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Citing Looming Cross-Subsidization, Supplier Asks Regulator To Introduce Zonal Default Service Rates for Residential, Small C&I Customers

June 20, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

TransCanada Power Marketing Ltd. asked the Massachusetts DPU to introduce zonal default service pricing for residential and small C&I customers at Nstar and National Grid, starting with the next basic service price period (November 2016 and January 2017, respectively), in order to address cross-subsidization among customers in different zones that would otherwise occur as capacity prices in ISO-NE have diverged

Currently, though default service RFPs request zonal prices from suppliers, mass market retail basic service uses a single, average rate, load-weighted across the zones. Only industrial customers are subject to zonal basic service rates

TransCanada noted that, starting in June 2016 and continuing at least through May 2020, "changes in the wholesale capacity market will cause the underlying cost of service to diverge materially on a locational basis."

Notably, for 2017-18, the NEMA capacity price ($15) is double the SEMA and WCMA price ($7)

"If left unchanged, the current rate setting mechanism will artificially shift costs from one customer segment to another for the next several years. During CCP [capacity commitment period] 2016-17 and CCP 2017-18, residents and businesses on basic service in NEMA will gain at the expense of consumers located in SEMA and WCMA. During CCP 2018-19, residents and businesses in WCMA will continue to subsidize consumers in SEMA. The cost differences are sufficiently high that large numbers of NEMA residential and small commercial customers will likely migrate away from competitive suppliers to basic service and remain there at least through 2018," TransCanada said

TransCanada said that, especially with opt-out municipal aggregation, large swaths of customers can be expected to return to basic service, or leave basic service, depending on the impact of the average rate and cross-subsidy

The resulting uncertainty on the pace and magnitude of customer migration will result in wholesale suppliers pricing greater risk premiums into their bids, TransCanada said

While the DPU previously declined to extend zonal basic service pricing to small volume customers, TransCanada noted that such decision was premised on the lack of competitive options available to mass market customers at that time. "That limitation no longer exists. Aided by Department initiatives, a large number of competitive suppliers are now actively marketing to residential and small commercial customers throughout the Commonwealth. Close to one million residential accounts are currently served by competitive suppliers," TransCanada said, with 40% of residential customers at each utility on competitive supply

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