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PUC Commish Urges Retail Suppliers to "Step Up" And Bid for Default Service Tranches Under Newly Adopted "Innovative" Design

February 13, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Pennsylvania PUC has approved a default service plan for Citizens’ Electric Company and Wellsboro Electric Company which ditches the formerly used stratified procurement approach in favor of the bidding of load-following tranches indexed to PJM prices, plus a retail adder.

As first reported by EnergyChoiceMatters.com, the companies had proposed, for residential and small commercial customers (under 400 kW), that the default generation rate would be a six-month fixed rate, based on PJM West Hub on-peak monthly forward pricing, plus a pass-through of NITS and capacity, plus a supplier-determined adder, which would reflect AEPS costs, ancillaries, congestion, losses, and volumetric and migration risk, plus reconciliations. The PJM forward pricing would be adjusted ahead of each six-month period on "trigger dates".

The utilities proposed to procure a single three-year load following contract at each company, to be served by a single supplier at each utility. The supplier adder would be fixed for all three years.

Due to concerns that such a product would expose customers to the re-pricing of 100% of the energy supply every six months based on a single trigger date's pricing, the PUC introduced a modicum of laddering into the procurement designed based on PJM pricing.

Specifically, as described by Commissioner James Cawley, "In order to assuage these valid concerns, the pricing for the energy component of this wholesale contract for Residential and Small C&I Default Service should be adjusted every six months based on PJM West Hub on-peak monthly forward pricing on the same predetermined Trigger Dates, using a formula based on the mathematical average of the monthly on-peak MWh strip pricing for a MWh sold to customers during a 12-month pricing period, accounting for half the portfolio. The other half should be composed of another 12-month period reflecting PJM West Hub on-peak monthly forward pricing of another 12-month period, six months hence. In order to achieve this laddered pricing, the first six months and last six months of the three year contract should reflect a blend of six-month and 12-month strip pricing. For all other contract periods, the energy component should reflect a blend or laddering of the 12-month forward pricing obtained from the two Trigger Dates six months apart."

"Adopting this one modification ensures adherence to the 'prudent mix' standard of default service plans. The plan results in energy cost hedges of two to 14 months into the future, while the Supplier Adder price component fully hedges congestion, marginal losses, Alternative Energy Portfolio Standards (AEPS) Act compliance costs, transmission losses, and transmission charges other than NITS for a period of 3 years. This will allow for hedges for ancillary and congestion costs which have played a significant role in past volatility in the Companies' default service rates," Cawley said

Cawley "commend[ed]" the utilities for their "innovative" default service proposal, and encouraged retail suppliers to "step up" to bid for the tranche offered at each utility

"The proposal offers an opportunity for Electric Generation Suppliers (EGSs) or wholesale suppliers to serve the entire default service load of either company -- in excess of 5,000 customers each -- through a competitive process that provides indexed energy prices that can provide a reasonable level of security and lower volatility, yet also is reasonably market price reflective. Suppliers are likely to be interested in such a product, given the three-year duration and attractive tranche size," Cawley said.

"I encourage EGSs to step up to the plate here and bid, so as to demonstrate that they can effectively serve a constructive role in facilitating the provision of default service under more innovative default service designs," Cawley said.

Hourly priced default service will apply to customers in excess of 400 kW.

An adopted motion from Cawley also requires changes related to the companies' contingency plan and treatment of customers returning to default service.

"[A]s part of their contingency plan, the companies proposed during any period where the Companies continue the Stratified Procurement Plan due to lack of wholesale supplier responses to the proposed RFPs, the Companies will provide Hourly Priced Service (HPS) to any shopping customers desiring to return to default service. This is in violation of our existing regulations. The Companies should continue to treat any returning customers the same as any other new or existing customer as it relates to the provision of default service. Further, as a practical manner, this proposed provision would serve as a very significant barrier to customer participation in retail choice," Cawley's motion provides.

Commissioner Gladys Brown dissented from the PUC's decision, due to the lack of long-term contracts in the default service procurement design.

Citizens’ provides electric distribution service to 5,736 residential customers and 1,151 commercial, industrial and lighting customers in Lewisburg Borough, Buffalo, East Buffalo and Kelly Townships (Union County), as well as in West Chillisquaque Township (Northumberland County). Wellsboro provides electric distribution service to 5,070 residential customers and 1,185 commercial and industrial customers in the Borough of Wellsboro (Tioga County).

Docket P-2014-2425024

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