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Retail Auctions For D.C. SOS Proposed By RESA, NRG, WGL Energy

August 24, 2016

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

The Retail Energy Supply Association has proposed that the District of Columbia move to a retail model for electricity SOS, with a retail supplier-provided Transitional SOS for two years beginning on June 1, 2019.

Under RESA's proposal, for residential customers, a minimum of four winning suppliers would be selected via competitive process to provide Transitional SOS, with the fourth lowest price bid setting the single clearing price

For residential Transitional SOS, RESA proposes that participating retail suppliers would bid on tranches of 10,000 residential customers each until all residential customers are covered, ensuring that no bidder receives more than 25% of the number of tranches to be awarded for each rate class, except as necessary to assure that all tranches are awarded.

Notably, while the Transitional SOS model would be in place for two years, pricing would not be fixed for the entire term under RESA's proposal

For residential customers, RESA proposes that the Transitional SOS price would adjust twice annually based on an adjustment mechanism. Like many aspects of RESA's proposal, RESA recommends that a working group address what adjustment mechanism would be appropriate, but noted that one possibility is that adjustment could be based on an index

Small commercial Transitional SOS would be similar, except that the minimum number of winning retail suppliers would be two. RESA proposes to define small commercial as customers below 100 kW.

For small commercial customers, retail suppliers would bid to provide Transitional SOS on a three-month price, with subsequent quarterly price changes based on an indexing mechanism to ensure that Transitional SOS prices reflect changes in the market

For large commercial customers, RESA proposes that customers be served on hourly prices, with a single retail supplier selected via competitive process to service such customers.

RESA proposes that customer education be funded by a one-time per-customer surcharge to retail suppliers providing Transitional SOS. This surcharge would be assessed for each Transitional SOS customer transitioned from Pepco SOS to the retail supplier

RESA said that supplier consolidated billing should become an option for retail suppliers on the effective date of Transitional SOS

Under RESA's proposal, the PSC would move to an end state retail market starting June 1, 2021. On this date, Transitional SOS providers would become the initial POLR providers. Any other supplier that wishes to offer POLR service could do so upon satisfying the Commission’s POLR provider qualification requirements, to be determined by the workgroup, RESA said

RESA's proposal does not include specifics concerning the establishment of POLR prices, and whether the model would follow markets such as Texas, Georgia, or Dominion East Ohio (commercial), or another design, again suggesting that the workgroup address POLR customer protections

RESA said that, "POLR service should be a short-term back-up service ensuring that customers continue to have electricity supply service until they select a new electricity product and enroll with their provider of choice. POLR service should be available at all times, but should act as a stop-gap measure to ensure continuity of service, giving customers time to find a new supplier/ product that meets their needs."

Retail auctions were also proposed by NRG Energy and WGL Energy. Notable features and/or differences of their proposals are:

NRG Energy

• Proposes retail transitional SOS (TSOS) starting June 1, 2019

• The Commission could hold a descending clock auction to select TSOSPs [transitional SOS providers];

• The TSOS auction would result in a minimum of four winning bidders;

• Suppliers will bid to serve TSOS customer tranches of 10,000 customers each;

• The four lowest bids win -- no bidder may be awarded more than 25% of the number of tranches for each rate class

• A single transition price is established at the fourth lowest winning bid (assuming only four winners) that all winning TSOSPs will be required to charge to the customers assigned to them as a result of the transition

• Winning suppliers will provide TSOS for a two-year period beginning June 1, 2019.

• The transitional SOS product will be a 24-month price with semi-annual price adjustments indexed to a monthly NYMEX natural gas futures contract (averaged for six month periods) – similar to current seasonal price adjustments used by Pepco today, but highly formulaic so that all TSOSPs can calculate the same price; price adjustments happen January 1 and July 1. Enabling price adjustments is necessary given that the TSOSP must take any new customer throughout the TSOS period. TSOSPs must be able to manage that risk.

• Customers who shop with a supplier can return to a TSOSP at any time during the period

• Pepco will continue to provide backstop provider of last resort service (POLR) for customers whose supplier leaves the market or fails to perform. Pricing for this product should be a monthly variable indexed price. Recommendations for the precise methodology should be proposed by the proposed Transition Stakeholder Work Group

• Starting June 1, 2021 (end state), transitional SOS would cease, former TSOSPs would assume the POLR role from Pepco, and the POLR product would be a monthly variable product indexed to PJM’s PEPCO-DC LMP that includes no penalties for switching. It was not clear how customers who were on TSOS as of May 31, 2021 would be treated if they did not take affirmative action in response to various notices about the end of TSOS pricing.

• In the end state, suppliers would be responsible for providing supplier consolidated bills to customers. Alternatively, suppliers may contract with a third party agent to provide those services on their behalf (similar to what suppliers do today by paying fees to Pepco for billing services).

• In the end state, suppliers would be required to purchase Pepco’s receivables at zero discount rate within five (5) days of receiving an invoice from Pepco and would be precluded for imposing any charges for billing services.

WGL Energy

• Retail SOS starts June 1, 2019

• Retail SOS Suppliers would bid on tranches of 10% of class load (approximately 22,000 residential customers of 220,000 residential customers in the District are currently on SOS).

• 30% maximum load per Retail SOS Supplier (minimum of 4 suppliers).

• Winning Retail SOS Suppliers would be paid the prices they bid, but customers would pay the weighted average price of all the selected bids in a class.

• Contracts to serve Retail SOS customers would be three year contracts with pricing based on an industry benchmark or reference price that would include (plus or minus) a fixed adjustment factor. Retail SOS Suppliers would bid on the "adjustment factor" as part of the Auction process. Prices would be adjusted every quarter based on this same formula with the "adjustment factor" remaining constant.

• After the initial three year contracts are completed, if there are fewer than 75,000 residential customers remaining on SOS, then the market will transition to a Default Service product. Default Service would replace SOS and would be re-priced every three months. Customers that have not chosen an alternative retail supplier offering would be migrated to the Default Service Rate that would be administratively set by the Commission for each ensuing three months based on market conditions and Consultant recommendations. The Default Service Rate would not be intended to be the lowest cost option, as customers will still be able to switch freely and without penalty from Default Service to a competitive supply, so the Default Service Rate must account for the migration risk to the Retail SOS Supplier. The formula for the Default Service Rate would be developed by the working group and presented to the Commission for approval.

The suppliers' separately filed comments came in a PSC docket reviewing the structure of SOS (FC 1017)

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