Campaign Will Explain Electricity Options To NYSEG Customers

BY JEFF PLATSKY - Press & Sun-Bulletin

In the next three months, NYSEG electricity customers will be buffeted by succesive waves of mailings and media promotions urging customers to select one of three alternatives for service.

The decision could be a tought one for many to make.

When the father of deregulation faced the real-life dilemma of choosing an electric supplier, he demurred and left the decision to the experts.

"I dreaded the thought of choosing my own gas and electric supplier," Alfred Kahn, the former Carter administration deregulation czar, said from his Ithaca office. "It was very complicated and I was frightened by it."

And this is from the man who engineered airline industry deregulation in the late '70s and is credited by many for starting the march toward deregulation of several industries that were formerly government-controlled and regulated. While he supports the concept of electricity deregulation and is certain it will eventually be a boon to consumers, he was less enamored with the prospect of making his own decision on an electric supplier.

If electric industry deregulation confounds Kahn, how is the average homeowner who barely reviews the monthly electric bill let alone holds a Ph.D. in economics supposed to decide?

Welcome to the second phase of electric deregulation in the NYSEG service territory. A $2.6 million ratepayer-financed barrage will attempt to get customers to embrace retail competition, a concept which, until now, they largely ignored. The Public Service Commission ordered the educational campaign to inform customers of the coming changes. A three-month sign-up period opens on Oct. 1.

The choice is all a part of New York's transition into a competitive electricity market, a move that has proceeded in fits and spurts over the past five years. Homeowners may have to be dragged kicking and screaming into the new realities of electricity industry deregulation. Even if they don't like it, there's no turning back now.

No easy transition

The transition, by many accounts, won't be easy.

Even those who have been involved in the process since its infancy are sometimes confounded by the details. The plan, to be unveiled to NYSEG customers this coming week, doesn't simplify the process, say those who have previewed some literature.

"It's complicated stuff," said Michael Meath of Agway Energy Services, which expects to market alternative supply in NYSEG's service territory.

Those who have reviewed mailings proposed by NYSEG are dubious that the campaign will move people to choose an alternative with any enthusiasm.

"I tried to read one of them and it hurt my head, and I've been in on the settlement discussions," said Gordon Boyd, a consultant for Saratoga Springs-based Salerni & Boyd, an outfit that has been advising local communities on their options in electric deregulation. "It's complicated and it does not speak to the main question -- will you save money?"

NYSEG representatives in Binghamton refused comment on its "Voice Your Choice" campaign. However, a copy of the literature provided by NYSEG indicates that the utility is trying to explain the choices as simply as possible within the constrains of an eight-page pamphlet.

The Public Service Commission ordered utilities across the state to separate the service portion -- the actual juice flowing into your home -- from the distribution portion -- the cost of carrying that juice on electric lines. The objective: Inject competition into the electricity supply market. The goal: Lower electric bills for all New Yorkers, eventually.

"We're trying to promote competition and customer choice," said David Flanagan, spokesman for the Public Service Commission. "We think that by doing that, you're going to see lower electric prices than you would under regulation."

Retail access to independent suppliers is not new. Customers in NYSEG service territory have actually been able to make the choice for about five years. Few have.

"I don't know enough about it," said Leonard Kohn, an Endicott resident who knows about the option but has remained with NYSEG despite the alternatives available. "Nothing has been presented to me," Kohn said.

Indeed. Unlike the flurry of competitors that swept into the field with the advent of telephone deregulation more than a decade ago, there has been little attempt by independent electric markets to win sway with residential customers.

Few have switched

Of the 754,000 residential customers in NYSEG's territory, just 2.8 percent have switched to an alternate supplier as of last May, according to figures provided by the Public Service Commission. That compares with 4.1 percent in Niagara Mohawk's territory, 21 percent in the Orange & Rockland franchise area and 11.9 percent in the Rochester Gas & Electric territory.

The Public Service Commission has been under pressure to set policies that will produce lower electric costs in New York, home to some of the highest electric rates in the nation. Even when California was in the midst of its highly publicized electricity crisis early last year, most West Coast customers were still paying less for power than the average New Yorker, say electric industry consultants. For their part, the utility industry argues that higher-than-average taxes and electric power purchased at above-market rates under state mandate produce rates that some customers find unseemly.

The distribution portion will remain regulated by the Public Service Commission and under NYSEG's control. A competitor is not about to challenge the local utility on distribution because the cost of stringing wire across the community would be too large.

NYSEG customers now pay about 12 1/2 cents per kilowatt hour. For an average homeowner using 650 kilowatts a month, the bill comes to slightly more than $78 monthly with service charges. That's too much, critics argue.

