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State Agency Wants Default Service to Be 'Menu' Of Options
The Massachusetts Dept. of Energy Resources wants the basic electric service provided by the utilities to be offered as a "menu" of rate design options
"That menu could begin with just two rate designs – a flat rate and a simple time-of-use (TOU) rate ... The menu of design options could be expanded to include additional, more complex design options, such as a TOU rate that includes critical peak pricing (CPP), concurrent with the implementation of the advanced metering required to support more complex designs," DOER said in comments in the DPU proceeding on dynamic pricing.
While DOER supports eventual expansion to a suite of dynamic basic service rates, it initially recommends beginning with just the existing flat rate and a simple TOU rate, which would have rates for peak and off-peak periods each day and, depending on wholesale price differences, could also have different TOU rates for the winter and summer seasons.
Moreover, DOER "strongly recommends" that the DPU change the default rate for basic service from the existing flat rate to a simple TOU rate, "accompanied by both broad-based and individualized consumer education, but still allow customers the choice to 'opt-out' and revert back to a flat rate that is appropriately designed to include the price premium of the on-peak rate."
"The implementation of TVR [time-varying rates] for basic service will likely have no material impact on the competitive retail market, though DOER is interested to hear if competitive suppliers provide additional information on this subject," DOER said.
However, Direct Energy said that, "The use of time varying rates for basic service customers would have a negative impact on the competitive retail market in Massachusetts ... Competitive entities have little incentive to invest in areas in which they are in direct competition with utilities, which have the advantage of full cost recovery in providing products and services that would otherwise be provided by the competitive market. Even if utility-provided options might be inferior to those provided by a competitive market, the utility's ability to recover all of its costs for those products and services from its regulated customers discourages competitors from investing shareholder capital in such jurisdictions."
Direct Energy said that, "Requiring utilities to make time varying rates mandatory for all default services customers raises concerns beyond those related to putting utilities (which bear little or no risk in the sale of default service to end use customers) in competition with competitive entities that have no regulated customer base from which to recover costs. Direct Energy believes the best way to realize the potential of smart grid technology is to combine the broad deployment of smart meter infrastructure with market rules that will allow customers to take control of their energy usage in a way that makes the most sense for them, given their individual needs and desires as electricity consumers."
"Rather than relying on regulated utilities to provide the innovation in designing and marketing options for end use customers that would help justify the investment in smart grid technology, Direct Energy encourages the Department to adopt rules and regulations that would facilitate the development of a marketplace for such innovative products and services that would be driven by private investment, much as we have seen over the past 15 years in the telecommunications industry," Direct Energy said.
Some of the utilities also did not support addition of dynamic pricing to basic service.
"Basic service should not become or include a time varying rate ... As providers of last resort NSTAR Electric and WMECO should not be designing basic service rates. The Companies should offer, under basic service, a simple price mechanism, as opposed to a complex rate design option," Nstar and WMECO said.
Docket 14-04
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March 13, 2014
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Reporting by Karen Abbott • kabbott@energychoicematters.com
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