
Travelers maintains 17 MW of on-site generating capacity in New York City; would consider making this capacity available to satisfy an in-City generation requirement.
The Settlement would permit Con Edison to levy an unreasonable and therefore unlawful charge on Travelers (stranded cost recovery charge requires departure from the cost principle because it permits Con Edison to charge more than its embedded and marginal cost of providing delivery service).
The Settlement should not be adopted as proposed because it would, in effect, contravene state law (it revokes an existing PSC policy established in Case 29098, Opinion No. 86-25, by establishing a new policy under which facilities served by NYPA may be assessed for Con Edison generation costs).
Settlement agreement procedure cannot be used to relieve Con Edison of its burden of proof required by law at hearings (cites PSL 66.12)
Wheeled Electric Power Company (WEPCO)
STATEMENT IN OPPOSITION
The Settlement's pervasive flaws are the lack of adequate rate relief for customers (economic development requires more than large-scale reductions for a few big customers); obstacles to robust competition (slow pace of retail access; overstatement of delivery charges -- Con Edison should be required to offer power to alternative suppliers at a price equal to the credit that is backed out of the total unbundled rate); failure to curb Con Edison's inherent market power (particularly since NYC is a "load pocket" during certain periods); unreasonable delay in implementing robust competition.
The following are essential actions to ensure robust competition: timely availability of retail access (should phase in retail access between January 1, 1998 and January 1, 2000); establishment of reasonable delivery charges (should be set on the basis of a bottom-up calculation where each component of the charge is justified separately); and curbing Con Edison's inherent market power (most reliable method is divestiture of generation assets; alternative is for a utility to auction off its capacity on a long-term contractual basis, with the rights to the capacity and associated energy "callable" (sic) as customers migrate to alternative suppliers, with limits placed on the portion of total capacity that could be obtained by individual buyers).
Dr. John O'Brien
Tr. 1416 - 1539
Settlement has an unduly slow pace for implementing retail access; fails to provide a reasonable unbundling of the cost elements essential for developing fair and accurate delivery rates; and contains a market structure that would unduly favor the incumbent utility and its affiliate over alternative suppliers.
Dr. William Shepherd
Tr. 429 - 459
Danger of permanent market dominance, with each old utility holding over 70% of its market through its power-marketing affiliate and/or own services; reasons for concern that deregulation will not result in robust competition in the electric industry; special reasons for concern about the impact of deregulation in the electric industry -- most incumbent companies are vertically integrated; segmented geographic markets.
Minimum requirements for sound deregulation -- equal and comparable access to generation facilities; restrictions to prevent dominance by incumbent utilities; rejection of proposals to perpetuate standard offers; limiting special contracts; establishment of effective enforcement mechanisms.
Prerequisites for effective competition: Specific characteristics of the electricity industry -- basic conceptual analysis is required; a simplified deregulatory model is not applicable to the electricity industry; imperfections in the electricity market (some customers are poorly informed; some customers are overly fearful about risks; customer loyalties; the utility firms' superior information; long-time close contacts with customers; imbalance in the financial resources available for strategic pricing and other devices; vertical controls; complex conditions of supply; some customers are already locked up); impact of high existing concentration levels on development of a competitive market. Relevant prior experience in other industries (telecommunications).
Settlement's inadequacies are evident from the broad-based and intense opposition it has engendered, including from state government agencies, local governments, large customers, small customers, generation suppliers, power marketers, and environmental organizations. Settlement is in stark contrast to California's recent decision to implement retail access for all customers on 1/1/98.
WEPCO's witness offers a unique perspective, having extensive experience running a company involved in the retail marketing of electricity.
Need a firm schedule for implementing retail access (pilot programs in 1997, retail access for 10% of customers in January 1998 and an additional 25% in July 1998, followed by another 35% in January 1999 and the remaining 30% in January 2000). Disputes Con Edison's justification of its protracted schedule for phasing in retail access (Con Edison raised four areas of concern: billing system modifications; customer education; implementation of a fully functional ISO; and termination of the utility's obligation to serve. Con Edison also cited three other issues needing to be worked out: ESCO creditworthiness; use of load shapes; and balancing). WEPCO states Con Edison's arguments are not a realistic assessment of the feasibility of implementing retail access within a reasonable time frame.
