Deregulation and Weather Fail to Cool Electric Rates
New York Times; New  York, N.Y.; Aug 22, 2000; Terry Pristin;
Copyright New York Times Company Aug 22, 2000

Millions of Consolidated Edison customers got a rude shock last month when they discovered that even though this was one of the coolest summers in memory, their electricity bills had increased by an average of 43 percent over last  summer.

That raised two questions: How could electric prices show such a big jump  over last summer, when temperatures were soaring and air-conditioners ran  nonstop? And why didn't the recent state deregulation of electricity usher in a new era of lower prices?

Some critics are blaming the State Public Service Commission, the agency that  regulates the utilities. They say it adopted policies that hurt Con Ed customers in order to spur them to shop for new suppliers, thereby pumping up its deregulation program.

Maureen O. Helmer, the chairwoman of the commission, acknowledges that the two-year-old deregulation effort has been slow to have much effect, but denies the contention that the commission deliberately tried to jump-start it this  summer.

Ms. Helmer conceded, however, that higher Con Ed bills were likely to  encourage the public to seek better rates from other companies.

''In the long run,'' she said, ''consumers are going to have to see what the real prices of energy are if they're going to respond to competition. There can be positive benefits by having people see what their electric rates are over time.''

And some relief is already in sight, Ms. Helmer said. She said that Con Ed bills sent out in August would increase an average of only 8 percent over the same month last year and that the average bill in September was expected to be slightly lower than it was in 1999.

Under deregulation, Con Ed was required to sell most of its power plants and customers were permitted to buy their electricity from private, unregulated  companies instead of being forced to buy it from Con Ed. No matter which company supplies the electricity, however, Con Ed continues to deliver it through its wires. Eighteen companies now offer electricity to Con Ed customers, but only  nine of them will accept residential customers.

Customers have virtually ignored the chance to switch suppliers, however. In June, the latest month for which figures are available, only 118,000 (or 2.2 percent) of the state's 5.5 million residential electricity customers had made a change, along with 36,000 (4.8 percent) of the state's 754,000 business and  other nonresidential customers.

Of Con Ed's 3.1 million customers in New York City and Westchester, only 42,028 residential users and 13,124 business users had signed on with a new electricity supplier by June. For the most part, the competing companies have  made little effort to seek new residential customers, preferring instead to sign  up large business accounts.

One customer disappointed that deregulation did not lower prices is Alan B.  Hochman, who runs a small business out of his home in Croton-on-Hudson. He buys  electricity from Robison Energy in Elmsford, and his July bill from Robison was  nearly double last year's, although he used only slightly more electricity this year. Daniel P. Singer, a Robison vice president, blamed generation and  transmission costs for the increase and said Mr. Hochman would not save money by  returning to Con Ed.

But according to Wattage Monitor, a privately operated company that offers rate comparisons on its Web site (www.wattagemonitor.com), Mr. Hochman would  save with Con Ed, which is now offering a better rate than his other  choices.

Although deregulation began in 1998, most customers are probably unaware that  they can choose a supplier, and few of the independent companies seem eager to  enlighten them. Con Ed's own unregulated subsidiary, Con Edison Solutions, for example, has done no recent advertising and is focusing its marketing efforts on large businesses, said Gail S. Workman, a company spokeswoman. Con Edison  Solutions will also analyze the energy uses of its business customers to promote greater efficiency, but does not offer that service to residential customers.

In April, the regulatory commission authorized Con Ed to pass along to users its cost of buying electricity on the new spot market. By contrast, upstate utilities, including New York State Electric & Gas, which covers parts of northern Westchester County and Putnam County, provide energy to residential customers at fixed prices that do not fluctuate with spot market prices.

The commission's critics say that by eliminating Con Ed's risk when buying electricity on short notice (and shifting that risk to its customers) the  commission gave the utility little incentive to try to make long-term deals with suppliers that could result in lower prices. Con Ed is allowed to recover part  of the savings it gets when it makes such deals and buys electricity at  below-market prices, but it can also lose money if it makes the wrong prediction and gets stuck with electricity that costs more than the market price.

Con Ed officials say they have been forced to buy on the spot market because a shortage of power plants has meant that the long-term deals needed to meet the surging demand have not been available.

''We're always shopping for the best deal for our customers,'' said Michael  Clendenin, a spokesman for the utility. ''That's our primary objective. It  doesn't help us if they're having a hard time meeting their needs.'' Last week, Con Ed said it would seek permission from the commission to ease this summer's increases by eliminating late payment charges on bills issued from July 3 to Aug. 30.

The new system allowing Con Ed to base its rates on the wholesale market cost  of electricity took effect on May 1 despite objections from New York City officials. They warned that it would be ''substantially more volatile'' than the existing system and asked that the change be delayed until Nov. 1, according to  commission documents. Con Ed itself had asked earlier for a six-month delay, saying it was not ready to put a new system in place.

Ms. Helmer said postponing the changeover would not have resulted in lower Con Ed bills. ''There was no reason to delay it,'' she said.

Fulfilling the city officials' prediction, prices on the spot market soared  this summer. Electricity that cost an average of $50 a megawatt hour last year  shot up as high as $1,300 an hour (until the Federal Energy Regulatory  Commission imposed a cap of $1,000 an hour). Ms. Helmer blamed rising gas and  oil prices and the temporary closing of Con Ed's Indian Point 2 nuclear plant for most of the increase. But the commission is also concerned about possible  software and design glitches in the market, as well as the possibility that  prices have been artificially inflated.

On Aug. 14, the State Public Service Commission ordered the New York Independent System Operator, which runs the spot market, to open up its records  and data to help regulators determine why the spot market had been so volatile. ''Prices on June 26 were quite high,'' the commission said in its order, ''whereas on June 27, they were markedly lower despite similar load levels.''

Gerald A. Norlander, the executive director of the Public Utility Law  Project, a state-financed advocacy group that represents low-income residents,  said the commission wanted to nudge competition along but never expected bills  to rise by more than 40 percent.

''They wanted a controlled burn,'' Mr. Norlander said. ''And it got out of hand.''

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