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RESA Seeks Changes to Massachusetts Default Service, Removal of EDC from POLR Role

July 30, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Prompted by utilities' filing of contingency procurement plans for electric default service, the Retail Energy Supply Association has asked the Massachusetts DPU to consider changes in the pricing or the load-following default service product, or potentially the removal of the utility from the default supplier role.

Due to lack of bidder response for certain large customer groups, the Northeast Utilities companies and National Grid filed contingency default service plans with the DPU which called for alternative procurement methodologies. Generally, the alternative procurement plans place the EDC in the load-serving entity role, with energy procured from the ISO-NE market, with an estimation of prices.

The DPU approved the use of the NU companies' contingency plan for the current term as well as future terms (without seeking public comment), while the DPU withheld approval of the National Grid plan in favor of a case-by-case review. Additionally, as previously reported, the DPU indicated it would open a review of default service issues, but has not done so to date.

RESA suggested that to address lack of bidder participation, the DPU could adopt more broadly the default service procurement and pricing first used in a 2006 Unitil pilot. Under this approach, EDCs would continue to engage in full services requirements RFPs, but would instead provide for the solicitation of variable monthly price service pursuant to which the variable price would consist of a load-weighted monthly average of the Real- Time Locational Marginal Price plus a fixed monthly adder to cover all non-energy related costs, including capacity, ancillary services, and ISO-NE administrative.

"Under this procurement process, suppliers would simply bid the adder as the LMP would the same for all suppliers and the EDCs would select the supplier(s) with the lowest weighted average fixed monthly adder," RESA said.

"RESA believes that this approach would bring real benefits to customers by increasing supplier participation in the procurement process, reducing the level of risk premiums included in responsive bids, and leading to prices more reflective of the wholesale market for customers electing to remain on basic service."

"Alternatively, upon investigation, the Department may determine that the time has come for a transition away from the incumbent utility as the provider of last resort to a paradigm that would allow competitive providers to fill this role for consumers that can no longer be successfully served through the default service procurement process," RESA said.

"The hallmark of a successful transition to retail competition is a reduced reliance on regulated retail service options, such as the current default service. Thus, over time, the incumbent utilities' historical obligation to serve load should be converted into an obligation to connect and deliver reliable service. Indeed, when a state mandates the selection of incumbent utilities for all consumers who fail to make timely supplier elections, it perpetuates the same noncompetitive energy services that restructuring was designed to replace. Retaining the utility as the default provider of energy supply services in the long-term in a restructured environment has a negative impact on the development of competitive markets as it distorts and impedes the marketplace as evidenced by the numerous proceedings and rules the Department has instituted in an effort to reduce and/or eliminate barriers to competition resulting from such a structure," RESA said.

"RESA strongly encourages the Department to rigorously evaluate the various options available, including whether the public interest warrants the transition of customers to the competitive marketplace, so that default service truly becomes the last resort service it was always envisioned to be."

RESA cited M.G.L. c. 164, § lB(d) which provides that, "The department may authorize an alternate generation company or supplier to provide default service, as described herein, if such alternate service is in the public interest."

RESA also used the opportunity to seek changes in the current practice of assigning basic service reconciliations to all customers -- both non-shopping and shopping. RESA said that the negative effects of this practice could be exacerbated under the NU companies' contingency plan because the companies would project default service rates based on historic LMPs.

"[C]ontinuing to allow for the reconciliation of costs associated with the provision of default service in the non-bypassable portion of rates is inconsistent with cost causation principles and distorts the price signals that customers receive. Thus, as part of any investigation, RESA also requests that the Department evaluate default service pricing practices. Basic Service Adjustment Factor," RESA said.

"RESA anticipates that retail full requirements load following service pricing for the winter of 2014 will include significantly higher risk premiums based on experience gained as a result of last year's Polar Vortex. Thus, [under the NU plan] basing 2014 basic service rates on the ratio of historical basic service rates during the same quarter over the last two years is likely to result in significant under-recoveries by the EDCs. These significant under-recoveries, however, will never be reflected in customer's basic service rates because they will be reconciled in distribution rates. Conversely, competitive retail suppliers' pricing offers will reflect the increased risk due to the Polar Vortex. As a result, customers will not be able to accurately evaluate the value of pricing offers from the competitive retail market," RESA said.

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