Pa. PUC Asks Suppliers for Detailed Proposal to Remove PGW from Default Supplier Role

April 14, 2011
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The Pennsylvania PUC will conduct an investigation into replacing Philadelphia Gas Works with an alternative default service supplier, if competitive suppliers are still interested in pursuing the matter. (R-2008-2073938)

In 2008, PGW filed for emergency rate relief due to its borrowing needs. Interstate Gas Supply and Dominion Retail noted that PGW's largest single borrowing need is the need to borrow $600 to $700 million a year to buy gas for its customers, and suggested eliminating this need by transitioning customers to an alternative form of default service (Background).

A collaborative has been studying the issue since that time, but the Commission has found that continuation of the collaborative is not advisable given the impasse among parties.

"Notwithstanding, we believe that the adoption of an alternative provider of last resort may still present the opportunity to reduce the risks and costs associated with PGW's operations," the PUC said in a Secretarial Letter.

"While the Commission is cognizant of the recent improvements in both PGW's operations and PGW's financial status, we remain convinced that it would be reasonable and prudent to consider an alternative supplier approach as part of a strategic plan for the company, if there is still interest by the suppliers. Because of the concerns raised by the collaborative participants regarding the operation and benefits of the Supplier Proposal, and its compliance with the least cost procurement standard, we will refer the Supplier Proposal to the Office of Administrative Law Judge (OALJ) for an on the record proceeding in which the suppliers will bear the burden of proof," the PUC directed.

The PUC said that the suppliers should be prepared to supplement their proposal and provide evidence to address the following concerns and policy preferences of the Commission. Specifically, the Supplier Proposal should:

- Satisfy the least cost procurement requirements of the Public Utility Code;

- Use a balanced supply portfolio that uses existing storage assets to level purchases and reduce seasonal volatility;

- Use a customer assignment process that results in a single clearing price paid by all members of the same customer class (e.g., such as a declining block auction used in default service electric procurements);

- Include a detailed implementation plan for review by all parties;

- Include contingency plans for what happens to affected customers if an alternative supplier defaults on its obligation. For example, the affected customers could be reassigned to the remaining suppliers.

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