Has the Polar Vortex Closed the Door on Eliminating Utility-Offered Default Service?
February 27, 2014 Email This Story Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
Unless current lawmakers are even more oblivious than apocryphal characterizations of the French nobility of the late 18th century, no legislator can cast a vote this year to terminate the availability of utility-offered, hedged default service, because the current runaway variable pricing in the retail market has made default service the "third rail" of utility policy.
This is not to say that the sound policy reasons for elimination of utility-offered default service have evaporated.
However, the cold reality is that, in eliminating utility-offered default service, you're asking a politician to eliminate a safety net that is currently providing customers with service at a rate of 8-10¢/kWh, whereas the retail market, being "disciplined" by competition among providers, is charging certain customers upwards of 30¢ for the same service.
The polar vortex retail prices have justified every warning issued by consumer advocates, AARP, and like-minded interests in defense of utility-offered default service.
Retail suppliers can't spin their way out of this one, even though blame for the exorbitant prices rests with generators who either 1) failed to perform (40% forced outage rates in PJM forcing costlier units to be dispatched, raising LMPs) or 2) failed to prudently hedge, and instead of being required to eat any losses, as would happen in a normal market, were granted the extraordinary bailout of cost recovery in excess of the wholesale market price cap. Once again, it's the "competitive" generators, and their rent-seeking behavior, which kills advancement in the retail market.
We understand that the leading retail auction proposals in Pennsylvania and Connecticut call for fixed pricing, for an interim period (12 months under the proposed Pennsylvania legislation). However, AARP has already noted in the mainstream press that after this initial period, customers could find themselves subject to rates similar to today's 30¢/kWh rates.
Here's a sample of what current retail supplier customers are posting on various supplier social media sites -- it stands to reason that these concerns are going to be heard in the General Assembly.
"thanks for the rate jump from .05 to .24/kw in one months time. thats a good way to lose customers. $742 for one month is ludicrous. I have filed a complaint with PUC and will not be sending you're bill, and by law, you cant terminate my service."
"Has anyone gotten these lying thieves to answer their phone or an email, did anyone get a fax number"
"They need to get smacked down by the attorney general, consumer protection, etc. This company must be on its way out and plans to steal as much as possible before they go"
"THANKS. THANKS TO YOU I CAN NOT BUY 2 TIRES THAT I NEED DESPARATELY and was waiting on my MEASLY IRS Refund to pay for the tires. Now, THANKS to U Greedy [expletive deleted] ... I will continue to slip and slide so that your PRICE GOUGING Bill will be paid. IF you dont get what you deserve here on earth, you will be judged more harshly in the afterlife. "
"I opened my electric bill today and promptly canceled ... Never in the 25 years of living in my house have I received an electric bill as high as I did today. I don't know how this company can do this and expect to retain customers"
"Thanks to your price gouging, we (a family of 4 with 2 hard-working parents) will not purchase our tickets to a summer amusement park because we now can't afford it. We will, instead pay our, 4.5 times more than usual power bill. Thanks for screwing the hard-working middle class yet again! "
"I have been in conversation with my states attorney general regarding the scam you have used to double rate charges without informing the consumer. "
"'Variable rates' are what they say so they can triple or quadruple the average rate to charge you as they want. As a customer, I understand that 'variable rates' means there is likely a fluctuation. This is not a fluctuation. This is hundreds of dollars more than PSEG charges, and it is clearly written out on the bill. I've called and complained twice - only received a $12 credit both times when I've been over charged by hundreds! Not to mention, when you do cancel, it takes about 2 months for the transition and my bill this month is an even higher rate."
"This energy company offered my mother-in-law with an introductory 7.9c per KWH rate. In december the rate incraesed to 10.9c per KWH. In January, my mother in law received a $750.00 electric bill.. When I examined the bill, she was charged 44.9c per KWH. This is a 400% increase in one month. They did not provide her with any warning of the rate increase. I will be contacting the PA attorney general to file a complain."
"Unbelievably, our current month's bill is 400 PERCENT above what it would have been if we had stayed with Met Ed. A normal $500 bill came in at $2,361! We have a second location. If that bill also comes in at that amount, we will be hit with $5,000 just for electricity in one month!"
This is barely 1/100 of the irate comments directed at multiple retail suppliers. Is this the environment in which a legislature is going to end utility-offered default service?
The current climate again illustrates the real consequences from the Pennsylvania PUC's inaction in what was touted as a landmark retail market investigation. Recall that the investigation was opened in April 2011, and a final order was not issued until February 2013. While we are not one to criticize reasoned and measured consideration of an investigation, the expectation would be that such a prolonged time would result in material adjudication of the issues by the PUC (regardless of whether such adjudication was positive or negative for the retail market).
Instead, after two years, the crux of the PUC's order was that it lacked statutory authority to make the default service changes it felt was necessary to improve the retail market. This, in and of itself, also wouldn't have been the worst thing in the world; we understand if the Commission truly needed two years to reach this conclusion regarding its authority. However, Vice Chair John Coleman said in public remarks during the spring of 2013 that as early as the PUC's second en banc hearing in the retail market investigation (which occurred in November 2011), the PUC began to realize that the "political reality" would not allow for adoption, by the PUC, of the Texas model, in which there is no default service other than POLR service.
If true, the PUC essentially robbed retail market advocates of two years during which time they could have lobbied to obtain the requisite legislative changes to end default service.
And not just any two years -- two good years. Two years where wholesale prices were relatively calm, and retail rates were relatively stable, with no major complaints or issues. Indeed, at certain points, customers on default service were missing out on savings due to the hedged nature of the portfolio, providing justification for removing the utility from this role.
If the PUC was reasonably certain in November 2011 (or shortly thereafter, say early 2012) that it lacked statutory authority to enact desired changes in default service structure, it didn't do retail market advocates any favors in waiting more than another year before sharing this conclusion publicly.
The years 2012 and 2013 would have been the perfect time to fight for -- and win -- changes to default service structure at the Pennsylvania General Assembly. However, in deference to the PUC's own retail market investigation, retail market advocates had to sit idly by waiting for the PUC. We now know that this waiting was meaningless, because the PUC just directed retail market advocates back down the street to the General Assembly -- except that the PUC wasted two prime years of ideal market conditions which would have supported lobbying for changes.
Now retail suppliers are left advocating for the elimination of utility-offered default service in an environment where:
• Not only have wholesale prices reached $1,000/MWh, the federal government has approved LMPs in excess of $1,000/MWh -- essentially inviting criticism that there is no discipline in the broken wholesale market
• Retail rates, as a result of the broken wholesale market, have reached or exceeded 30¢/kWh -- about triple what utility-offered default service is charging. The customer bill impact is further exacerbated due to increased customer usage during the severe cold
• Some retail suppliers, inundated with irate customers, cannot handle the volume of customer contacts , leading to the perception that retail suppliers are unresponsive (even as some suppliers are offering bill credits, though usually not in amounts large enough to assuage customers)
• Daily local media stories are now covering customers' anger at the rates and lackluster supplier response
• The Pennsylvania PUC itself has been forced to, on two occasions, warn customers about the potential for "higher" variable rates
• Worse than issuing a few press releases, the PUC has been compelled to open a formal investigation of variable rate products and whether current rules adequately protect customers. The fact that whether current rules adequately protect customers is an open question augurs for a cessation to any "reform" of default service until such time as customer protection is assured
• And now the Pennsylvania Attorney General has joined the fray, to determine, "whether consumers have been improperly overcharged for their electricity" (click here for related story today)
And this is the environment that is going to lead to elimination of utility-offered default service?