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Fixed Means Fixed: Pennsylvania Bans ALL Pass-Throughs Under Fixed Price Contracts
The Pennsylvania PUC has adopted a definition for fixed price electricity contracts that bans any and all pass-throughs under such contracts.
Specifically, the PUC has now defined "fixed price" to mean, "An all-inclusive per kWh price that will remain the same for at least three billing cycles or the term of the contract, whichever is longer."
"An EGS product described as a 'Fixed Price' does not change in price during the term of the agreement, consistent with the definition," the PUC said in its adopted guidance.
No pass-throughs, even for changes in law or regulation, will be allowed. The PUC's decision was based, in large part, on the broad scope of the state's Unfair Trade Practices and Consumer Protection Law, which defines unfair or deceptive acts or practices as those, "which create a likelihood of confusion or of misunderstanding," and that under the law it is not necessary to prove intention to deceive or actual deception; "rather, it need only be shown that the acts and practices are capable of being interpreted in a misleading way."
"Based upon the foregoing, it is difficult to see how we could sanction the use of a 'fixed price' label for products that may in fact not be fixed due to the exercise of a pass-through clause," the PUC said
While the PUC will not allow changes to a fixed price due to changes in law or regulation, the PUC will allow the retail electric supplier to terminate the fixed price contract due to such changes (allowing the use of a regulatory out clause). Notably, the use of a regulatory out clause would require the retail supplier to obtain new, affirmative consent to continue to serve the customer under any changed pricing, with the customer returned to default service if such consent is not obtained or the customer does not respond.
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ADVERTISEMENT "[A]n EGS can provide for a 'regulatory-out' clause that would allow an EGS to, under circumstances outlined in the clause, reformulate the contract by proposing new contract terms to the customer so long as the customer affirmatively consents. A lack of a customer response would be deemed a rejection of the new terms. In the event of a rejection by the customer, the customer is then free to pursue other opportunities in the market with no penalty," the PUC said.
If a regulatory-out clause is invoked, and the customer does not give its current EGS affirmative consent and, "[i]f the customer does not enroll with another EGS the customer will then be placed on default service without penalty," the PUC said.
"We think this approach has merit because it does provide the customer some level of certainty and allows EGSs to continue to market long-term contracts as fixed while avoiding the danger of being trapped in an uneconomic contract. We agree with DES that such a 'regulatory-out' clause should only be exercised after notice to the customer and if the EGS wants to reformulate the contract, the customer would have to affirmatively consent to such. Further, we think the 'regulatory-out' clause has to be clearly stated in the disclosure, in the same section that discusses the 'length of term,' 52 Pa. Code § 54.5(c)(4), and it should specify as much as possible the circumstances under which the clause could be invoked. Any terms or acronyms used in the clause that are not commonly understood should be clearly defined in the 'definitions' section of the disclosure. 52 Pa. Code § 54.5(e)," the PUC said.
The PUC said that if an electric generation supplier (EGS) invokes the regulatory-out clause, "[t]he customer shall receive the usual 'change in terms' notices upon the invoking of any such clause pursuant to 52 Pa. Code §§ 54.5(b)(2) and (g)(1) and the Interim Guidelines Regarding Advance Notification by an Electric Generation Supplier of Impending Changes Affecting Customer Service; Amendment re: Supplier Contract Renewal/Change Notices, Docket No. M-2010-2195286 and Docket No. M-0001437, Order entered September 23, 2010."
In brief, these guidelines require that if an EGS proposes to change the terms of service, the EGS is expected to send the consumer two advance notices. "The Initial Notice should be provided fifty-two to ninety days prior to the effective date of the proposed change in terms. The second, Options Notice is to be provided to each affected customer at least forty-five days prior to the effective date of the proposed change in terms. The Options Notice should include detailed information to the customer explaining their options and how to exercise those options," the PUC reminded.
Regarding the applicability of the PUC's new definition, the PUC said that it is not the PUC's intent to impact current contracts through its order. "However, we must also note that there is nothing to prevent a customer holding a current contract from filing a complaint with this agency or another agency about their contract terms," the PUC said.
Having determined that pass-throughs are not allowed on fixed contracts, the PUC declined to adopt a new product definition such as, "price with pass-through clause."
The PUC instead said such products were better defined as variable products, and defined a "variable price" to mean, "An all-inclusive per kWh price that can change, by the hour, day, month, etc. according to the terms and conditions in the supplier's disclosure statement."
For both fixed and variable prices, the PUC said that the price the EGS presents to a residential or small business customer is expected to be 'all-inclusive' – including all of the pricing components found in the Price to Compare (PTC) for default customers (generation, transmission where applicable, gross receipts tax, etc.). "Sales tax" is a notable exception in that it is not bundled within the PTC -- but for residential consumers this is usually of no relevance since most residential accounts are exempt from this tax, the PUC said. "We also stress that this guidance is directed to residential and small business customers – it is understood that the prices presented to large business and industrial consumers are often unbundled and we have no intent of changing this practice," the PUC said.
The PUC said that this guidance is also not intended to prohibit the use of flat monthly charges in addition to the PTC that some suppliers charge and are sometimes referred to as monthly "service charges" or "customer charges."
"However, we remind everyone of the regulation at 52 Pa. Code § 54.7 which requires EGSs to calculate and present to the customer the actual per kWh rate at 500, 1,000 and 2,000 usage levels; taking into account the flat monthly charge and the PTC per kWh charge. This information has to be presented to the customer in order to allow the 'apples-to-apples' comparison discussed above," the PUC said.
The PUC also adopted a definition for "introductory price" as follows: "For new customers, an all-inclusive per kWh price that will remain the same for a limited period of time between one and three billing cycles followed by a different fixed or variable per kWh price that will be in effect for the remaining billing cycles of the contract term, consistent with terms and conditions in the supplier's 'disclosure statement'".
"In the case of an Introductory Price, the disclosure statement prominently informs the consumer that the initial price being offered is an Introductory Price. The disclosure specifies the per kWh Introductory Price and the number of billing cycles that the initial Introductory Price will be in effect," the PUC said.
"In the case of an Introductory Price, the disclosure statement specifies that if the price to be billed upon the expiration of the initial Introductory Price is a Fixed Price or a Variable Price. If it is a Fixed Price, the disclosure statement specifies the new fixed price. If it is a Variable Price, the disclosure statement will include the conditions of variability, on what basis prices will vary and the limits on price variability," the PUC said.
The PUC said that the new definitions apply to residential and "small business customers."
Consistent with earlier guidance, the PUC said that the customer protections in 52 Pa. Code §§ 54.4-54.9 do not apply to commercial/industrial customers with several related accounts totaling more than a maximum registered load of 25 kW within the last 12 months.
Docket M-2013-2362961
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Reporting by Paul Ring • ring@energychoicematters.com
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