Likewise, industrial and commercial customers are also paying higher-than-average rates. Many contend that high electric rates place the state at a competitive disadvantage in industrial development projects and cause many industries that consume large amounts of electric power to flee to other locales where electricity is more affordable.

Lower rates expected

By injecting market forces into the process, regulators believe they can at least address part of the problem. NYSEG customers will soon find out if the Public Service Commission is correct, as they move toward a less-regulated electric market.

"I expect there to be benefits over the long term," Kahn said.

In the most simple terms, NYSEG customers will be offered three options for electric service. In all options, NYSEG will remain the company that brings the power to your home. But now there may be several alternatives for the source of the power that comes to your electric meter.

The choices are:

* Fixed-rate option: The ability to lock in rates for a two-year term. The fixed-rate could be supplied by NYSEG or a competitive supplier.

* NYSEG variable rate: A rate that would move up or down each billing period with the market price for electricity with service provided by the utility that now serves your home.

* Alternative supplier variable rate: Much like the NYSEG variable rate, but the electric service would be provided by an independent energy supply company -- known in the industry as an ESCO.

How is a consumer to decide?

It won't be advanced calculus, but it won't be elementary math either.

The most immediate problem is that a fixed price rate has yet to be established by NYSEG. And without a fixed rate with which to compare, many customers may be at a loss for doing the calculations needed to determine the best option for their own household. Parties are expected to settle on a fixed rate by the end of October.

Those who ignore the sign-up process altogether and fail to respond will be signed up for the NYSEG fixed-rate plan by default. Under fixed rates, bills will be predictable and stable, much like they are now. Customers will be able to sign up for alternatives at a later date, however.

Customers who take the variable rate option are beholden to the market price for electric supply. It could be lower than the fixed rate, or it could be higher. The market is unpredictable, and the price depends on supply and demand. During extended hot spells, the price for electricity has risen to as high as 7 cents a kilowatt hour, more than double the average price.

"We have seen the spot market for electricity unpredictably spike," said Gerald A. Norlander of the Public Utility Law Project, an Albany-based organization representing the interests of low-income customers.

Norlander noted that most of NYSEG service territory benefits from an excess of generating capacity, which tends to keep prices in check. But New York's central region does not exist in a vacuum. Shortages elsewhere could have a major impact on prices to NYSEG customers.

"We're expecting a lot of trouble in New York City next summer, and that affects surrounding areas," Norlander said, raising the specter of large spikes in the electric commodity price.

By taking the fixed rate, however, customers may fail to pocket the savings when electric prices are low or if the predicted spikes never materialize. No one can predict the power market -- not even the pros who trade electric power for a living. So it's no wonder that many people are not enthusiastic about taking out their calculators and sweating over the option that best fits their own consumption and will save them the most money.

The price for the juice will be combined with a per-kilowatt-hour distribution charge, a variable-transition charge and multiplied by usage to arrive at your total bill.

The company describes the "transition charge" as the difference between the wholesale price of electricity and price of NYSEG's mandated long-term electric contracts. The transition charge will move inversely to the supply charge. When wholesale prices for electricity move up, the transition charge will go down, and vice versa.

Alternatives are few

Independent marketers have avoided NYSEG customers up until now. The independents claimed the supply portion of the bill, at about 3.6 cents per kilowatt hour until last year, discouraged competition. They were unable to make a profit at that price.

Critics say NYSEG has given only lip service to competition. "If NYSEG wanted to get serious about competition, we would be in a whole different place than we are today," said Meath of Agway.

To encourage competition, the PSC last year raised the supply credit -- often called the backout rate in the industry -- to a variable rate that has generally ranged between 4.7 cents and 5 cents.

Rather than deal personally with electric suppliers, Alfred Kahn joined the Tompkins-Tioga energy-buying alliance soon after its inception. The cooperative now calls itself the Municipal Electric and Gas Alliance, serving residential, commercial and municipal customers in its two original counties plus Broome, Otsego, Chenango and other counties.

The alliance is an aggregator, an organization that assembles customers into a group. By pooling the collective demand, the aggregator presents the electric supplier with a more inviting target. The cooperative gains leverage by assembling small users, who would otherwise have little leverage, into a larger group with significant demand.

Broome County Purchasing Director Richard R. Blythe estimates that the county saves $1,700 monthly buying electricity through the cooperative. The alliance contracts with Advantage Energy for its power needs, and expects to renew a contract during the sign up phase for NYSEG's retail access.

The savings for residential customers are expected to be small, at least to start. Residential customers participating in the initial phase of retail access were saving just a few dollars a month.

Kahn signed up for the cooperative, and it has been supplying juice to his Ithaca home and consulting business for the past three years. His savings are only a couple of dollars every month. Nevertheless, Kahn is confident he's getting the best deal available to a retail customer through the cooperative.

"I turn on the switch and expect electricity to flow," Kahn said.