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Pennsylvania's Preferred End-State Retail Market Design at Risk in Appeal of Pike County Default Service Plan
October 16, 2012
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Copyright 2010-
An appeal filed earlier this year by the Pennsylvania Office of Consumer Advocate concerning the procurement of default electric service at Pike County Light & Power has taken on new significance in light of the PUC's proposed end-state retail electric market design, which is similar to the adopted plan at Pike County now under appeal.
As previously reported, the PUC elected to continue the exclusive reliance on the New York ISO spot market for Pike County default service. The Commission rejected a 1 MW fixed price hedge for Pike County default service sought by the OCA.
Notably, the PUC adopted this exclusive reliance on the spot market by concluding that a single product can meet statutory requirement for a "prudent mix" of default service products (click for background)
In its Pike County decision, the PUC said:
"Here, the Commission must determine whether a 'prudent mix' of contracts may include only one product if that product is the least cost over time. Upon review, the record establishes that requiring Pike to follow the [hedged] procurement approach advocated by the OCA would produce an unreasonable result: namely, higher prices with little or no customer benefits. Thus, the OCA's recommended approach of spot purchases plus hedging does not appear to comply with least cost procurement. In contrast, we believe the record establishes the prudency of Pike's proposed spot market approach in this unique case, which the record demonstrates meets the statutory requirements, including least cost over time. We find that a prudent mix can include only one product when it is the option most likely to produce the least cost over time," the PUC said [emphasis added].
Although the PUC always stresses the unique circumstances of Pike County in adopting default service policy for the territory (its small load, high migration levels, and location in the NYISO), the PUC's finding still serves as precedent.
More importantly, a ruling on the appeal of the PUC's Pike County order by the Commonwealth Court could reverse that precedent, and serve as adjudication that a single product cannot meet the "prudent mix" standard, which would have broad implications for the rest of the retail market.
Specifically, the PUC's end-state retail market proposal (click for background) contemplates that mass market default service customers, including residential customers, will be served on quarterly, full requirements default service contracts -- essentially a single product. While the PUC's outline of the end-state proposal did not address legal authority, presumably, the conclusion that the sole reliance on quarterly contracts for default service is permissible was reached in a similar fashion to the conclusion at Pike County that exclusive reliance on the spot market is permissible -- that is, that a single product can constitute a "prudent mix" when it produces the least cost over time.
As noted by AARP Pennsylvania and the Pennsylvania Utility Law Project in an amicus brief to OCA's appeal, the interpretation of the "prudent mix" standard is at, "the heart of this appeal."
Additionally, the appeal is to determine whether "price stability" is a statutory requirement within the prudent mix standard, in addition to least cost over time.
As first reported by Matters (click for story), a recommended decision from an Administrative Law Judge would have adopted the OCA's fixed price hedge at Pike County, relying on provisions in Act 129 directing the Commission to be concerned with price stability.
However, the PUC reversed the ALJ's finding, concluding that the ALJ improperly elevated provisions related to price stability, which are contained only in the statute's preamble. While the PUC agreed that the preamble could be considered, the PUC found that provisions in the preamble of a statute do not take precedence over the specific statutory provisions contained in the law, such as the "prudent mix" and "least cost over time" provisions.
Again, a finding by the Commonwealth Court that price stability must be a required component of any default service plan, as argued by petitioners, would likely be fatal to the proposed end-state retail market design which relies solely on quarterly, full requirements default service contracts for residential customers.
Commenting on its amicus brief regarding the OCA's appeal of the PUC's Pike County decision, AARP Pennsylvania State Director Ivonne Gutierrez Bucher said, "We are concerned that this decision could be used to destabilize default electrical service plans and effectively force customers into choosing a supplier on the open market."
Copyright 2010-
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