| In its comments to the Commission in its inquiry on long term utility contracting, NEM urged the Commission to permit competitive market forces, rather than regulatory intervention, to identify and meet the need for new capacity resources. NEM cautioned that regulatory mandates inevitably lead to higher costs than competitive market-based supply and demand-side investments. If utilities are forced into making long-tem generation investments rather than or in addition to needed infrastructure investments, they should do so via an arms-length competitive affiliate, and subject to Commission-administered compliance with utility codes of conduct.
NEM suggested that there is a complex set of issues that are determinative of whether new generation gets built and recommended that addressing these other issues would create the framework necessary for competitive entities to bring new capacity resources into the State without requiring utilities to enter into long term contracts. These issues include, amongst others: a) inadequate pricing signals; b) siting difficulties; c) regulatory uncertainty; d) lack of settled national policy on environmental standards; e) sanctity of contracts; f) lack of long-term firm transmission rights; and g) expectations of the financial community.
NEM recommended that the Commission need not duplicate FERC, NYISO and NERC processes for assuring the adequacy and reliability of our electric infrastructure by requiring utilities to enter into long-term capacity contracts and engage in integrated resource planning. NEM also noted that utility long term contracting is inconsistent with sending market-based pricing signals necessary to support consumer demand response. Utility long term contracting would also add an unnecessary layer of potential stranded costs and risks to the retail marketplace.
If, contrary to NEM’s recommendations, the Commission decides that a long-term utility contracting mandate is the means it decides to use to encourage new capacity investments, NEM recommended the following suggested safeguards to the public interest:
1. A rebuttable presumption that the market can and should be relied upon first to meet the need for new capacity resources;
2. If a utility elects to remain a sole source, non-competitive, default supplier during its bona-fide transition to a full exit from competitive functions, and the Commission finds sufficient evidence to support a finding that the market has not, or more importantly, cannot satisfy this otherwise competitive function, the utility(ies) should be required to use a competitive solicitation for commodity so as to provide both transparency to the process that avoid potential anti-competitive, market-share and/or market-power issues;
3. The competitive solicitation process should be conducted in strict, good faith compliance with affiliate rules and standards of conduct;
4. All resources – generation, transmission and demand response – should be permitted to participate in the solicitation and receive market-based compensation;
5. The full costs plus all financial, regulatory and migration risks associated with all long-term contracting as well as hedges should be borne by utility shareholders and reflected in the commodity price for full service customers (who should have the right to opt out without penalty);
6. Choice customers should not incur an exit fee/choice penalty or other charge for shopping for non-utility generation, regardless whether it is paid for via long-term contracts or otherwise;
7. The extent of utility participation in the competitive supply function should be phased out as consumers migrate into the competitive supply market so that long-term contracts at today’s historically high prices do not become stranded costs of tomorrow or non-bypassable charges that merely increase total energy costs for everyone without an end time specified;
8. NEM urges the Commission to avoid the unintended consequences, high economic costs and significant investment risks associated with regulatory market intervention, particularly in a well functioning market that has proven itself to be “workably competitive” and quite successful for more than a million New Yorkers; and
9. The Commission should reiterate its commitment that utilities will exit competitive functions during a well defined period with quantifiable or at least observable service/reliability and/or other landmarks that will allay fears, lack of adequate public education and importantly, the higher costs and risks that result from regulatory mandates as well as regulatory uncertainty. The full text of NEM's Comments is available on the NEM Website.
Staff proposes a two part Dynamic Electric Planning Process (DEPP), to be directed by Staff in collaboration with affected stakeholders. "The DEPP would accommodate various public policy goals established by the Commission or propounded by the stakeholders, and would be submitted to the Commission for its review and approval. Following approval of the DEPP, utilities would implement specific recommendations through targeted procurement mechanisms. The proposed mechanisms would be submitted to the Commission for its approval, and, once approval is obtained, the utility would proceed to procure the electric infrastructure enhancement or resource in conformance with the mechanism. Where a long-term contract is the most effective means of acquiring a needed resource, a mechanism can be directed towards the creation of such a contract." Staff argues that "a long-term contracting process is better suited than IS0 capacity pricing arrangements to both ensuring reliability and advancing public policy goals." The full text of Staff's Comments is available on the NEM Website.
CPB argues that little new investment in electricity infrastructure has been made despite high prices and policies intended to encourage new generation. CPB recommends the use of integrated planning to identify State resource needs and to achieve public policy goals. CPB argues that additional use of long-term contracts (longer duration than five years) would be in the public interest. The full text of CPB's Comments is available on the NEM Website.
According to the Energy Association of NYS (comprised in part by electric delivery utilities), "long-term contracts can be a useful tool for energy delivery companies in assembling supply portfolios to meet their customer’s needs, but the utilities should not be directed or required to enter into such contracts." NYSEG/RGE argue that, "Where there is an identified need for additional resources, electric utilities, which have the statutory obligation to provide distribution and commodity service, should have the opportunity to meet their load obligations through a portfolio of resources, including utility-owned generation. . . . While many merchant generators continue to struggle to recover their financial health, electric utilities generally have the financial strength to secure the necessary long-term financing, provided they have the support of the state and federal regulatory bodies. NYSEG and RG&E are prepared to invest in new rate-based generation assets under appropriate regulatory conditions and have the financial strength required to do so." Relatedly, Central Hudson argues that, "regulated utility construction of new generation offers potential cost, and other advantages to consumers that generating companies are unlikely to provide." ConEd/O&R urge that, "the Commission should make clear in this proceeding that a utility built facility will be allowed as an alternative to entering into long-term contracts. A utility built facility can be a better option than a long-term contract because there would be increased operational flexibility as conditions change, i.e., no need to amend a contract, and the increased stability and reliability that comes from the actual owner being a creditworthy entity." The full texts of the Energy Association of NYS, NYSEG/RGE, Central Hudson and ConEd/O&R Comments are available on the NEM Website. | |
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