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Supplier Rate Caps, Elimination of POR for Variable Rate Floated As Solutions to Customer Switching, Billing Issues
A Maryland working group charged with exploring the expansion of budget billing to competitive supply and permanently accelerating the switching timeline also addressed more holistically issues which caused unexpectedly high bills for certain electric customers this winter, prompting the workgroup to discuss remedies including capping variable rates, and the elimination of POR for variable rate products.
A Staff progress report on the working group, which does not endorse any specific option, outlines that the working group considered the following options to prevent a recurrence of this winter's billing and rate issues in the future:
Rate Caps – Limits On The Percentage Increase During A Given Contract Period (Intermediate Option 1:)
Under existing rules, there are no regulatory restrictions on variable rates in regard to the percentage or absolute monetary increase of monthly rate changes under a variable rate contract. Such restrictions may be included as a contract term.
"In order to limit variable rate shock, contracts would have a limit in monthly increase, perhaps subject to a cumulative cap. Under Billing Option 1, utilities would continue to bill for the supplier and would purchase the supplier’s receivables. Enforcement may include review or approval of these contracts in addition to a continued monitoring," Staff described
Restriction of Variable Rate Contracts to Dual Billing Without POR (Intermediate Option 6)
Currently most customers who purchase their commodity from a retail supplier choose to receive a single bill under utility consolidated billing, i.e. with both supplier and regulated charges on the utility-provided bill. Further, most Maryland utilities use bill ready billing, in which the supplier charges provided on the bill are calculated by the supplier and printed on the bill by the utility without any further processing. In this matter, charges are not policed by the utility, and there is no check that would stop a high charge from being both billed and purchased under the POR program, Staff noted.
The implementation of this restriction to dual billing would not require significant changes to the existing billing process. Enforcement becomes an issue, because the utility would not review bill amounts. This lack of bill review is purposeful because the utility, as a non-party, wishes to be blind to the contract. Customers improperly billed under variable rates would have to notify the utility, which would then proceed to cancel the supplier portion of the bill, refund the charges, if paid, and charge back the supplier charges. After the bill cancellation, the supplier would be responsible for billing the commodity portion of the bill under a separate bill.
Further, because most Maryland utilities use bill ready billing, in this matter, charges are not actively monitored by the distribution utility, so there is no check which would limit an extraordinarily high charge from being both billed and purchased under the POR program.
This option would restrict by temporary regulation or Order, the use of utility consolidated billing and POR to retail contracts that are fixed for a minimum period of time, e.g. 6, 12 month or 24 months and which offer a fixed rate. The group has also discussed how this option would work if a customer defaults to a variable contract after the end of a fixed term/fixed rate contract. For those residential customers whose fixed priced term of service terminates and transitions to a month to month variable price contract, retail suppliers have discussed the potential of providing products that offer advance notice of price changes exceeding a certain threshold.
"As discussed above, oversight and enforcement becomes an issue, because the utility consolidated billing procedure does not require utility review of commodity rates at the time of billing. If undetected by customers, variable rates might be billed and paid. The Working Group has also discussed the use of penalties for improper billing," Staff noted.
"The exclusion of all variable rate contracts from POR may create marketing and operational constraints that would have a deleterious financial impact on retail suppliers and their business operations in Maryland. Suppliers serving residential customers and small commercial customers are generally not prepared to dual bill customers and may be inclined to return customers to SOS. Supplier work group members expressed concerns that this limitation may shift consumer sentiment away from variable-rate retail choice options to a point where customers, especially in residential and small commercial segments, simply decide to remain on utility SOS," Staff said.
"Prohibiting the purchase of supplier receivables by the utility when the customer’s contract provides for a variable rate may result in a lower potential for non-payment. It is also a possibility that excluding variable contracts from POR may remove some incentive to Suppliers to offer variable rates," Staff said.
Exclusion Of Variable Rate Contracts From POR With Inclusion In Consolidated Billing (Intermediate Option 7)
This option is identical to Intermediate Option 6, except that only the use of POR would be restricted, and utility bills would continue to include supplier variable rate charges. However, payment posting would prioritize regulated charges before supplier charges.
Advanced Customer Notice of Price Increases (Intermediate Option 4)
The group discussed imposing a requirement on suppliers to notify customers 30 days prior to any month over month price increase greater than a Commission-established threshold, e.g., 25 percent, 30 percent, etc.
Mandatory 30-day/15-day Notification Of Supply Rate Changes (Intermediate Option 3)
Current Maryland regulations require a single 45-day notice prior to contract termination or rate changes. Although any change in an evergreen contract must be appropriately noticed, any notice given 45-days out is meaningless to a customer receiving retail supply under a 30-day variable rate contract.
The workgroup discussed imposing mandatory customer advance notification of 30 or 15 days prior to rate changes. This notice would be provided to the customer by the supplier via print or electronic means. Under a 30-day contract only a 15-day notice period is meaningful. However, in order to be effective in mitigating variable rate shock, it may be necessary to incorporate the current 12-day switching blackout period in the advance notice timeframe or shorten the blackout period.
Better disclosures of price terms in supplier contracts (Intermediate Option 2)
The workgroup discussed imposing a requirement on retail suppliers to more clearly disclose the nature of the variability of variable month to month product offers in their terms of service.
Explaining the bounds of price variability is important in setting customer expectations so as to minimize surprises when customers open their bills. The group discussed a requirement that suppliers clearly explain the applicable pricing limits.
In contrast, if there is not a limit on price variability, the supplier should be required to clearly and conspicuously state that there is not a limit on how much the price may change from one billing cycle to the next.
These disclosures should be included in the price terms section of the suppliers’ terms of service or in conspicuous language on the outside of the customer’s envelope pertaining to renewal and pricing information.
Customer Education (Intermediate Option 5)
The working group discussed additional efforts to make customers aware of the differences between fixed and variable price products. A redesign of the Commission Choice website was discussed to help inform and educate customers, especially for residential customers and small commercial customers. The website could reflect customer-friendly enhancements to describe the risks/rewards of certain competitive pricing products. Several additional recommendations include the following:
• Better explanation of benefits/risks of both fixed and variable price products on the PSC website
• Shopping website – implement changes proposed by the customer choice website work group in January 2012 recommendation; allow customers to sort offers by price with fixed and variable price offers separated so as to avoid side by side comparisons that lead customers to choose variable price offers that often appear cheaper.
• Require variable price offers posted on the PSC’s website to include some limit on the month over month variability to ensure that offers customers find on the PSC’s site have some price protection.
Case No. 9340
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July 1, 2014
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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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