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PUC Bans Pass-Through Clauses in ALL Fixed Rate Contracts In Ruling "Fixed Means Fixed"; Rules on Permissibility of Regulatory Out Clauses

November 18, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

The Public Utilities Commission of Ohio has ruled that fixed rate electric contracts, for all customer classes, may not contain pass-through clauses, but will allow for regulatory-out clauses that allow suppliers to cease service under fixed rate contracts under terms as delineated in the contracts

"[I]n all CRES contracts, whether residential, commercial, or industrial, fixed should mean fixed," PUCO said. "In so finding, the Commission is mindful of the need for straightforward language and terms for CRES customers. The Commission further notes that harm to the CRES market and shopping rates could occur when customers are dissatisfied with their contracts as a result imposition of charges that were unexpected by that customer. Consequently, the Commission finds that, on a going-forward basis, CRES providers may not include a pass-through clause in a contract labeled as 'fixed-rate.'"

"While CRES providers may continue to offer products containing pass-through provisions, they must be labeled appropriately as variable or introductory rates. The Commission does not find that use of an alternate label would increase customer understanding," PUCO said.

Retail providers were granted until January 1, 2016, to bring all marketing for contracts being marketed into compliance with the "fixed-means-fixed" guidelines above. PUCO's order on fixed rates is an interpretation of existing rules contained in Ohio Adm. Code 4901:1-21-05, which govern CRES marketing and solicitation, and therefore, may be implemented in the timeline set forth above.

The Commission emphasized that, "we make no ruling with respect to existing contracts -- although a customer holding an existing contract with such a provision would be free to pursue a complaint with the Commission against the CRES provider."

PUCO will allow suppliers to use properly disclosed regulatory-out clauses in "very limited" and specifically delineated circumstances.

"While the Commission has thoroughly considered its statutory duty to protect consumers against confusing labels in developing the fixed-means-fixed axiom, the Commission is also mindful of its statutory duty to encourage availability and diversity of reasonably priced electric supplies. The Commission recognizes that circumstances may occasionally arise over which a CRES provider has no control and no ability to hedge, such as a regulatory change in law. The Commission finds it would be inappropriate to require CRES providers in those circumstances to remain bound by an uneconomic contract with no opportunity for redress. Not only would such a requirement be inequitable for a CRES provider, but could affect consumers as well, as it could result in CRES providers charging much higher rates in fixed-price contracts in attempt to hedge, or elimination of fixed-price contracts from the market," PUCO said

"Consequently, the Commission believes that the fixed-means-fixed axiom should be balanced by continuing to permit regulatory-out clauses that would be available for CRES suppliers in very limited circumstances, which must be delineated in plain language in the clause. Regulatory-out clauses allow a supplier to revise a contract by proposing new contract terms to the customer. If the customer affirmatively consents to the new terms, the contract would remain in place with the new terms. However, customers could affirmatively reject or passively reject the proposed terms by inaction. A customer rejecting the terms would then be permitted to pursue another CRES provider or the default service without being subjected to any penalty. The Commission further finds that regulatory-out clauses must be clearly and conspicuously stated in the contract; that any acronyms in the regulatory-out clause must be defined within the contract; and that the clause must specify to a reasonable extent the circumstances under which it could be invoked," PUCO ordered

Regarding pass-through clauses in non-fixed contracts, PUCO said that a pass-through clause that refers to acronyms such as "RTO," "NERC," or "PJM" should contain definitions for these acronyms in all applicable contracts, whether variable-price or introductory-price, and whether residential, small commercial, larger commercial, or industrial. The Commission directed Staff to draft proposed rules consistent with this finding.

PUCO also directed Staff to propose rules to adopt the following definitions:

"Fixed Price: An all-inclusive per kWh price that will remain the same for at least three billing cycles or the term of the contract, whichever is longer"

"Variable Price: An all-inclusive per kWh price that can change, by the hour, day, month, etc., according to the terms and conditions in the supplier's disclosure statement."

"Introductory Price: For new customers, an all-inclusive per kWh price that will remain the same for a limited period of time between one and three billing cycles followed by a different fixed or variable per kWh price that will be in effect for the remaining billing cycles of the contract term, consistent with terms and conditions in the supplier's 'disclosure statement.'"

Note that the term "fixed" is not currently defined in PUCO's rules, and thus currently there is no current minimum term length for fixed products. As noted above, the new definition would require fixed price contracts to be at least three billing cycles in length

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