As to delivery charges, the Settlement substantially overstates them, which would deny customers the opportunity to obtain lower cost service from ESCOs. Delivery charges based on full recovery of strandable costs for a five-year period would preclude the development of robust competition (contrasts back-out proposals in two other proposed Settlements, Central Hudson and RG&E, which would explicitly back out a significant amount of capacity costs). The initial energy back out is substantially understated, and would preclude or sharply limit customer and ESCO participation in retail access.
Tr. 2547 - 2640
Four issues: (1) proposed five-year rate plan and the related proposal for subsequent stranded cost recovery by Con Edison; (2) proposed method for developing Con Edison's charge for transmission and distribution, and how that proposal would limit competition during and subsequent to the five year rate plan; (3) distinguishing features of providing electricity to customers in Westchester County (it is not a load pocket, per Con Edison's October 1 filing at Appendix 3, page 7); and (4) proposed schedule for providing customer access to other sources of generation.
Settlement is unreasonable in following respects:
1. Rate reductions should be much larger.
2. Provisions for stranded cost recovery associated with fossil generation allow Con Edison to earn an unacceptably large rate of return on equity.
3. Combustion turbine generation should be divested in order to provide competition. Need method for evaluating stranded costs or benefits of divesting this class of generation.
4. Settlement allows outputs from Indian Point No. 2 to be sold by Con Edison at market prices above the prices which would be appropriate under regulation.
5. Settlement does not provide adequate incentive for Con Edison to mitigate its uneconomical IPP contracts (Con Edison will retain substantially all of any price reductions achieved for first five years; incentive for mitigation after the first five years will vanish if Con Edison achieves mitigation equal to 10% of overpayments imputed per the existing contracts; and Con Edison could escape the risk of bearing any part of overpayment for good faith efforts in implementation of other Settlement provisions having nothing to do with these contracts).
6. Provisions for stranded cost recovery and methods by which transmission and distribution charges are to collect that recovery will stifle competition and delay benefits to ratepayer, as well as delay construction of cleaner, more efficient, and less expensive generation.
7. Settlement fails to avoid cross subsidization in three respects: rate reduction for various classes of customers is very different and no attempt was make to justify this by cost of service analysis; the subsidy of steam customers (about $100 million) will continue; and charges for transmission and distribution to Westchester customers may actually be higher than for in-City customers because of stranded cost recovery method.
3. As one witness stated, issues involved in this proceeding are "inextricably interrelated." Dr. Miles O. Bidwell, Jr., testifying on behalf of the Independent Power Producers of New York, Inc., and Enron Capital & Trade Resources. Tr. 1,867.
4. In accordance with the established standard of review for settlements, this recommended decision primarily addresses fundamental concerns raised, and does not purport to address items of a minor nature. See VI, infra.
7. My intention in this recommended decision is not to be overly prescriptive as to what specific changes must be made to the Settlement, since there are likely to be a variety of acceptable resolutions and compromises. My goal is merely to highlight those areas where persuasive objections were raised. I expect the parties to use their collective ingenuity in crafting revisions where needed. Indeed, potential for creativity is one of the important benefits of a negotiated resolution.
9. These matters were the minimum the Commission asked utilities to include in their filings. The actual list includes somewhat more detail about what the filings were expected to include. Ibid. pp. 75-76.
14. Cases 94-E-0952 et al., Order Establishing Procedures and Schedule (issued October 9, 1996), pp. 3-4. During the first 90-day period, the progress of the proceeding was monitored through a series of procedural conferences held in New York City on November 4, 1996, November 26, 1996, and December 16, 1996. The results of the conferences were summarized in procedural rulings issued November 7, 1996, November 29, 1996, and December 20, 1996.
Also, during the first 90-day period, public input was sought through educational forums and public statement hearings held in Manhattan, Brooklyn, Queens, and White Plains. Notice of Educational Forums and Public Statement Hearings (issued October 30, 1996), p. 2. The public input received through these vehicles is discussed in III, infra.
15. Cases 94-E-0952 et al., Notice to the Parties (issued December 19, 1996); Cases 96-E-0909 et al., Notice to the Parties (issued January 9, 1997); Cases 96-E-0909 etal., Notice to the Parties (issued February 13, 1997); Cases 96-E-0909 and 96-E-0897, Notice to the Parties (issued February 26, 1997); Cases 96-E-0909 et al., Notice to the Parties (issued March 6, 1997).
