The New York Independent System Operator was formed in 1998 as part of the restructuring of New York State’s electric power industry, to facilitate fair and open competition in the wholesale power market and create an electricity commodity market in which power is purchased and sold on the basis of competitive bidding. To facilitate the competitive commodity market, the New York State Public Service Commission (“PSC”) mandated that all of the Distribution Companies in New York institute some form of incentive as an inducement for customers to seek alternative Energy Suppliers.
The Distribution Company inducements (or incentives), combined with certain Tax savings formed the backbone of the competitive marketplace. Consumers would elect to purchase power from an Energy Supplier (while still receiving delivery services from the traditional utility company) and the Supplier would charge them for the cost of the power and an additional fee. This fee could be a fixed amount or a percentage of the total available savings to the consumer (incentive and tax savings). Since the initial program was designed to start with the Fully Bundled utility rate and then provide a bill credit to cover the commodity cost plus the incentive, consumers were virtually guaranteed some level of Savings and Price Protection. In simple terms, this was because the Distribution Companies were providing a “Hedge” since the Fully Bundled utility rates were “Fixed.”
We are now over 10 years into Electric Deregulation in New York State and the structure of the program has changed dramatically. The utility-provided hedges are all but gone, and Market Forces have taken hold. As a result, consumers are feeling the ever-increasing pain of wildly fluctuating electric prices. In recent years, we have seen the average price nearly triple and then settle down slightly. This has had a profound impact on businesses, colleges, hospitals, and even residences.
Since the formation of the NYISO, Large energy consumers had the option to become Direct Customers of the NYISO, and eliminate the Supplier from the money stream. In this model, the Direct Customer acts in every respect as an Energy Supplier – except for Billing and Collections, since they have no “customers.” While buying wholesale power has obvious advantages, the real challenge is that most companies simply don’t have the systems in place to participate in the NYISO market.