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Consultant Recommends Pilot To Pool Low-Income Customers Onto Retail Supply Based on Agency, Or Municipality, Procurement

January 9, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Gabel Associates, which was retained by the Maryland PSC to review the potential for an opt-in electricity affordability program (state-endorsed opt-in aggregation similar to the program in Delaware, see Delaware program details here) told the PSC that such a program would be inappropriate for Maryland, but proposed a pilot program targeted to a specific group of low-income customers, based on either a specific program, or geographic area.

Gabel Associates listed several reasons why a broad opt-in electricity affordability program is not recommended for Maryland, including Gabel Associates' view that such a program would be inappropriate given the Maryland market's relative maturity compared to Delaware, see our related story today for more details

"Rather than an electricity supply product offered via a mass-marketed, state-wide affordability program in Maryland, we recommend a more focused approach that can target a specific population or area. Such a focused approach, if designed appropriately, could have the benefits of: 1) potentially providing affordability benefits to a targeted population, which avoids the potential market disruption associated with a more broad-based, mass-marketed program; and/or 2) serve as a pilot for potential broader application based upon lessons-learned and market outcomes," Gabel Associates said

Such a pilot electricity supply affordability program could serve: 1) a targeted group of low income utility customers; or 2) a targeted geographic area, such as a city(s), as further described below:

Targeted Group of Low Income Customers: "Under this scenario, we envision a procurement of an electricity supply product for some or all customers enrolled in the energy assistance programs (i.e. the eligibility pool would initially consist of those customers who reside in an electric utility service territory open to retail choice, and who have been determined by OHEP [Office of Home Energy Programs] as meeting low-income eligibility criteria). To take it a step further, consistent with recent initiatives on the part of the DHR [Department of Human Resources] and the Fuel Fund, we postulate an electricity supply procurement as part of an integrated, holistic affordability initiative. Specifically, an electricity supply product could be integrated as part of the proposed STEP [Supplemental Targeted Energy Program] program or similar initiative to provide a more holistic approach to addressing energy affordability for low-income customers; essentially adding another leg to the affordability stool, along with financial assistance, energy education, and participation in energy efficiency programs," Gabel Associates said

Targeted Geographic Area such as a City(s): "Under this scenario, we envision a procurement of an electricity supply product applicable to residents in a specific locale; by way of example, a procurement could be run for the residents of Baltimore City, providing a significant scale of customers for suppliers to bid on and, due to the demographics of the City, also encompassing a fair number of low income households. Such a City-based initiative would also have the characteristic of a more diverse income demographic than a strictly low income customer-based program," Gabel Associates said

"Consistent with the scope of work statement for this report we have focused this discussion of a potential electric affordability program on an 'opt-in' approach for enrolling individual eligible customers," under the recommended pilots, Gabel Associates said, though, as noted by RetailEnergyX.com today, Gabel Associates did take the opportunity elsewhere in its report to stress certain benefits of opt-out aggregation

For the proposed pilot, we "envision the procurement being conducted via a Request for Proposals (RFP) process. In the case of a low-income customer-targeted affordability program, the RFP process could be conducted by a state agency such as the DHR, or the PSC in consultation with the DHR. In the case of a program targeted on a specific geographic area, the RFP process could be conducted by the governing body of the particular area (ex. the governing body of the City of Baltimore would issue the RFP and make the decision on a contract award for a program targeted at City of Baltimore residents)," Gabel Associates said

"The RFP would set forth the specifications of the program, and would also include a master form of contract that would be executed between the selected supplier and the procuring agency. The specifications and master contract would set forth the specific desired terms of service, including the desired length(s) of contract, specifying a fixed contract price, addressing any issues with respect to any circumstances under which the contract price could be adjusted, and addressing customer termination rights and whether any fees would be permitted," Gabel Associates said

"In short, the terms of service would be established by the procuring agency, and those terms and conditions of the supply offering would presumably include sufficient protections to guard against the types of adverse outcomes that may have affected customers in past retail choice experiences (ex. large termination fees, or conversions to variable, market-indexed pricing). In effect, the procuring agency, through the establishment of master terms and conditions, would serve as the customers’ advocate," Gabel Associates said

"We envision that the procurement would be conducted in two stages. Stage 1 would consist of a qualification or 'vetting' stage. The RFP would specify the qualification documents and information to be submitted by interested suppliers, including required legal forms. Interested bidders would need to have a PSC-issued supplier license in good standing, and would be required to submit information pertaining to such items as prior experience, customer service capabilities (including description of customer service staffing levels, hours of operation of a toll-free customer service center, multi-lingual capabilities, etc.), authorizations and/or agreements in place to conduct business in the subject EDC or electric cooperative service territory(s)); capabilities concerning calculating equal payment plan amounts for submittal to the electric utility for billing, and mechanisms for computing and implementing equal payment plan true-ups. There would also be a review of consumer complaint records of the prospective suppliers," Gabel Associates said

"Stage 2 of the process would consist of a sealed bid, electronic bid or reverse auction among qualified suppliers for the product and contract specified in the RFP. Fixed price bids would be accepted for several different contract lengths, ranging from one to three years, as specified in the RFP. The contract award would be based primarily upon price, with added consideration given in the selection of a specific contract term to the desire for and prioritization of long-term price stability. The procuring agency would only be permitted to award a contract if the low bid price was lower than the applicable electric utility SOS price. The procuring agency may in fact determine to establish a minimum savings threshold for the award of a contract to assure sufficient benefits and based, in part, upon projections of SOS tariff price changes over the applicable contract period. We envision a separate contract award for qualified low-income residential customers in each electric utility or electric cooperative service territory. The eligibility pool of customers in each electric utility pool should be large enough to: a) represent an attractive base of customers for suppliers to bid on; and b) create the potential for providing affordability benefits to as wide a pool of income-challenged households as possible," Gabel Associates said

