National Grid Gives Discounts to Customers Who Quit Utility

The Post Standard - Syracuse, New York
June 20, 2006
By Tim Knauss

Next month, National Grid will start dangling a new incentive in front of customers to persuade them to leave the utility for an alternative energy supplier.

Choose a new supplier of electricity or natural gas - or let National Grid choose one for you - and you'll save 7 percent off the utility's energy supply price for two months.

After that, you'll pay the price charged by your new supplier, which may be higher or lower than National Grid's. Or you can switch back to the utility.

The program, to be called New Choices, mirrors similar programs in other utility territories and is part of a statewide effort to get more customers and more energy marketers involved in New York's retail energy market.

The 7 percent savings - subsidized in part by the energy marketers, in part by utility ratepayers - could range from a few dollars a month to $30 or more, depending on how much energy the customer uses and what the supply price is that month.

State regulators encouraged National Grid to establish the program as a way to get people to shop for energy. A similar program launched six years ago by Orange & Rockland Utilities prompted one-third of that utility's residential customers to switch energy suppliers, compared with about 8 percent of customers statewide.

Critics say the effort is little more than a gimmick.

The reason most utility customers haven't bothered to shop for energy is because the alternative energy marketers offer no clear benefits, said Ben Wiles, a senior attorney at Public Utility Law Project, a nonprofit Albany group representing low-income utility customers.

Because the state does not require energy marketers to publish their prices, it's often impossible for customers to discern whether they would pay more or less by switching from their utility, he said.

"We think these (programs) are pretty unattractive to consumers," Wiles said.

But customers who have participated in Orange & Rockland's program appear to be satisfied with it, said David Flanagan, speaking for the state Public Service Commission. Most customers who switched suppliers have not returned to the utility, although they are free to, he said.

"For one reason or another, they seem to be satisfied with their service," Flanagan said.

In response to consumer demand for better pricing information, the PSC recently announced that it may adopt a rule to require energy marketers to disclose their prices on a regular basis. The commission is waiting for comments from marketers and other parties before making a decision.

One thing is clear: National Grid is happy to see its customers go.

The utility's customers will start receiving bill inserts in July telling them about the opportunity to save money for two months if they switch to a new supplier. National Grid employees will take the calls and sign customers up for the program.

Behind the scenes, National Grid makes the program easy for alternative suppliers by assuming all the risk for collecting payments from customers. For each of the 12 energy marketers participating in New Choices, National Grid will purchase their receivables; if the utility can't collect from the customer, it's Grid's loss.

National Grid will buy receivables at a discount that reflects the utility's collection costs and its usual rate of bad debt, according to documents filed with the PSC.

Why help push customers into the arms of other suppliers?

Simple, analysts say. National Grid and most other utilities make no profit from the sale of electricity and natural gas supplies. Their profit comes from the state-regulated delivery charges on your bill, which pay for activities like maintenance, billing and meter reading.

PSC officials have said they want to ease utilities out of the role of energy merchant to encourage competition from non-utility providers. And most utilities would rather shift resources they are using to procure energy into more profitable activities, said Jeffrey Mayer, chief executive officer of MXenergy, an energy marketer based in Stamford, Conn.

"They've never made any money from the commodity side, so exiting the merchant function has been a plus," Mayer said.

An exception is Energy East, which owns New York State Electric & Gas and Rochester Gas & Electric. Both utilities offer a fixed-price electricity option that incorporates a profit margin, and both have argued strenuously that utilities should stay in the energy supply business.

By having utilities purchase the receivables of energy marketers and promote customer switching, New York regulators reduce start-up costs for marketers. As a result, some are entering Upstate New York for the first time.

Direct Energy, one of the biggest independent energy marketers in the country, entered New York a few months ago to serve commercial customers and will add residential customers when New Choices begins. Dominion Retail, a subsidiary of energy giant Dominion, also plans to join the program. So does ConEdison Solutions, which previously had served only non-residential customers in this area.

"New York, we think, has some of the better rules in the nation," said Daniel Donovan, speaking for Dominion Retail. "Purchase of receivables is a big thing for us."

Customer response to energy marketers has been relatively stagnant during the past year, according to statistics kept by the Public Service Commission.

As of March, 11 percent of Niagara Mohawk's residential gas customers were buying their supply from a marketer, a decrease from the year before, according to the PSC. About 6 percent of customers received electricity from an energy marketer as of April, a slight increase from last year.

Bob Berg, of Syracuse, said he's reluctant to shop for energy because he tried it once and ended up paying a rate higher than National Grid's. He switched back to the utility. Berg also said he was disappointed by the lack of information from some energy marketers.

"I called one (marketer), and they would not even give me a price," Berg said.

Lou Kelly, of Syracuse, said he too lost money once by switching gas suppliers. But Kelly said he's willing to hear what marketers offer this time around.

Several energy marketers say they plan to offer consumers new services they can't get from the utility, including long-term fixed prices on natural gas. Fixed prices may not save customers money, but they offer stability, said Mayer.

"When we offer a fixed-rate product we don't promise savings, because nobody can see the future whether prices will go up or down," he said. "What we do offer is what we call peace of mind, to protect customers from potential future volatility."

Tim Knauss can be contacted at tknauss@syracuse.com or 470-3023.