17. The Settlement consists of 50 pages of text and Appendices A through J. It was supplemented by signatures pages and entered into the evidentiary record as Exhibit 1. However, its lack of finality is not really in dispute, in light of staff's statement in its post-hearing brief that discussions regarding the Settlement are continuing. Staff's Post-hearing Brief, p. 28 (citing Tr. 1,236-1,237).
A series of educational forums and public statement hearings was held in White Plains, Staten Island, Manhattan, Brooklyn, and Queens from May 6, 1997 to May 8, 1997 to receive public input regarding the Settlement. Notice of Educational Forums and Public Statement Hearings (issued April 10, 1997), p. 2. The public input received through these vehicles is discussed in III, infra.
19. Both statements and prefiled testimony in support of the Settlement were filed by Con Edison and staff; DED and Utility Workers filed only prefiled testimony; Owners Committee and Cogen filed only statements. A subsequent statement in support of the Settlement was submitted by U.S. Generating Company by letter dated April 22, 1997, along with its signature page.
20. Cogen also supports the Settlement, but opposes those portions that require Con Edison to be at risk for disallowance of costs for contracts with non-utility generators. Cogen's Statement in Opposition, pp. 3-11. Although Cogen and the Settlement itself use the abbreviation "NUG" for non-utility generator, my preference is to refer to the same entity as an independent power producer or "IPP." Thus, throughout this recommended decision, the abbreviation IPP will be used.
21. New York Energy Buyers Forum, the Greater New York Hospital Association, New York University, and Montefiore Medical Center submitted prefiled testimony (of Dr. Alan Rosenberg) jointly; New York Energy Buyers Forum and Greater New York Hospital also submitted prefiled testimony (of Richard B. Bernhardt) jointly with Enron Capital & Trade Resources.
22. Public Interest Intervenors represents a coalition of 16 environmental and consumer groups, including Natural Resources Defense Council, Pace Energy Project, Citizens Advisory Panel, New York Public Interest Research Group, Environmental Advocates, New York Rivers United, American Wind Energy Association, New York Energy Efficiency Council, American Lung Association, Hudson River Clearwater, Citizen Action of New York, Association for the Protection of the Adirondacks, Hudson Riverkeeper, Scenic Hudson, Adirondack Council, and Citizens Campaign for the Environment.
23. The following parties filed both statements and prefiled testimony in opposition to the Settlement: IPPNY/Enron, Joint Supporters, NYPA, Public Interest Intervenors, Retail Council, Travelers, and WEPCO. The following parties filed only prefiled testimony: AARP, CPB, In-Novo, NYC, N.Y. Energy Buyers Forum etal., and Westchester County. Only statements in opposition were filed by Cogen, Coordinating Housing Services, Inc., DOL, NAESCO, New Energy Ventures/Entek, MTA Intervenors, Prudential, PULP, and Strategic Power Management.
25. Also announced in the notice issued March 20, 1997, was a prehearing conference held in New York City on April 14, 1997. That conference provided an opportunity for consideration of motions to strike testimony (filed on March 25, 1997, and April 9, 1997) and a discussion about hearing procedures. Procedural rulings issued March 20, 1997 and April 16, 1997, contained discussions of preferred approaches for ensuring that the Commission's procedural schedule could be met, and addressed all motions to strike prefiled testimony.
27. New York Energy Buyers Forum filed two separate briefs (one on behalf of the New York Energy Buyers Forum, the Greater New York Hospital Association, New York University and Montefiore Medical Center; and the second regarding the 80% in-City generation capacity requirement discussed in VII(B), infra, on behalf of the New York Energy Buyers Forum, the Greater New York Hospital Association, and Enron Capital & Trade Resources).
29. Educational forums and public statement hearings were held in Manhattan on November 25, 1996, and May 7, 1997; in Brooklyn on November 26, 1996, and May 8, 1997; in Queens on December 3, 1996 and May 8, 1997; in White Plains on December 4, 1996, and May 6, 1997; and in Staten Island on May 7, 1997.
30. There were also other statements that included criticisms of Con Edison's management and a description of the features distinguishing Westchester County from the rest of Con Edison's service territory.
32. While this section includes a brief summary of major terms of the Settlement, the document itself is extremely complex and contains numerous detailed and interrelated provisions. For that reason, the Settlement is attached as Appendix C.
