NY REV: Promoting Innovation and Competition Through Price Caps?

New York’s Reforming the Energy Vision (NY REV) process, led by the NY Public Service Commission (NY PSC), is an ambitious project to restructure the energy distribution business model in order to enhance resiliency, integrate renewables, promote efficiency and lower costs. The model envisions a narrower role for utilities as “air traffic controllers,” essentially limited to controlling and coordinating the distribution grid. Energy services would be provided by third party vendors that would offer customers desired services (e.g. distributed energy resources, efficiency services, and enhanced resiliency) at low costs driven by competitive markets.

Development of 1) a robust market of third party vendors, that 2) provide innovative services customers want, at 3) competitively driven prices, are foundational to the model’s success.

Prepare to be perplexed.

In order to maintain public confidence in the NY REV process, on February 23, the NY PSC issued an order essentially placing price caps on retail electricity marketer contracts serving residential and small commercial customers.

Wait. Huh? This smells like re-regulation, not innovation or reformation.

Per the order, competitive suppliers can only sign up customers (new or renewed) based on contracts that guarantee savings compared to the utility rate. Higher priced contracts would only be allowed if supplied by at least 30% renewable energy.

I’m not saying the NY PSC’s actions are wrong, per se…

A recent NY PSC review found that competitive retail suppliers had delivered substantial benefits to large commercial and industrial customers, including innovative and value added services. However, the review found these competitive retail suppliers are not providing sufficient competition or innovation to residential and small commercial customers (mass markets). Apparently, retail suppliers are only offering commodity (i.e. electricity, gas) products to mass markets, and typically the utility can provide this service at a lower cost.

The NY PSC noted increasing customer complaints about predatory sales tactics, unfair pricing and deceptive marketing practices, as the over 200 energy service companies (i.e. competitive retail suppliers) eligible to provide commodity products to NY mass markets compete for customers. These and other factors prompted the New York State Attorney General, NYC Public Advocate, City of New York and others to support the idea of limiting mass market offerings to those that guarantee savings compared to the utility.

…in fact, NY PSC’s actions to protect customers seems reasonable, justified and well aligned with the traditional role of the regulator.

The strange thing though is this order seems completely inconsistent with the innovative goals of NY REV. Of course, maintaining consumer confidence in the REV process is critical to the long term success of the effort. And yes, this order could just be a temporary move to create stability, to be reversed later. But, if the foundations of REV are 1) a greatly reduced role for price regulated utilities, and 2) a greatly expanded role for unregulated, competitive suppliers…how does this move make sense?

If 3rd party vendors are not offering innovative services to mass markets and the price of the traditional commodity services they are offering to these markets are not competitive, how will price caps serve to promote innovation and competition? It seems this move to protect consumers will serve to drive many retail suppliers out of NY’s mass market, leaving the utility as the last man standing.

The saying, “have your cake and eat it too” comes to mind. Looks like NY better start making a lot more cake.

Christina Simeone

Kleinman Center Senior Fellow
Christina Simeone is a senior fellow at the Kleinman Center for Energy Policy and a doctoral student in advanced energy systems at the Colorado School of Mines and the National Renewable Energy Laboratory, a joint program.