"Under a low-income opt-in affordability program, the selected winning supplier would develop a short-form of contract that individual customers would have to sign. Ideally, the short-form would consist of one page of simple terms/rights that encapsulate the customer’s rights and terms and conditions set forth in detail in the RFP and master contract. We envision that the marketing of an opt-in program limited to energy assistance program participants could be very focused and cost-effective in nature, with reliance on existing channels of communication and outreach within the assistance programs, including through nonprofits and local community organizations," Gabel Associates said

"If a STEP is implemented or some other initiative to enhance and integrate low-income services is developed or expanded, the affordability offering could also be promoted through low-income energy advisors and energy workshops. This type of targeted marketing through an existing infrastructure of trusted advocates and advisors may well: 1) reduce the supplier’s marketing costs as compared to a broad-based, mass marketing campaign; and 2) substantially increase the success or ‘hit’ rate for the supplier, thereby lowering expected transaction costs relative to a more broadly-targeted program, which would hopefully translate into better pricing at the front end," Gabel Associates said

"In addition, the large pool of prospective customers available to the selected supplier(s) (i.e., we understand the number of energy assistance program participants statewide in MD to be about 130,00032, and potentially growing – which for context is approximately one-half of the total number of residential accounts in the entire State of Delaware) should generate supplier interest and (hopefully) attractive pricing. Moreover, without the need for a broad-based, multi-media marketing campaign for this more targeted program, there is less likely to be a 'spill-over' effect on the balance of the market," Gabel Associates said

"To the extent that the Commission wished to proceed with an electric affordability program targeted to low income customers as set forth above, either targeted to assistance-eligible households or to specific local government jurisdictions where there are relatively high low-income populations, we envision a target customer group that is relatively limited in size such that, combined with the advanced notice and potential phasing of tranches, this initiative would not result in such a significant migration of customers to third party supply as to adversely impact standard offer service contract pricing. As well, a program of somewhat limited scope in terms of the identified target group of customers or geographic areas could serve as a form of 'pilot' for potential wider application, based upon lessons learned, depending upon the results achieved. By way of example, based upon an estimated 130,000 total Maryland households enrolled in utility bill financial assistance, even if 75% of all these households statewide were to participate in a low-income focused affordability program, this would only represent a migration from SOS to third party supply of a little under 5% on a statewide basis. It is not envisioned that this magnitude of customer migration would have an adverse impact on existing SOS contracts (particularly if this migration were effectuated in tranches over a period of time). As well, this level of migration, if achieved, would only return the statewide switching rate from the current 21% to about 26% statewide, which was a level of state-wide switching last seen in Maryland as recently as 2013. As such, we do not see any reason that a program of this nature would cause any adverse impact on either standard offer service pricing, or reliability of service in general," Gabel Associates said

"In order to achieve a critical mass of eligible customers sufficient in size to attract supplier attention we would suggest, based upon service territory size and demographics, the BG&E service territory may be a logical place to start in terms of a test-case low-income focused electric affordability program. However, DHR along with non-profits and local community groups may identify opportunities in other service territories. Given their relatively small size in terms of total customer count, which we presume would translate into a relatively small population of low-income customers overall, we do not see the electric cooperatives as particularly fertile ground for this type of low-income focused electric affordability program. However, where retail choice is being implemented, where DHR and/or non-profits and local community groups identify a potential opportunity and where the electric cooperative has the mechanisms in place to support such a program, there is no particular reason to foreclose this possibility if all parties agree," Gabel Associates said

"Under the type of affordability program postulated, we do not foresee a substantial incremental resource commitment on the part of the EDCs in order to implement the program. This by and large represents an alternative mechanism employed to facilitate switching by customers from SOS to a favorable third-party supply contract, relying primarily on existing, non-EDC infrastructures to implement the 'shopping' process. The primary impact on an EDC, if a program of this nature proved to be highly successful, would be at the back-end, via a short-term increase in volume in the retail choice enrollment process; i.e. a more 'lumpy' stream of enrollments than is currently the norm. In our experience this can be managed through good communications between the supplier, the aggregator and the EDC and, if necessary, planned staging of enrollments over multiple days. Therefore, as we do not foresee any significant incremental EDC expenditures associated with a program of this nature, we do not see any ratepayer impacts stemming from the implementation of such a program," Gabel Associates said

"Finally, recognizing the more transient nature of low-income households and the resultant risk on suppliers associated with a high rate of customer moves, we recommend that if a low-income focused affordability program such as described above is pursued, that the PSC prioritize the implementation of 'seamless moves' as the next 'choice-promoting' logistical initiative. In weighing the benefits of implementation of 'seamless moves' against any identified incremental expenditures, the PSC should consider not only the potential benefits to low-income customers who move and would not automatically be terminated from an electric affordability program, but also the potential positive impacts on the retail choice market in Maryland as a whole," Gabel Associates said

The PSC is accepting comments on the report, in Case PSC 47

Link to Report

Click here for related story: Consultant Says Broad Program For State-Endorsed Retail Supplier(s) Not Appropriate For Maryland

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