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Utility: Greater Transparency Needed On Muni Aggregation Pricing

Muni Aggregation Customers Paid $6.9 Million Above Default Service, Utility Says

Utility Alleges "Misleading" Marketing Tactics By Muni Aggregators

March 22, 2017

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

Greater transparency and customer education is needed concerning opt-out municipal aggregations, Nstar (Eversource) said in comments to the Massachusetts DPU, expressing concerns that aggregation customers may end up paying higher rates.

"Existing and future municipal aggregation programs should display a higher level of transparency with regards to their pricing, products and terms of service. Customers should understand that the Company’s Basic Service product is based on a pricing system developed by the Department that follows the movement of the electricity market that is designed to achieve stable and low prices for customers. On the other hand, the prices offered under an aggregation program are set by the individuals in charge of the program, who may choose an energy portfolio that focusses [sic] more on renewables or provides rate assurances over a longer course of time, which may result in significantly higher prices for customers," Nstar said

"[C]ustomers should be fully informed about the differences between Basic Service and aggregated service prior to the 'opt out' period, because, in the Company’s experience, once Basic Service customers switch to aggregated service, they are unlikely to switch back to Basic Service, even if Basic Service is offering less expensive rates for energy supply," Nstar said

Nstar said that opt-out notification messaging should, "emphasize that Eversource’s billing options are designed to achieve stable and low prices for all of its customers."

Additionally, Nstar said that, "customers should be aware that committing to the long term contracts, (i.e. contracts greater than twelve months in length), offered under municipal aggregation can seem advantageous initially, but can often lead to higher prices over the course of the contract than would be the case under Basic Service, which uses shorter contracting periods."

"Customers should understand that the price of energy is very dynamic, influenced by multiple factors and is virtually impossible to predict. The longer the contract term the more likely it is that the initial contract price will become disconnected from actual market price of energy over time. Additionally, as the term of full requirements service is extended, the cost increases as wholesale risk premiums are added. As a result, municipal aggregation programs employing long term contracts can often charge higher prices for electricity," Nstar said

"For example, from July 2013 to June 2015 customers of the Cape Light Compact municipal aggregation, paid $6.9 million more for their electricity than Eversource’s Basic Service customers during the same period," Nstar said

"Eversource has observed that many aggregation programs are in fact employing long term contracts. The reliance on long term contracts for electricity has locked customers into rates that that [sic] do not decrease when market prices move downward. If these contracts are signed when prices are high, consumers will pay high prices for the duration of the contract which could last years," Nstar said

"Energy markets are unpredictable and customers seeking low and stable prices are best served by short term contracts that follow the market. For these reasons, Basic Service contracts are procured in a manner that aligns closely to market pricing over the contract term. Eversource currently employs a layering or laddering strategy, as required by G.L. c. 164, § 1B(d), in its procurement process that balances price stability and market based rates. The Department further requires the Company purchase 50% of its basic service obligation for residential and small commercial customers every six months using contracts no greater than one year. Pricing and Procurement of Default Service, D.T.E. 02-40-C at 18-25 (2003). This approach benefits consumers in a rising price environment because the laddered contracts will moderate the impact of price increases, but for the same reason they will cause rates to decrease less quickly in a declining market," Nstar said

Nstar recommended the Department require a wider distribution of the annual reports that are prepared by muni aggregation program administrators to include distribution to customers, municipal representatives and the media so that consumers can be made aware of the costs and savings of an aggregation program.

"In addition, Eversource also recommends that administrators of municipal aggregation programs should disclose, in these annual reports, how suppliers for municipal aggregation are chosen; whether it is through a competitive solicitation process or some other means. Lastly, administrators should also better disclose the fees and costs to run the aggregation program. Eversource believes consumer education will not only help strengthen the municipal aggregation program, but also benefit all electric consumers in Massachusetts," Nstar said

Nstar further said that it, "also has concerns about how municipal aggregation programs are being marketed to municipal leaders and consumers."

"Eversource has observed marketing language that seems to over-promise the benefits that a program can achieve and may not present facts accurately. For example, one aggregator stated in a marketing presentation that by aggregating a town has 'much stronger buying power than any individual resident or business has when dealing with the utility (National Grid, Nstar or WMECo)'. This type of language seems to imply that group buyers will be able to negotiate better rates with the electric distribution company. Since Basic Service is procured in the regulated fashion as [established by statue and the DPU], for the benefit of all Basic Service customers, and all Basic Service customers within a given class receive the same rate, this marketing statement is simply not true and such statements can lead to customer confusion and negative decisions," Nstar said

"Furthermore, some municipal aggregation programs cite a lack of 'green' electricity options as reasons for their existence. In reality, all non-aggregated customers have the ability to choose from any number of competitive suppliers that offer green products. In fact, the Department recently launched a competitive shopping website where there are many options currently advertised that offer nearly 100% or 100% renewable energy supply," Nstar said

Nstar also noted the migration risk from opt-out municipal aggregations, and said that default service bidders have reported concerns about such risk and the potential need to include risk premiums in pricing

"This additional risk results in higher basic service prices and reduced bidder participation. Eversource has fielded many questions from its suppliers over the past year in regards to load aggregation programs. All of the companies that participate in Eversource’s Basic Service RFP process have expressed concerns about the aggregation programs and their impact on the Basic Service load. Some have even directly stated that they will need to price in more risk associated with the load uncertainty directly relating to the operating or pending municipal aggregation programs," Nstar said

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