March (pdf) - New York Power Authority

March 29, 2011
order to serve a myriad of government facilities, including office buildings, public schools, public housing,
hospitals, water and wastewater treatment plants, parks and police and fire stations.
“With respect to production rates, NYPA’s rate design for the Customers has remained unchanged for over
twenty years. Cost increases/decreases were made in an across-the-board fashion to existing production rate classes,
and there had been no thorough examination over this duration to check whether the allocation of costs among
classes followed cost-of-service principles.
“Similarly, NYPA’s delivery rate design has also not been subject to thorough review. When NYPA began
providing electric service to these Customers in the 1970s, it inherited Con Edison’s delivery service classifications.
In the 1980s Con Edison redesigned its delivery rates. The impacts were not significant initially, but the two rate
structures became more misaligned over time. These impacts were aggravated by other differences between Con
Edison and NYPA, such as the methods the respective utilities have used for calculating estimated bills and the lack
of a minimum bill provision in the NYPA billing system (but which is part of the Con Edison billing system).
“NYPA and the Customers indicated a willingness to start to address this problem in 2005, when NYPA
and the NYC Governmental Customers agreed to modify the terms and conditions of their 1970s era contracts
through a ‘Long Term-Agreement’ (‘LTA’) entered into between NYPA and each of the NYC Governmental
Customers. When the LTA was negotiated, the parties agreed to include a provision addressing rate design. No
recent studies had been done, but there was a growing sense that the parties needed guidance on whether production
rates and delivery rates were in alignment.
“Accordingly, in Article VI of the LTA, the parties agreed that the Authority would complete an evaluation
of the production (i.e. demand and energy) and delivery charges in order to produce a redesigned rate structure for
the NYC Governmental Customers. As stated in the LTA, Art. VI,
. . . such studies shall be performed with input and concurrence from the NYC
Governmental Customers . . . it being the goal of the Parties to . . . redesign rates
so that the rates charged to the NYC Governmental Customers are aligned with
costs, all on a basis that is revenue neutral to NYPA and in a manner that
recognizes individual customer bill impacts and ameliorates such impacts.
“In accordance with this provision, NYPA completed a two-year study of its rate structure. To ensure that
all Customers would be eligible to receive the benefits of this type of study and redesign work, NYPA extended its
analysis to include the Westchester Governmental Customers. NYPA staff procured the services of the consulting
firm Black & Veatch (‘B&V’) to assist them with this rate design study.
“NYPA staff has reviewed the B&V study 4 and endorses its conclusions. Accordingly, based on the results
of the B&V study, NYPA staff recommends a redesign of the production and delivery service structure contained in
NYPA’s Service Tariff No. 100 applicable to the NYC Governmental Customers and NYPA’s Service Tariff No.
200 applicable to Westchester Governmental Customers.
DISCUSSION
A. Production Rate Structure Redesign
“Production rate structure design at NYPA was last altered over twenty years ago when NYPA introduced
in 1988 time-of-day (‘TOD’) production rates for the Customers, and later refined this design in 1989. However,
since that time, production revenue requirement cost increases/decreases have been reflected in equal, across-theboard
increases/decreases to existing demand and energy rates. During this period, as market prices have become
more time sensitive and volatile, production rates have become increasingly disconnected from the government’s
price structure. Accordingly, it became important to align the Customers’ price signals (production rates) more
closely with the allocated production cost of service and market prices. Further, cost-based rates also encourage the
4 The B&V study consists of a Base Report dated January 2010, an Updated Report dated September 2010 and an
Addendum dated March 2011.
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