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PURA To Conn. Lawmakers: If State Wants "Maximum Savings" From Retail Market, Then Some Form of Month-To-Month Rates Should Be Considered

January 1, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

The Connecticut PURA has submitted to the legislature a report on residential electric rate structures, and while PURA does not endorse any single recommendation, the report opines that if lawmakers' goal is to maximize savings available in the retail market, then some form of month-to-month rates should be considered

The legislature previously banned variable electric rates for residential customers. However, in doing so, lawmakers directed PURA to report on appropriate rate structures for customers whose fixed rate contract expires and who do make an affirmative selection for post-contract service, and who are essentially on month-to-month service.

In its report, PURA recommends a choice to the Legislature:

• "If the legislature seeks a competitive market with only flat, long-term rates, then continuing the ban on variable rates is the best path forward. Fixed rates offer the lowest possible risk for end-users and, like fixed rate mortgages, offer comfort in price stability. While a market with long-term, flat-rate structures will likely yield narrower price fluctuations, it is unlikely to yield the lowest possible price for electricity. Fixed rate contracts also can occasionally work against other state energy policy goals, such as conservation and time-of-use rates. Nevertheless, they represent the safest, most predictable choice."

• "If the legislature seeks a competitive market with dynamic pricing options, continued innovation, and the maximum possible savings to customers, then some form of month-to-month rates should be considered. A more dynamic pricing structure will likely yield wider price swings but also greater product and rate innovation. Like an adjustable rate mortgage, this pricing structure would include increased risk for market participants, especially those who do not monitor their contracts, market conditions, and notifications. More information and more timely notification of rate and term changes are now available to consumers, some of whom might be comfortable with a month-to-month product after an initial fixed rate term expires. Customers may now receive required notifications by email, U.S. Mail, or other options as suppliers offer them, and key rate information is now succinctly depicted on the front page of consumer electric bills. Taken together with other notifications and PURA oversight, these improvements minimize but cannot eliminate the possibility that a customer may miss an important decision signal, such as a forthcoming rate or term change."

In implementing the current ban on variable rates, PURA has left suppliers the following options for serving customers whose prior fixed rate contract has expired:

• Return the customer to EDC Standard Service;

• Keep the customer at the original fixed contract rate until a new contract is entered into or the supplier returns the customer to EDC Standard Service; or

• Renew the customer to a new fixed term of no less than four billing cycles.

PURA told lawmakers that additional options related to such rollover service could include "caps" or banded rate requirements on month-to-month products. However, the Authority, "does not endorse caps or bands in this market at this time: they may present additional problems, including accounting for the overlap of billing periods related to EDC Standard Service, as well as monitoring and enforcement of such policies."

PURA further said that suppliers should not be required to automatically return customers to Standard Service unless they can obtain affirmative customer consent at each renewal.

PURA also noted that through a November 16, 2015 Request for Written Comment, "the Authority requested that suppliers share insights for the purposes of this report regarding their pricing decisions."

"Suppliers were given opportunity to provide specific data, general business practices or published reports about how supplier rate structures – variable rate structures in particular – respond to market conditions. Notably, none of the supplier stakeholders responded to this set of questions. Thus, the Authority is unable to offer data regarding the extent to which monthly rates would indeed follow both upward and downward market trends. However, even if monthly adjustable or variable rates contain more risk, it does not necessarily mean they are an inherently bad option for the market," PURA said

"The Authority's recommendations herein are guided by the traditional regulatory role of striking a balance between fostering a competitive retail choice market while ensuring an adequate level of consumer protection. While the legislature banned variable rate contracts for residential customers effective October 1, 2015, its request for guidance and recommendations on month-to-month rates signals a legislative willingness to revisit additional types of rate structures. At this stage in the evolution of the Connecticut retail choice market, there are distinct advantages and disadvantages to various rate structures. Pricing plans that change more often, such as monthly variable rates, tend to be more dynamic than fixed rate plans, which offer a set rate for at least four consecutive billing cycles. While participation in the supplier market is optional, it should not be overly burdensome or potentially dangerous," PURA said

Docket 15-06-15

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