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Direct Energy Petitions Pa. PUC To Restart Retail Opt-In Program With Revised Parameters

March 18, 2016

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Copyright 2010-16
Reporting by Paul Ring •

Direct Energy is to petition the Pennsylvania PUC today to restart the retail opt-in electricity referral/aggregation programs, which had been previously approved by the PUC, but which the PUC suspended prior to implementation.

As discussed below, Direct Energy is proposing to implement a revised retail opt-in program at PPL and PECO to be offered in October 2016


As part of its investigation into the design of the retail electric market, the PUC had adopted at several EDCs retail opt-in programs under which 50% of mass market default service customers were to be mailed a letter from the EDC containing an offer from a pre-assigned retail supplier, offering the customer a 5% discount to the Price to Compare for an initial four months, with an EGS-determined fixed price (to be set in the future) for the following eight months. Customers selecting an EGS offer were to also be paid a $50 bonus payment.

Though terms varied by EDCs, the opt-in programs were notable in that customers would be mailed an offer from only a single supplier, with suppliers randomly assigned customers to which an opt-in offer would be provided.

The PUC then, in early 2013, elected to suspend the retail opt-in programs prior to implementation, citing potential confusion from offering the retail opt-in programs at the same time the EDCs were implementing the standard offer customer referral programs, which like the opt-in programs were also intended to enhance customer awareness of choice and make a customer's participation in choice easier (though the customer referral programs were targeted to a smaller audience through the EDC call centers rather than mailers, and featured a different product).

Click here for background on the PUC's order suspending the retail opt-in programs

It is worth noting that the retail opt-in programs were themselves a retrenchment from a retail opt-in "auction" proposed earlier in the PUC's retail market investigation

Direct Energy's Proposal

Citing the continued stagnation in Pennsylvania electric shopping, and the passage of time to allow evaluation of the standard offer customer referral programs, Direct Energy proposes to restart the retail opt-in (ROI) programs under revised terms was provided with a draft of Direct Energy's petition which is to be filed today, and while no substantive changes are expected in the formal filing, the details below are based on the draft version of the petition.

Direct Energy proposes that the retail opt-in program would be offered as a pilot basis at PECO and PPL, since such EDCs have installed smart meters which are to be leveraged in the provision of value-added services under the revised program

Direct Energy proposes that the retail opt-in program would consist of a one-time mailing to non-shopping residential and small business (25 kW and below) customers with an opt-in offer of: 1) a 24 month electric generation supply contract at a price 5% below the Price to Compare at the time of the offer (with no cancellation or early termination charges for the commodity) and 2) a value-added, energy saving or energy management product or service at no additional charge.

Examples of qualifying value-added, energy saving or energy management product or services proposed by Direct include:

(1) A connected home or business device or system which helps manage energy utilization

(2) A smart thermostat such as a Nest or equivalent advanced device

(3) An energy management tool such as providing disaggregated load by appliance

(4) A home or business energy audit

(5) A heating and cooling maintenance plan or furnace and air-conditioner system inspection and tune-up

(6) A credit towards a roof-top solar or other energy saving distributed energy installation

All retail suppliers would be eligible to participate in the retail opt-in program provided that they offer a qualifying product and meet any other guidelines developed by the PUC for participation, and the PUC would approve each supplier's participation based on any such guidelines.

Unlike the original opt-in programs, Direct Energy proposed that the mailers will list all of the available supplier offers under the program; customers would not be assigned to receive just a single offer from an assigned supplier.

As pricing under Direct Energy's program is uniform, the customer's shopping decision in response to the mailer would be based on their preference for a value-added service, making the program simpler for customers as opposed to if customers had to review dozens of offers with different pricing. Additionally, there would be an option for a customer to select that they would like to be randomly assigned to one of the participating suppliers

At a minimum, the customer mailer would include a description of each of the participating EGSs and the specific energy saving or energy management product or service that the EGS is offering. Direct Energy notes that the Commission could also consider permitting each EGS to include marketing material in the mailer with further information about the company and the product or service it is offering.

The mailer would include several means (prepaid return postcard, telephone number and website) for the customer to convey their interest in participating in the program.

Direct Energy proposes that there would be no cap on customer participation in the retail opt-in program (unlike the original programs).

