Publication Date: Winter 1999

ENERGY DEREGULATION UPDATE
In June 1998, pursuant to a procedure orchestrated by the Public Service Commission, a five year march towards deregulation of electricity began in New York City with a pilot program that enabled a certain number of customers to buy electricity from independent energy service companies (ESCOs). ESCOs are not regulated, and the Public Service Commission cannot mediate any disputes that arise between customers and energy providers, but the Public Service Commission is responsible for determining which ESCOs may sell in New York. Entities billed directly by the utility company received bills showing a "shopping credit", which is the portion of the bill (about 25%) attributable to the purchase of energy. Customers were encouraged to take this part of their business to an ESCO.

Deregulation will never affect the remaining 70% of the electric bill; this is the cost for transmission and distribution of electricity to the customer, which continue to be Con Edison's responsibility in New York City and Westchester County. A quirk in the law provided an instant benefit with Phase 1 of deregulation, since transmission costs were not subject to State tax once they were unbundled from the actual purchase of power. Furthermore, to ensure the success of the initial phase, incentive payments helped persuade individuals to take part in that program. These factors combined to guarantee a savings of 2% to 5% on deregulated energy purchase in Phase 1.

Phase 1 lasts 10 months, ending March 31, 1999. At the end of that period, participating customers can opt to continue with the Energy Service Company (ESCO) they chose in 1998, select a new ESCO, or return to Con Edison service.

The second phase of deregulation begins on April 1, 1999, and will last for 13 months. An additional 65,000 customers using 1,000 megawatts of power will be eligible to purchase electricity from suppliers other than Con Edison. Applications are being accepted from January through mid-March 1999, with priority given to customers who had applied for deregulated power in 1998 but were not selected. Unfortunately, there are virtually no guaranteed savings for customers in Phase 2, because the State Department of Taxation has eliminated the tax advantage that existed last year, and this year the ESCOs receive incentives for signing on small customers.

Additional power is scheduled to be deregulated each year through 2002, when full competition will be achieved. However, it is anticipated that savings will be modest at best 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. Both Governor Pataki and the State Legislature have recently expressed interest in scrutinizing this program, so that some substantive changes could be made during the current legislative session.

On January 7, 1999, a joint meeting was held for members of CNYC, the Federation of New York Housing Cooperatives and the Coordinating Council of Cooperatives to help them make informed decisions about Phase 2. Michael Printz, Director of Marketing for the Rent Stabilization Association, provided an excellent overview of the present situation. Engineer Herb Hirschfeld documented the benefits of conservation through electrical submetering and energy management. An effective question and answer session helped participants gain important insights.

Speakers agreed that the best savings on electricity will come from kilowatts not used, rather than from hunting bargains among ESCO energy rates. Participants were advised to consider not only the prices offered but the contract terms and peripheral services provided by each ESCO. Herb Rose, chairman of CNYC's Energy Committee, encouraged participation in deregulation to spur the development of a truly open market for electricity.

Gregory Wortham, Chief Operating Officer of 1st Rochdale Cooperative Group, described his company and the unique advantages that it brings its customers. 1st Rochdale is a brand new ESCO launched by the Coordinating Council of Cooperatives in cooperation with experienced electric cooperatives across the U.S. It was formed in response to the desire expressed by many New York City housing cooperatives to improve their energy prices and gain sophistication in their own energy management. Operating on the belief that a cooperative solution would enable the greatest degree of customer control, 1st Rochdale is owned by its customers and directed by a board made up entirely of New York City consumers.

1st Rochdale began offering electric energy with Phase 2 of Con Edison's program and also offers energy management to customers in the five boroughs and in Westchester, concentrating on lowering customers' total energy bills rather than focusing merely on rate. 1st Rochdale will also launch a series of telecommunications products and services in 1999, including satellite television, Internet and telephone. 1st Rochdale can be reached at (212) 673-3900 or on the Internet at www.1stRochdale.nyc.net.

Energy deregulation is a complex and challenging issue that will touch even the smallest of New York cooperatives and condominiums. For answers to your questions, consult the Public Service Commission Website at www.dps.state.ny.us, or call the Public Service Commission at 1-888-ASKPSC1.