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End State: Pennsylvania Utilities Seek to Use 24, 48 Month Contracts for Nearly 50% of Residential, and Commercial, Default Service
Met-Ed, Penelec, Penn Power, and West Penn Power have petitioned the Pennsylvania PUC for approval of a default service plan (DSP) for the period June 1, 2015 to May 31, 2017 that would rely on contracts lasting 24 to 48 months to serve nearly 50% of residential and commercial default service load.
Specifically, for residential customers and commercial customers, the FirstEnergy utilities propose to procure (separately for each class) 95% of default service through fixed price, load following full requirements contracts with staggered 3, 12, 24 and 48-month terms, with the remaining 5% of default service procured on the spot market.
Some 23.75% of default service would be priced based on a 3-month purchase, 23.75% would be priced based on a 12-month purchase, 23.75% would be priced based on a 24-month purchase, and 23.75% would be priced based on a 48-month purchase. In other words, 47.5 % of residential and commercial default service would be priced based on contracts lasting two years or longer in length.
The EDCs said that the 48-month contracts are necessary because, "66 Pa.C.S. § 2807(e)(3.2) and 52 Pa. Code § 54.186(b)(l)(iii) require the use of long-term purchases of terms between four and twenty years as part of the Companies' DSPs."
This is not accurate insofar as 66 Pa.C.S. § 2807(e)(3.2) does not "require" any specific procurement type, but rather a "prudent mix" of spot market purchases, short-term contracts, and long-term purchase contracts. The PUC has previously determined, with its determination affirmed by the Commonwealth Court of Pennsylvania (click here), that a single product can meet the definition of "prudent mix", so it cannot be said long-term contracts (or any product) are absolutely required.
We cannot blame the FirstEnergy EDCs for not relying on this precedent, however, since the PUC itself refused to assert this authority in its own end-state order (click here), and essentially gave EDCs no substantive guidance on the products to be used for the post-2015 default service plans (other than an intention to, later, prefer shorter-term contracts, but with no explicit direction that such products should be used)
For residential and commercial default service, for which the EDCs are not proposing to change the existing class delineations, the EDCs would rely on descending clock auctions to procure the full requirements portion of default service. For the residential and commercial class products, the EDCs' initial auctions in October 2014 and January 2015 in aggregate would procure the 12-month, 24-month and 48-month contracts for delivery starting June 1, 2015. Subsequent auctions held in April 2015 and 2016, June 2015 and 2016, October 2015 and 2016, and January 2016 and 2017 will be for the procurement of the approximately 25% of load to be filled by 3-month agreements for the term of the default service plan. Additionally, 12-month agreements for the second 12-month term starting June 1, 2016 will also be procured in October 2015 and January 2016.
For residential and commercial customers, the 5% spot portion of residential default service would be priced at the hourly PJM real-time zonal locational marginal price ("LMP") for each of the EDCs plus a $20 per MWh adder to cover costs for other supply components associated with serving the contracted load, including capacity, ancillary services, NITS, AEPS compliance, and other costs.
Notable changes have been made to the full requirements products, and obligations recovered through bypassable generation rates. Specifically, the EDCs propose to take responsibility for Reliability Must Run (RMR) charges and historical out of market tie line, generation, and retail customer meter adjustments for all distribution customers, removing these costs from the Price to Compare (and obligation of full requirements suppliers), and transferring the costs to a nonbypassable rider.
Regional Transmission Expansion Plan charges (RTEP) and any Expansion Cost Recovery Charges (ECRC) for both default service suppliers and retail suppliers would continue to be assumed by the EDCs, with costs recovered on a nonbypassable basis.
Full requirements products would include energy, capacity and transmission service (including Network Integration Transmission Service), all ancillary service costs and PJM administrative expenses, and any other services and any other fees as required by PJM of an LSE.
Default service suppliers in the Met-Ed, Penelec and Penn Power service territories will also be responsible for meeting 100% of the non-solar Tier I and Tier II AEPS Act requirements. Met-Ed, Penelec and Penn Power will procure all necessary solar photovoltaic requirements on behalf of default service suppliers and EGSs that serve load in their respective service areas. In the West Penn service territory, default service suppliers will be responsible for all Tier I and Tier II AEPS Act requirements (including solar photovoltaic requirements) less any Tier I alternative energy credits (AECs) or solar photovoltaic AECs (SP AECs) that are allocated to the suppliers from existing long-term purchases made by West Penn.
Default service for industrial customers would continue to be hourly pricing. The companies have not proposed any expansion of the customers exposed to default hourly pricing.
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November 6, 2013
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Reporting by Paul Ring • ring@energychoicematters.com
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