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By Michael V. Cusenza
Governor Kathy Hochul on Friday urged Con Edison to review their billing practices and better communicate with New Yorkers after the recent surge in energy costs in New York State left many already struggling New Yorkers surprised, through a letter from Public Service Commission (PSC), and also announced increased relief efforts to reach low-income New Yorkers about millions of dollars in aid available.
“The extreme utility bill increases we are seeing across the state come at a time when New Yorkers are already struggling financially following the COVID-19 pandemic,” Hochul said. “Even though the spike we are seeing in electricity, natural gas and fuel prices were predicted and are due to severe winter weather, I am calling on Con Ed to review their billing practices because we must take unified action to provide relief for New Yorkers, especially our most vulnerable residents.”
This winter the cost of natural gas, which is used to heat homes and generate electricity, has risen sharply resulting in a significant increase — sometimes more than doubling – of the supply component of customer electric and/or natural gas bills as compared to prior months. These bill increases are being driven by a global increase in natural gas commodity prices due to higher domestic usage because of colder-than-normal weather, increased economic activity, and increased international demand for natural gas.
On Friday, the PSC sent a letter to Con Edison requesting a detailed review of the utility’s billing practices including an assurance that the full hedged value the utility secured in January is provided to customers in the next billing cycle, improved customer communications, and an evaluation of alternatives to their current billing practices with recommendations due to DPS staff by February 28, 2022.
“While the Department recognizes that these weather-related price impacts are outside of the utilities’ control, there are several actions that Con Edison should consider taking to address this situation.
- Con Edison should mitigate the recent high customer bills by providing the full value of its hedged commodity procurements to customers in the next billing cycle. While the Public Service Commission (Commission) does not regulate commodity prices of natural gas and electricity, and New York’s utilities do not control market prices of these commodities, utility procurement and billing practices do impact the prices that customers pay and can dampen or exacerbate price swings from month to month. The Commission has repeatedly found that utilities have a responsibility to use strategies that responsibly procure commodity on behalf of their customers at least cost and have hedging strategies that smooth out market price fluctuations.1 This recent cold weather spell has exposed weaknesses in Con Edison’s billing practices that warrant closer examination. When Con Edison issues bills, it passes through the weighted average supply rate based on the residential customer load shape and New York Independent System Operator (NYISO) market prices in effect in each billing cycle.2 The company also applies a forecasted hedge value, which is updated mid-month. This value is fixed for one month and includes reconciliations to account for underestimated forecasted hedge values and sales variations from prior periods. If the actual electric market prices vary significantly from those assumed in the hedge value forecast for the upcoming month, the mismatch between the value of the hedges and the supply rate billed to customers is exacerbated. This situation occurred in January and is continuing to occur in February. Total bills for full-service mass-market customers billed at the end of January were 49 and 58 percent higher for New York and Westchester customers, respectively, from their previous bill for the typical energy usage. Department Staff estimates that approximately 70 percent of the increase in supply rates between December and January was attributable to Con Edison’s forecasting hedge values being underestimated. Specifically, based on information Con Edison provided to staff, the hedge value forecast for January, while apparently reasonable in the assumptions used at the time of the calculation, led to the actual hedge gains being significantly underestimated. The value of the underestimated hedge benefit should be included in Con Edison’s next billing cycle update to ensure that customers receive the full value of Con Edison’s hedge. Assuming normal weather for next month, we expect that this adjustment will significantly reduce the commodity price reflected on customer bills next month. The Department has determined that the Company’s current hedging strategies combined with a revised supply billing practice may have effectively mitigated the bill volatility seen in January. 2. Con Edison should reassess its approach of forecasting its hedge value in billing cycle updates to reduce the likelihood of dramatic and sudden price volatility. While Con Edison’s hedging practices will likely result in substantial cost savings to customers this winter compared to what customers would have paid if Con Edison did not hedge, 3 the underestimated forecast of the hedge benefits, added to the flow through of weighted average market prices based on customers’ individual billing cycles as noted above increased bill volatility this winter. Con Edison should immediately reassess its approach to full-service supply billing with a goal to reduce the likelihood of extreme and sudden price volatility, and report to Staff its findings. 3. Con Edison must improve communications to electric and gas customers to better explain forecasted commodity price changes. At our October 7, 2021 session, Department Staff provided its annual winter readiness presentation to the Commission. Based on commodity price forecasts, Staff explained that it expected that utility customers would see significantly higher utility bills this winter. Staff and the Commission worked with utilities to provide information to customers so that they could prepare for the expected higher costs. The Department held workshops throughout the State. Utilities provided bill inserts and provided direct messages to customers. Yet many customers were surprised by the sudden bill increases this winter. While Con Edison included bill inserts and sent out messages on other platforms that natural gas commodity prices were expected to be higher this winter, it did not inform customers that electric commodity prices were also expected to be higher, or in its billing for last month that there was a spike in electric commodity prices. Con Edison should have foreseen the likely electric commodity price spikes and done more to provide advance notice to their customers and other stakeholders. In addition to preparing customers in advance of expected price increases, it is essential that Con Edison also continue to offer customers deferred payment agreements and provide information regarding other bill assistance programs. This experience is a painful reminder that the State remains overly reliant on fossil fuels to meet our energy needs. This dependence on fossil fuel is contributing to climate change and air pollution, but, as this experience shows, it is also exposing consumers to global commodity price fluctuations. We must continue working together to advance the State’s Climate Leadership and Community Protection Act to both reduce greenhouse gas emissions and reduce our reliance on fossil fuels that are subject to dramatic price swings experienced this winter.
“All week my office has been receiving calls from frustrated and angered residents who are concerned with the large jump in price of their Con Ed bill,” State Senator Joseph P. Addabbo, Jr. (D-Howard Beach) said. “While Con Ed says that they cannot control the price of the energy from their suppliers, they should know who those suppliers are, if there will be any change in price in the energy they provide, and at least notify their customers of any potential changes. I believe there should be an investigation into this situation by the Public Service Commission to ensure that customers are not taken by surprise by such a large jump in price for a necessary utility, especially when so many residents, workers and businesses are still suffering from the negative economic effect of the COVID pandemic.”
Con Ed reps said in a statement, “Current global events, coupled with increased energy consumption due to lower than normal temperatures have had impacts on natural gas and electricity costs, and we want to help. Click the link to find the right assistance program for you.”
The PSC and the Department of Public Service have been proactively messaging the projected increase in supply prices and the impact to customers’ winter bills. In January 2022, the Department of Public Service partnered with other state agencies and held a series of virtual workshops throughout the state for community leaders and elected officials. The workshops focused on: financial assistance programs, such as Home Energy and Low-Income Household Water Assistance Programs; utility energy affordability programs; weatherization and other actions consumers can take to be energy efficient; home and community-based services and supports for older adults and their caregivers; and how to direct consumers to the winter resources.
Additionally, since the onset of winter, the utilities been proactively communicating that customers’ bills will be higher this winter due to increased supply prices. Such outreach and education included press releases, newsletters, utility call center representative training, YouTube videos, and social media posts.
The PSC has said that it is committed to making sure customers are aware of these programs to receive the assistance and information they need to effectively manage their energy bills. For more information on winter preparedness efforts and these assistance programs, please go to dps.ny.gov/winter.