However, Direct Energy does propose to maintain a supplier customer cap such that, "no single EGS will serve more than 50% of the total number of customers agreeing to the ROI offer as a result of the direct mailing per utility territory." Such a cap may prove challenging to implement since the total number of customers agreeing to the ROI offer would not be known until the ROI offer period closes. Speaking with ECM, Ron Cerniglia, Director of Government & Regulatory Affairs for the for the Mid-Atlantic Region at Direct Energy, said that logistics for implementing such a cap would be addressed in a collaborative (the earlier ROI programs had tied the supplier customer cap to 50% of customers eligible for the program, which was a known quantity, in contrast to 50% of customers agreeing to EGS service under the program)

For customers taking EGS service under the ROI program, prior to the end of the 24-month term, participating customers would receive the standard required options (renewal) notices. If the customer does not respond to these notices, they would begin month 25 on a 12-month, fixed rate product without an early termination fee rather than transitioning to a variable or month-to-month priced product. Though not specifically addressed in Direct's filing, Cerniglia said that Direct envisions that at the end of that subsequent 12-month term, if the customer still has not made an affirmative choice, they would be required to be served on another 12-month fixed product.

There would no longer be a $50 bonus payment to customers taking service under the ROI, with the required value-added services intended to provide a greater benefit to customers than the simple bonus payment (some smart thermostats retail at up to $250).

Direct Energy proposes that other terms of the ROI programs be maintained as originally adopted by the PUC

This includes eligibility of Customer Assistance Program (CAP) customers (which varied by utility), and cost recovery. For example, as described by Direct Energy, at PECO the Commission had approved PECO’s proposal that the cost of the ROI program would be determined by assessing a $1 charge on suppliers for each customer assigned to that EGS (this would need a slight change since there is no more assignment), with remaining costs (if any) recovered through either a non-bypassable surcharge or equally from EGSs through an addition to PECO’s POR discount and a charge to affected default service customers.

Direct Energy proposes that PECO and PPL be required to launch the ROI program in October 2016. EGS offers would be required to be open for two months to allow customers to enroll during such period.

The Need For A Restart Of The Retail Opt-In Program

Cerniglia said that Direct Energy's proposal in Pennsylvania is part of a series of efforts to expand stagnant retail choice in the Mid-Atlantic states. Other efforts from Direct include its advocacy which led to the Delaware opt-in aggregation (which is currently in the process of selecting a supplier via RFP, click here for details), and proposed legislation in Maryland that would require a study of a program similar to the Delaware program (click here for related story today).

Cerniglia cited the lack of significant progress in expanding shopping in Pennsylvania since the suspension of the ROI program, noting that the market has not evolved.

Cerniglia explained that Direct's proposal for a revised program was designed to increase confidence in the market, emphasizing a long-term fixed rate with a value-added service, with no rollover to a variable rate.

Although the Standard Offer programs have been successful, they reach a limited audience, and Direct Energy noted that overall migration in Pennsylvania continued to lag. The lack of significant progress in growing the residential and small business retail shopping market can be seen by comparing shopping statistics from July, 2013 (when the Standard Offer programs started) and December, 2015. Since July, 2013, residential shopping (by load) has decreased in five of the seven major EDC jurisdictions (Duquesne, Met-Ed, Penelec, Penn Power and West Penn). Only slight increases in shopping load have been experienced in PECO’s service territory (35% compared to 34% in 2013) and in PPL’s service territory (50.7% compared to 48.1% in 2013). For small non-residential customers, shopping has fallen in four of the seven major EDC jurisdictions since the second quarter of 2013 (Duquesne, Penn Power, PPL and West Penn), Direct Energy noted

Furthermore, Direct Energy noted that the Standard Offer programs emphasize only price with its standardized product.

"It therefore continues to be important to continue to 'jump start' the retail market but also to move customers away from viewing the markets as solely commodity based. With the deployment of smart meters, availability of smart thermostats and other energy management services and technologies, customers’ options for monitoring and managing their energy usage are growing and will provide more information and value to customers, particularly in service territories in which smart meters have been deployed. The success of the Standard Offer Customer Referral Program has shown that customers, presented directly with the opportunity, will utilize an EGS. With the availability of value added products and services, customers should also be made aware of additional advantages to them if they participate in the electricity marketplace. The proposed modified ROI will increase awareness and will facilitate the overall deployment of energy-efficiency, demand-response, and connected home devices through increased consumer participation in the competitive market," Direct Energy said.

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