34. The Settlement has as an appendix a memorandum of agreement regarding an alleged revenue requirement deficiency of $13 million for Con Edison's 25 Hz service. The Settlement, Appendix D. NYPA, Con Edison, and the New York City Transit Authority have agreed that the New York City Transit Authority would only be exposed to this amount of money if it fails to get off the 25 Hz system by December 31, 1999. NYPA states this is a reasonable resolution because it encourages the New York City Transit Authority to take timely action to convert its load to 60 Hz service. NYPA's Statement in Opposition, p. 6.
35. A summary of major points raised by parties is attached to this recommended decision as Appendix D. All arguments and facts that are part of the record in this proceeding have been carefully considered.
39. See e.g., Cases 95-G-0761 et al., The Brooklyn Union Gas Company - Corporate Structure and Rate Plan, Opinion No. 96-26 (issued September 25, 1996), mimeo p. 7; Case 95-W-1168, United Water New Rochelle, Inc. - Rates, Opinion No. 96-29 (issued October 31, 1996), mimeo p. 8; Case 96-G-0548, Consolidated Edison Company of New York, Inc. - Gas Rates, Opinion No. 97-1 (issued February 19, 1997), mimeo p. 7.
Market forces overall are expected to produce, over time, rates that will be lower than they would be under a regulated environment. As we move toward competition, our expectation is that rates overall will be reduced.
Cases 94-E-0952 et al., supra, Opinion No. 96-12, mimeo p. 26. Additionally, the Commission pointed to the experience in other deregulated industries and in the electric industry in other countries as support for the expectation that lower bills should result from competition. Ibid., mimeo p. 28.
44. See e.g., AARP, CPB, CUB, DOL, NYC, and PULP. Some assert that additional revenue reductions would be possible if shareholders absorbed more strandable costs. Issues specific to strandable costs are discussed in VII(C), infra.
46. IPPNY/Enron's Post-hearing Brief, p. 2, citing Tr. 870-873. IPPNY/Enron refers to "discounts to fixed and variable payments for power delivered from the Independence Plant commencing November, 1999." Id.
47. According to NYPA, as a result of the last agreement in Case 94-E-0334, an annual decrease of $48.6 million would have resulted instead of a $87.1 million annual increase as Con Edison claims. NYPA calculates this decrease to amount to about 37% of the projected cumulative savings of $655 million. NYPA also asserts that many other cost or revenue adjustments (including reductions in taxes, pension benefits, research and development expenses, Sithe and NYPA contracts, and demand side management expenses) would have occurred without the Settlement. NYPA's Post-hearing Brief, p. 21.
51. Tr. 1,597, 1,616, and 1,635-1,636. CPB also states that one-half of the investor share of excess earnings should be used to write down stranded costs. This matter is addressed with other issues related to strandable costs in VII(C), infra.
61. Staff's Post-hearing Brief, p. 23. According to Con Edison, "[s]uccessful implementation of securitization alone would be expected to lower the bills of residential and small commercial customers by about 5 percent over and above the rate savings reflected in the settlement agreement." Tr. 573.
62. "The Company's previous rate agreement, in Case 94-E-0334, specified the phased-in implementation of certain revenue-neutral rate design changes that would more closely align rates with costs. These involve a change in the customer charge applicable to small commercial and residential rate customers and a change in the demand/energy rate designs applicable to large TOD [time-of-day] rate customers. These changes are incorporated into this settlement agreement (II. 19)." Tr. 584-85.
67. This is not to say that certain aspects of alternative rate designs, proposed by opponents, do not have appeal as innovative means to address new and difficult issues inherent in the establishment of a new competitive market.
70. PULP challenges the Commission's authority to approve the retail access program for all customer classes, claiming that Public Service Law 16(12-b)(b) only authorizes retail wheeling for industrial and commercial customers. PULP also claims that Con Edison cannot implement retail wheeling unilaterally, that is without Commission approval. Finally, according to PULP, a recent court case did not address the issue of retail wheeling for residential customers. PULP points out that in New York, the Legislature is considering electric industry legislation, and suggests that pending the enactment of any legislation, the retail access plan in the Settlement should be limited to industrial and commercial customers. PULP's Post-hearing Brief, pp. 12-19.
