Council of New York Cooperatives & Condominiums
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Energy Issues

Publication Date: Autumn 1998

Energy Deregulation Update

(Also see Energy Deregulation - Winter 1998)

In June, 1998, pursuant to a procedure orchestrated by the Public Service Commission, a five-year march towards deregulation of electricity begin in New York City with a pilot program which enabled customers to begin buying electricity from independent sources. To ensure the success of the initial phase, incentive payments helped persuade individuals to take part in that program. A second round of deregulation begins on April 1, 1999, when an additional 65,000 customers using 1,000 megawatts of power will be able to purchase electricity from suppliers other than Con Edison. Customers who applied for deregulated power in 1998 and were not selected are considered priority applicants; they are guaranteed acceptance if they reapply in January 1999. Others interested in being included must apply between January 4 and February 12, 1999.

Deregulation gives customers the option of purchasing electricity and gas from an independent energy service company (ESCO) and a gas marketer. These entities are not regulated, but the Public Service Commission determines their eligibility to sell in New York. However, the PSC cannot mediate any disputes between customer and their energy providers.

What is NOT deregulated is the transmission function of the utility in bringing power -- whether gas or electricity -- to your door or your stove or your VCR. This basic function continues to be supervised by the Public Service Commission, which further requires that the utility serve as the energy provider of last resort, ensuring that no customer will be without power. If you switch to an independent energy provider, your local utility will continue to provide transmission of your power and to bill you for this service. You will generally receive a separate bill from your ESCO for the energy itself, although in some cases the ESCO will absorb your utility billing and send you one consolidated bill. Most ESCOs will seek a commitment of one year from you, though either party can typically terminate the agreement upon notice. If this should happen, you will not be without electricity. You can go to another ESCO or return to your local utility.

Sales tax advantages through the unbundling of electricity and distribution account for the savings under deregulation, as their is no sales tax on the distribution portion. It is anticipated that savings will continue to be modest for several years, since Con Edison has been allowed to charge substantial transmission rates until it defrays the "stranded costs" of infrastructure that it had to develop in the past to meet customer needs. With time, competition is expected to bring significant savings to all ratepayers.

Marketers and ESCOs are already contacting customers with proposals. Careful research will be important as you choose among them. Issues to consider include deposit requirements (if any), the handling of payments-including disputed amounts-, and the record and reputation of the supplier.

Although every individual ratepayer has the opportunity to participate in the deregulated purchase of electricity, there are steps that you can take to maximize your own building?s purchasing power.

In many New York buildings today, each apartment is directly metered, and each resident is billed for their electric use by Con Edison. These customers pay the highest possible price for electricity. If these buildings institute master-metering, they interpose one central meter at the point where electricity enters the building; the building then purchases electricity at a wholesale rate, which it can pass on to residents. Mastermetered buildings are also better positioned to take advantage of deregulation. With all power needs centered at the master meter, the board can negotiate for power for the whole building.

A building that institutes master metering must decide how the cost of electricity will be distributed within the building. These amounts can simply be absorbed into common charges and distributed building-wide on a per share basis. However, this might prompt residents to be less mindful of electrical use. Submetering is a process that will distribute the electrical costs fairly and thus promote conservation by the payer. To submeter, the mastermetered building would purchase the existing individual meters and bills each unit for the electricity it uses. The benefits of the wholesale rate will more than compensate for the cost of billing.

Submetering is a particularly effective energy conservation tool in buildings that are presently master metered. To submeter, the building would have to purchase and install individual meters to measure use and would then bill each resident for the power used. Decades of experience show consistent savings in kilowatt hours of 15%-25% when mastermetered buildings institute submetering and begin to bill apartments based upon use.

CNYC strongly urges its members to consider master metering and submetering as important steps towards maximizing savings on electricity.

Energy deregulation is a complex and challenging issue that will touch even the smallest of New York cooperatives and condominiums. For detailed plain language answers, consult the Website of the Public Service Commission; you can also call the Public Service Commission at 1-888-ASKPSC1.


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