Howard, Kathleen, & Steve --

Can we sit down and discuss our strategies going forward in light of this RD?  I'd like to understand where there are opportunities (both for POLR outsourcing and standard market entry).  I don't think that there will ever be a huge surplus in generation (and there shouldn't be in a competitive market).  Instead of focusing on something the NYPSC can't control, why not work on demand responsiveness?  Better metering technology would certainly help.

Let me know when a good time would be?

Jim

 -----Original Message-----
From: 	Sullivan, Kathleen  
Sent:	Thursday, August 09, 2001 11:00 AM
To:	Novosel, Sarah; Allegretti, Daniel; Fromer, Howard; Steffes, James D.; Montovano, Steve
Subject:	Highlights of the Recommended Decision in NY's Energy Competition Case

Sarah,
I've attached an article from today's Megawatt Daily regarding NY's generic energy competition case.  I've also attached a summary of the RD written by Kevin Brocks, our NESPA Counsel.  As you can see, the RD dismisses aggressive migration measures until wholesale markets are functioning better.  Furthermore, the RD states that until supplies increase and markets stabilize, ratepayers must be protected.  In addition, a PSC official is quoted as saying that it "will be another three to four years until there is sufficient supply in the state to allow for workably competitive markets, and that it could be at least 10 years before retail competition is viable."  

Is there anything in the RTO Order or your participation thus far in the mediation process that could refute the claim that it will be 3 or 4 years until there is sufficient supply in NY to allow for workably competitive markets?
-Kathleen

 << File: nespa rd highlights 7-19-01.doc >> 

MegawattDaily
New York PSC draft report sees competition in 3-4 years

New York regulatory staff expects
comments tomorrow on a recom-mended
decision about the future of
competitive power market development
in the state.
The recommended decision, issued
last month by two administrative law
judges for the state Public Service Com-mission
and a PSC official (00-M-0504),
says it will be another three to
four years until there is sufficient supply
in the state to allow for workably com-petitive
markets, and that it could be at
least 10 years before retail competition
is viable.
Two principal problems in transi-tioning
to a competitive market are
inelastic supply and demand, both of
which are inherent in energy markets, the
proposed decision, issued last month,
says. Until supply consistently exceeds
demand by a certain margin, the PSC
must play a prominent role in the state's
power markets.
"Markets characterized by largely
inelastic supply and demand where
demand is approaching or is equal to
supply are not workably competitive and
will not produce just and reasonable
rates," the recommended decision says.
"Until supplies increase, ratepayers
should be provided some measure of
protection from those markets. Once
supply exceeds demand sufficiently to
eliminate the exercise of excessive mar-ket
power, the markets can become
workably competitive and will likely
produce just and reasonable rates."
The recommended decision goes on
to warn, "Unrealistic expectations con-cerning
the timing of market develop-ment
(either too long or too short) can
have serious consequences to the public,
and can, in the extreme, result in the
worst of all possible outcomes - the
creation of an unregulated monopoly.
"If competition is assumed to
develop very rapidly and wholesale
market prices are imposed on customers
without regulatory intervention and
from a market that is not workably com-petitive,
higher prices and rates that do
not meet the statutory standard of just
and reasonable are likely. On the other
hand, if a long transition is assumed and
significant regulatory control continues
to be exercised over prices, competition
and its benefits could be stifled indefi-nitely."
In March 2000, the PSC initiated
the proceeding to examine the state's
progress toward competitive markets. It
sought information on the difficulties
that have emerged, lessons learned and
directions for where to go next.
The recommended decision says
that in a competitive market, utilities
should play no role in providing electric
or gas service. But before the PSC
removes a utility from the market, cer-tain
preconditions must be met, "includ-ing
a determination that the wholesale
and retail markets are operating without
the exercise of market power. As a gen-eral
matter, the utilities should not be
removed from any market until multiple
suppliers offering a variety of products
are available for the entire customer
class throughout the utility's service ter-ritory."
The PSC also should wait for state
lawmakers or the courts to confirm its
authority to take such action.
The recommended decision also
says that "robust, fully competitive retail
markets will develop at different times
for different customer classes."
The PSC should encourage invest-ment
in transmission and distribution
infrastructure for both electricity and gas
"including, if necessary, ordering the
franchised utilities to construct any need-ed
facilities," the recommended decision
says.
Although the PSC should restate its
support for retail competition and pro-ceed
"with deliberate speed in fostering
market development," the agency should
maintain "just and reasonable rates"
throughout the period of transition to
competition.
"We are confident that a flexible
oversight process that encourages com-petition
and allows it to develop wherev-er
the economics can support it will pro-tect
consumers during the transition, per-mit
markets to develop freely, and will
serve the public interest," the recom-mended
decision says.
Exceptions to the proposed decision
are due tomorrow and responses are due
Aug. 28.
The judges and the PSC official plan
to present a final recommended decision
to the commission this fall. JCS