Staff claims that there is no legal bar to the retail access program in the Settlement, relying on the most recent court decision as support for the Commission's authority to authorize retail access. Staff's Post-hearing Brief, p. 25.
Staff's analysis appears to be consistent with the most recent court decision which states as follows:
in its opinion of November 25, 1996 the Court held that the PSC may effectuate retail wheeling (169 Misc. 2d at 932-936); if that holding is correct, the PSC certainly may authorize retail wheeling.
Energy Association et al. v. Public Service Commission, No. 5830-96, slip op. at 7 (Sup. Ct. April 18, 1997) (emphasis in original).
71. The Settlement, p. 31 (III, 1). The Settlement states that "Con Edison will make best efforts to initiate a retail access program for 10 to 15 large TOU [time-of-use] customers within six months following Commission approval. . . . A total of up to 300 MW will be made available to up to approximately 100 customers who have real time metering. . . . A total of up to 200 MW will be made available to up to approximately 160 groups of non-TOU customers from all service classifications." Ibid., pp. 31-32 (III, 1(i), (ii), and (iii)).
75. See e.g., comments by Coordinating Housing Services, Inc. (too slow a transition; insufficient access by New York City residents; lacks economic incentives to inspire viable program; ignores effort by Coordinated Housing Services, Inc. to establish a workable retail access pilot project in typical New York City high-rise residential housing); New Energy Ventures/Entek (schedule for retail access should be accelerated); NYC (need quick and simultaneous retail access); Retail Council (timing is slow and should be accelerated).
77. The conclusion that the Settlement's timetable is reasonable is based on my understanding of the date on which "a fully operational ISO" is established, as defined in the Settlement. The Settlement, p. 32 (III, 2). If the Settlement had used the date of FERC approval of an ISO, for example, the 24 months could be more easily measured.
78. The Settlement provides that the charge will equal the full service rate in the applicable PSC No. 9 tariff, subject to energy and generation capacity adjustments. Before an independent system operator is established, the energy credit would equal the S.C. No. 11 buy-back energy rates, and the capacity credit would equal revenues from sales of capacity plus certain additional savings. After the ISO is fully operational, energy and capacity credits would equal the market value for energy and capacity, respectively. Con Edison's capacity would be bid at a price reflecting "to go" (or avoidable) costs (or higher costs not to exceed total embedded costs). The Settlement, pp. 34-36 (III, 8 and 11).
79. For example, see Retail Council's concern that the energy backout is too low to attract meaningful load serving entity participation, so the development of retail access is doomed; WEPCO's assertion that backout proposals in two other proposed settlements (Central Hudson Gas & Electric Corporation and Rochester Gas and Electric Corporation) are better in that they explicitly backout a significant amount of capacity costs; IPPNY/Enron's position that the backout rates are understated which will deter entry into the market; Joint Supporters' position that the proposed transportation delivery charge for retail access service is flawed since it penalizes retail access customers by assigning them an obligation to subsidize Con Edison's future costs of doing business beyond compensation for strandable costs; New Energy Ventures/Entek's points that (1) the proposed retail access prices are confusing and not unbundled, (2) the backout credit is confusing and conceptually flawed (instead should introduce usable, separately stated prices for each service offered), and (3) should set a date certain for the calculation of bottom-up delivery rates and order that those rates should be in effect by the time full retail access is made available to all customers; NYC's concern that proposed delivery rate mechanism will discourage competition; and New York Energy Buyers Forum et al.'s suggested rate design changes.
82. IPPNY/Enron admits that this adjustment is subjective. The testimony states this 25% increase reflects the difference between average variable costs and marginal (or avoided) costs. According to IPPNY/Enron, the parties should be directed subsequently to develop appropriate backout credits for the period after the establishment of an independent system operator. Tr. 1,903.
86. Multiple Intervenors asserts that as long as a current NYPA EDP customer purchases NYPA power, whether pursuant to a currently effective contact, a renewal, or a new contract, the delivery rate applicable to these customers should not include the stranded cost recovery which is inherent in the transportation delivery charge component. Multiple Intervenors' Post-hearing Brief, pp. 8-10.
87. IPPNY/Enron states the backout credit should include the necessary production costs, and that this would result in the energy price reflecting all going forward costs and a reliability component. Tr. 1,902.
