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> History > Deregulation of Energy Purchasing
NYISO |
LSE |
Direct NYISO Customer
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 or Load
Serving Entities ("LSE").
The Distribution Company inducements (or incentives), combined with certain Tax savings formed the
backbone of a competitive marketplace. Customers would elect to purchase their energy supply from
an LSE (while still receiving delivery services from the traditional utility company) and the LSE
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 customer (incentive and tax savings).
In this business model, the LSE purchases power from the NYISO, resells it to the customer, and then
collects the money from the customer. Since the LSE is in the "money stream," they have to charge a
fee sufficient to cover not only the normal operating expenses and margin, but also the cost of capital,
bad debt, and additional margin on the risk.
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An alternative approach, which has also been an option since the formation of the NYISO, is for large
energy users to become Direct Customers of the NYISO. In this model, the Direct Customer acts in every
respect as the LSE, except that the Direct Customer doesn't collect money from customers, since it is
the customer. The other benefit of becoming a Direct Customer is that you further reduce your overall
cost of power by choosing to purchase from a number of available markets. The real challenge here is to
find a way to provide all the Backroom Energy Services required to operate as a Direct Customer and
to exploit the opportunities that exist in the New York Energy Market.
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