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Pennsylvania to Rule on Pass-Through Components Included Under Fixed Price Contracts The Pennsylvania PUC will likely rule on the issue of fixed price electricity contracts which nevertheless contain pass-through components which may be adjusted by the supplier during the fixed term, especially as the PUC has found that these pass-throughs have trickled from large C&I contracts down to small commercial and residential plans.
The Office of Competitive Market Oversight (OCMO) has become aware, through the filing of informal complaints, and inquiries from suppliers and EDCs, of this pass-through pricing practice, "that has raised some concerns." Staff has become aware of EGSs offering fixed prices to residential customers for a set time period, during which prices may change (without advance notice except general language in disclosure statement) due to variable components such as charges being imposed on the EGS by RTO or similar entity, EDC, governmental entity or agency, NERC or other industry reliability organization or court; customers are subject to cancellation fees in some cases.
OCMO has been discussing the issue in the CHARGE working group for several months, and a formal docket has now been assigned, M-2013-2362961, Fixed Price Pass-Through. The docket is described as, "OCMO providing guidance to EGS as to the appropriate use of the 'fixed price' labels when presenting products with pass-through clauses to potential customers & to provide for an additional labeling option."
No formal filings were listed in the docket as of press time. A CHARGE call recap indicates that the PUC is planning to issue a Tentative Order on the matter on May 23, 2013.
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ADVERTISEMENT Specifically, Staff said that there are suppliers offering fixed-rate products to residential customers, but which include in their disclosure statements provisions that allow the supplier to change the rate based on an RTO, government agency, etc. action that imposes costs on the supplier.
During the CHARGE process, Staff presented two examples of this type of provision:
EXAMPLE ONE: "In addition to the charges described above, if any regional transmission organization or similar entity, EDC, governmental entity or agency, NERC and other industry reliability organization, or court requires a change to the terms of the Agreement, or imposes upon [SUPPLIER] new or additional charges or requirements, or a change in the method or procedure for determining charges or requirements, relating to your electric supply under this Agreement (any of the foregoing, a 'Pass-Through Event'), which are not otherwise reimbursed to [SUPPLIER], Customer agrees that [SUPPLIER] may pass through any additional cost of such Pass-Through Event, which may be variable, to Customer. Changes may include, without limitation, transmission or capacity requirements, new or modified charges or shopping credits, and other changes to retail electric customer access programs. If the Agreement is terminated, you can return to your EDC or select another EGS. [emphasis added]
EXAMPLE TWO: "Governmental, EDC, Regional Transmission Organization (RTO) Actions: If action is taken by federal or state governmental authorities, EDC's or RTO's which significantly changes the way [SUPPLIER] does business with Customer, [SUPPLIER] may change its price to Customer, or terminate this Agreement upon thirty (30) days written notice, after which Customer can obtain electricity directly from your EDC.
"These types of charges and contact [sic] provisions are not unusual with large commercial/industrial users – but this practice appears to be filtering down to the residential/small commercial level," Staff reported in a November discussion document about the issue.
"These provisions, based on what we have seen, are not always presented along with the pricing information. In some cases, the exception language is far-down the disclosure -- or on the second page -- well past the pricing paragraphs that usually appear early in the disclosure," Staff said in the discussion document.
"In some cases, the customer may not be able to exit the contract without paying a substantial early cancellation penalty (although in some cases, as seen in the example above, the supplier can cancel the contract). Some of the contracts we have seen with this type of language have been multi-year contracts," Staff added.
"Residential/small commercial customers, even if they read the entire disclosure, may not be sophisticated enough to understand what is meant by terms such as 'RTO,' 'NERC,' etc., and just what kind of pricing changes could result. Their exposure appears to be unlimited, in that none of the provisions we have seen mention a cap, ceiling, etc. Consumer education efforts, to date, have not gotten into this level of detail – nor is it likely to ever do so for practical reasons. Consumer education efforts have included the distinctions and pricing of generation/transmission/distribution – and the use of a bundled 'price to compare' when shopping. This issue presents a new element which does not neatly fit into traditional consumer education contexts," Staff noted.
Staff continued: "The residential/small commercial consumer has no reasonable method of determining what these charges are, if and how they were accrued, how they were allocated, etc. It is also questionable to what extent a regulator could even make these determinations. Does a supplier's claim that they were assessed these costs and are simply passing them along strictly as a 'pass-through' have to be accepted? What if one of the component costs linked to these charges decreases instead of increasing?"
"Additionally, the language in these exception paragraphs is often very broad – theoretically permitting a supplier to assess additional charges anytime, in the supplier's opinion, it incurs additional costs. This could possibly include the cost of complying with new PUC regulations (marketing regulations, new switching procedures, licensing fees, consumer education assessments, etc.), EDC fees (POR discounts, tariff fees for services provided, etc.), costs of complying with possible new environmental regulations, etc. The paragraphs we have seen do not mention ceilings or caps on additional charges – so theoretically – the customer's exposure is unlimited," Staff said.
"Finally, there is concern and confusion as to if these charges are intended to recover unanticipated costs (for if the costs can be anticipated – should those costs not be incorporated into the rate to begin with)? If these charges are for unanticipated costs – then the argument begins over what can be called anticipated v. unanticipated costs. For example, is a 'generation deactivation' assessment from PJM truly 'unanticipated?' Information on these matters is available from PJM and it is generally understood that this type of assessment is coming as generation is deactivated," Staff said.
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May 15, 2013
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Reporting by Paul Ring • ring@energychoicematters.com
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