88. The specific example raised by IPPNY was the treatment of property taxes, and Con Edison stated that "to go costs" exclude property taxes (in contrast with Con Edison's interrogatory response, where the opposite conclusion was stated). This matter was addressed in several places in the transcript. See e.g., Tr. 848-851; 1,137-1,138; 1,308-1,318. The parties also addressed this in briefs. IPPNY's Post-hearing Brief, pp. 10-12; staff's Post-hearing Brief, pp. 7-8.
91. Testimony on behalf of New York Energy Buyers Forum et al. presents numerous criticisms of the derivation of the 80% in-City capacity requirement and concludes that it is overstated. Tr. 2,084-2,109.
92. According to IPPNY/Enron, this level "balances the need for reliability, the costs to ratepayers seeking retail access and the interest in fostering competition." IPPNY/Enron's Post-hearing Brief, p. 17.
93. Con Edison states that its customers place great emphasis on the importance of reliability as shown by studies done prior to its October 1 filing. Letter from Con Edison, dated May 7, 1997, citing Appendix 2, p. 5 of the October 1, 1996 filing (Exhibit 12). Owners Committee also states that unreliable service would be intolerable, and continued dependability of electric service is more important than a lower electric rate. Owners Committee's Initial Statement in Support, p. 2.
96. As part of its analysis of the Stone & Webster study, for example, New York Energy Buyers Forum et al. states that "the duration and magnitude of loss of supply due to transmission and generation system related failures is extremely small and, when compared to loss of supply due to distribution system failures, represents a fraction of the total actual loss of supply experienced by the consumers in New York City." Tr. 2,098.
[T]he company's conduct should be judged by asking whether the conduct was reasonable at the time, under all the circumstances, considering that the company had to solve its problems prospectively rather than in reliance on hindsight. In effect, our responsibility is to determine how reasonable people would have performed the tasks that confronted the company.
Case 27123, Consolidated Edison Company of New York, Inc. - Indian Point No. 2 Outage, Opinion No. 79-1 (issued January 16, 1979), mimeo p. 6.
102. The Settlement's provisions regarding stranded cost recovery are opposed by such parties as AARP (should be 50/50 sharing at a minimum, and allocation of the burden of recoverable strandable costs should be based on consumption or cost causation); CPB; CUB (one-half of the investor share of excess earnings should be used to write down stranded costs); New York Energy Buyers Forum et al.; Retail Council; Westchester County (provisions for stranded cost recovery associated with fossil generation allow Con Edison to earn an unacceptably large rate of return on equity; insufficient incentive for Con Edison to mitigate uneconomical IPP contracts).
Related to the issue of funding for environmental programs, Public Interest Intervenors advocates for several modifications to the Settlement, which it says will also provide environmental benefits. For example, Public Interest Intervenors argues for a "price cap plus" form of performance-based regulation, claiming this will minimize long-term costs associated with distribution system investments and avoid excessive environmental costs that result from simple price caps. Public Interest Intervenors, Post-hearing Brief, pp. 10-21. Public Interest Intervenors also suggests that the Commission investigate ways to develop "a protocol for environmental disclosure." Ibid., p. 22; Tr. 2,525-2,532.
As to the establishment of a working group to discuss environmental disclosure, this is not the type of issue that should be limited to Con Edison's service territory. The Commission may wish to decide that this issue's importance is equivalent to others (such as metering and billing issues, discussed in VII(F), infra) which it has assigned to staff to address generically, in collaboration with all interested parties. But this judgment would need to be made outside of the context of this individual case.
In the context of this proceeding, where the mandate is to test the reasonableness of the Settlement, the adoption of these proposals is not required in order for the Settlement to be consistent with the Commission's vision in Opinion No. 96-12.
119. Public Service Law 5(2) provides in relevant part: "The commission shall encourage all persons and corporations . . . to formulate and carry out long-range programs . . . for the performance of their public service responsibilities with economy, efficiency, and care for . . . the preservation of environmental values and the conservation of natural resources."
120. Cases 94-E-0952 et al., supra, Opinion No. 96-12, mimeo p. 56. It is my understanding that Con Edison's 1995 costs for energy efficiency, research and development, and low-income energy efficiency would total about 1.86 mills/kWh. This is based on a draft staff discussion document (dated 2/14/97) circulated to all parties in the generic phase of Case 94-E-0952, regarding system benefits charge issues.
