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Draft Order Would Allow Pa. Utility To Procure Default Service Entirely Through Spot Market

December 31, 2015

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

A proposed order from a Pennsylvania ALJ would approve without modification an application from Pike County Light & Power to continue to rely on New York ISO spot market purchases for all default service load for the period June 1, 2016 through May 31, 2018

In doing so, the ALJ would reject a proposal from the Office of Consumer Advocate for Pike to hedge a portion of default service load through a block purchase

"[T]he OCA has not presented substantial evidence sufficient to warrant reversing these prior Commission decisions and requiring Pike to hedge a portion of its default service supply," the ALJ said

"Pike has demonstrated that its load is unique and not amenable to hedging. Pike’s customer base consists of approximately 4,700 residential and commercial customers with an annual electric requirement in calendar year 2014 of 75,000 MWh. Currently, 54% of Pike’s customers take generation services from an EGS. These factors make it difficult for Pike to negotiate favorable long term contracts in a manner that will allow the Company to satisfy its default service obligations of providing service to customers at 'least cost to consumers over time,' as is required by Act 129. These factors make it difficult for Pike to adopt 'energy procurement requirements designed to ensure that electricity obtained reduces the possibility of price instability, promotes economic growth and ensures affordable and available electric service to all residents,' as is a goal of Act 129. Act 129 requires both that price instability is reduced and that rates remain affordable. Whereas hedging a portion of the default service supply will likely reduce price instability, there is no record evidence demonstrating that it will also satisfy the least cost of supply requirement as well," the ALJ said

While, the OCA, "has demonstrated that the price of Pike’s default service supply is volatile," the ALJ said that, "there is no record evidence in this proceeding demonstrating the cost of the OCA’s hedging proposal and the impact of that cost on consumers."

Per the OCA, the average total default price volatility from quarter to quarter since June 2012 is 30.9%, with price increases as great as 58.5% and price decreases as large as 60.2%, and six of the twelve quarters total default price changes have exceeded 40%.

However, "there is not substantial record evidence demonstrating the cost of the OCA’s hedging proposal to know whether those costs are outweighed by the benefit of increasing price stability," the ALJ said

Under the ALJ's proposed order, Pike County Light & Power would continue the current default service rate setting mechanism which includes: (1) the Market Price of Electric Supply, and (2) the Electric Supply Adjustment Charge.

The Market Price of Electric Supply would be determined quarterly based on the utility's forecast of the wholesale supply costs for the quarter.

The Electric Supply Adjustment Charge would be calculated quarterly to reconcile the monthly over- or under-collections of the preceding three months.

As is current practice, for any given quarter, the Electric Supply Adjustment Charges, including Gross Receipts Tax, would not exceed a charge or a credit of 2.0 cents per kWh. In the event the 2.0 cents per kWh limit is imposed, any remaining over- or under-collection balance is included in the subsequent quarter's Electric Supply Adjustment Charges to the extent possible within the 2.0 cents per kWh limitation.

Docket P-2015-2490141

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