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New York launches formal review of competitive energy markets

New York is launching an extensive review of competitive power and natural gas markets with an eye to eventual reforms that could change the way energy marketers operate in the state.

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Over the next several months, the New York Public Service Commission plans to hold public hearings and solicit sworn testimony to gauge what changes, if any, are necessary in the competitive markets that were formed 17 years ago.

When the PSC first opened the energy services market to retail competition, "the intended purpose of allowing energy service companies to serve residential and small non-residential customers was to spur innovation in the creation of value-added products, particularly energy-efficiency services that regulated rates may not provide, and to create commodity price competition that would result in efficiencies," the PSC said this week.

Now, after "considerable experience" with the offering of retail service to mass-market customers by the so-called ESCOs, the commission said it has determined "that the retail markets serving mass-market customers are not providing sufficient competition or innovation to properly serve customers."



Moreover, despite efforts to realign the retail market, customer abuses and overcharging persist, the PSC said, particularly in the provision of energy efficiency and energy management services.

"Commodity price differentiation has not worked, and the market for differentiated services is immature or non-existent," it asserted.

If ESCOs were "truly living up to the promise of their function as innovators, it is expected that there would be much greater variety and transparency in the market for goods and services that supply real consumer energy value," the PSC continued.

The PSC estimated that, since 2014, New York consumers have paid energy marketers nearly $820 million more for utility services than they would have paid to their incumbent utilities. For a shopping National Grid customer, the average overcharge was $217, it said.

Nationally, some 12 to 16 states offer some form of energy competition. Similar concerns have surfaced in the past couple of years in Illinois, where the Illinois Commerce Commission is cracking down on alleged marketing abuses.

In Michigan, meanwhile, the state's 10% choice cap is under fire in some quarters, notably from the state's investor-owned electric utilities, which want to abolish the cap and return the state to a regulated regime.

PSC spokesman James Denn said in an email Tuesday that his state for too long "has seen substantial overcharges and deceptive practices by the ESCO industry harming New York customers."

As part of the upcoming hearings and testimony, the commission intends to give energy marketers the opportunity to explain their pricing practices and to hear from customers who may have been harmed by those practices, he said.

"We will then push ahead with reforms to ensure that ESCOs provide useful, value-added economical services to New York consumers particularly as part of our efforts" under the PSC's "Reform Energy Vision" initiative.

The Washington-based national trade group for competitive energy suppliers, the Retail Energy Supply Association, believes that "fair and impartial review" of New York's competitive energy markets will show "clear and unambiguous benefits for consumers and the state's economy," group spokesman Bryan Lee said Tuesday in an email.

RESA, he said, seeks to keep the competitive markets for electricity and natural gas open to all consumers, and the group plans to actively participate in this PSC proceeding "to achieve that goal.

"Consumers enjoy and demand choices in every aspect of their daily purchasing decisions, from car insurance and cell phone providers to doctors and vacation destinations. Any policy changes ultimately identified by the commission must preserve opportunities for choice by consumers in their energy supply decisions."

Among the issues to be explored in the New York PSC inquiry is whether ESCOs should be prohibited in total or in part from serving their current products to mass-market customers, or whether they should be required to offer value-added energy efficiency and energy management services as a condition to offering commodity services.

--Bob Matyi, newsdesk@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com