130. This is also related to the Settlement's provisions that only functionally unbundle generation from transmission and distribution during the five-year term, rather than require structural separation. See VII (E)(2), infra.
134. These standards address such matters as the following: affiliates will have no restrictions on using the same name as the regulated company or holding company; all similarly situated customers will pay the same rates; release of proprietary customer information will be subject to prior authorization by the customer and subject to the customer's direction; the regulated company will generally not disclose to its affiliate information that is not available to the affiliate from other sources. Additionally, a complaint procedure involving the Commission is established. Ibid., pp. 44-45 (V, 9).
139. As an example of an agreement establishing a holding company that includes safeguards expected to minimize potential consumer harm, the parties may want to consider the Brooklyn Union Gas Company (Brooklyn Union) stipulation approved by the Commission in September 1996. Although the Commission will need to evaluate this case on its own merits, the complete separation of gas purchasing operations between the regulated entity and non-utility subsidiaries approved for Brooklyn Union is attractive. Cases 95-G-0761 et al., supra, Opinion No. 96-26. Additionally, parties should consider incorporating a code of conduct consistent with the Federal Energy Regulatory Commission's standards of conduct which require the utilities to separate personnel, office space, and operations between regulated transmission functions and wholesale generation merchant functions. 18 CFR 37.4, included in Exhibit 30.
141. Expeditious resolution of disputes is particularly critical in the beginning stages of a competitive market so that competitors are not harmed. The Settlement's procedure for resolution of disputes includes provisions that result in the referral of complaints to the Commission within 35 business days. The Settlement, p. 45 (V, 9 (vii) and (viii)). This assumes an obligation on the part of the Commission to act expeditiously as well.
143. Case 94-E-0952, supra, Opinion No. 97-5 (issued May 19, 1997). This opinion and order was issued after both the hearings in this proceeding were concluded and the post-hearing briefs were due, so parties have not had an opportunity to address the applicability of these regulatory policies on the Settlement.
147. Tr. 2,003-2,015. The Settlement provides that a rate unbundling tariff filing will be made by January 15, 1998, to become effective April 1, 1998. The unbundled rate components will include generation, transmission, distribution, and system benefits. The Settlement does not address the unbundling of metering, billing, and information services. The Settlement, p. 19 (II, 20(i)).
153. The Settlement, p. 26 (II, 30 (iii)). The Settlement states that this provision will "facilitate the Company's operations under the rate plan." Id. Regulations being waived in the Settlement include parts of Part 11 of 16 NYCRR, which is the section that implements the Home Energy Fair Practices Act (HEFPA) or article 2 of the Public Service Law, 30 et seq.
154. Tr. 954. On redirect, Con Edison stated that while it was not aware of other forms of identification that it could take orally other than Social Security numbers, it would be willing to discuss proposals "that would be adequate to provide positive ID on an oral basis." Tr. 1,139.
Service Law 31.1; 42 U.S.C. 405(c)(2)(C)(vii)(I); and 5 U.S.C. 552(a), 7(a)(1).
158. In accordance with this program, the customer charge for certain customers would remain fixed at five dollars per month for five years and the energy efficiency component would be continued through October 1999. The Settlement, p. 21(II, 23). It is noteworthy that the Settlement was signed by the Association for Energy Affordability.
162. AARP's Post-hearing Brief, pp. 2-3. AARP attached to its post-hearing brief a copy of a letter dated April 29, 1997, from Chairman John F. O'Mara to Assembly member Tonko, which, according to AARP, "concedes that [Chairman O'Mara] did discuss the Settlement with Consolidated Edison officials."
184. PULP claims that the Commission neither has the authority to deregulate new generation providers nor to modify the statutory obligation to serve. PULP's Post-hearing Brief, pp. 20-23. These and other legal arguments raised by PULP are really challenging the Commission's policy vision expressed in Opinion No. 96-12 and are being addressed in litigation in that context. Approval of a settlement agreement that implements the Commission's policy vision for the provision of competitive electric services is consistent with the Commission's authority. Public Service Law 4(1), 5(2), 65(1), and 66(10).
185. According to Strategic Power Management, the Settlement "does represent significant improvement from Con Edison's comprehensive filing of October 1, 1996." Strategic Power Management's Statement in Opposition, p. 2.
See other web pages in the category: Electric