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PSC Denies Proposed Retail Auctions for Default Service With Scathing Rebuke

PSC: Georgia Gas Model a "Widely Viewed" As A "Failure"

PSC: Texas "Anything But" A Success

PSC: No State Has Ever Adopted Successful Retail Auction for SOS As Sought By Retail Suppliers

July 11, 2017

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

In an order on its review of electricity SOS (see related story today here on other parts of the order), the District of Columbia PSC flatly rejected various proposals offered by retail suppliers for a retail model default service.

As previously reported (here and here) various retail suppliers and trade groups proposed various auction mechanisms as a means of implementing a retail-based SOS in D.C.

"Direct Energy, NEM, NRG, RESA, and WGL Energy present plans to move from the current wholesale SOS model, where Pepco contracts with wholesale suppliers to provide SOS service, to a retail model where suppliers directly serve customers. While the specifics of each plan differ, the overall goal of all the proposed plans is to move the District to a competitive end-state where customers shop for electricity supply with a provider of last resort service, if proposed, offered as a 'backstop' at an hourly or above-market rate. All proposals feature some form of 'transition period' where retail providers would provide SOS service prior to the transition to full competition. Under each plan, a competitive procurement would be used to allocate current SOS customers to retail providers," the PSC said

The PSC noted that no jurisdiction has implemented such a model, distinguishing the various proposed retail models for D.C. with those markets with retail-based POLR service (Texas and Georgia)

The PSC noted that in Texas, there was no award or auction of customers to non-incumbent retail providers, with pricing for non-shopping customers initially set at an administratively determined price to beat.

In Georgia, the PSC said customers were not competitively allocated to retail natural gas providers, "but were, instead, forced to choose a competitive supplier or randomly assigned to one if they did not choose."

"The retail model for electricity supply service that most of these commenters advocate – where customers are directly assigned to retail suppliers – does not and has never, to our knowledge, been implemented in the United States," the PSC said

"In addition, all the models referenced by these commenters have drawbacks. Adopting the Texas method would mean deliberately making the default product prohibitively expensive, harming those customers who lack the sophistication or inclination to actively monitor and participate in the retail electricity market. The Georgia method resulted in widespread customer complaints and is widely viewed as a failure," the PSC said

"With one exception – the removal of Pepco from the SOS Administrator role – commenters are also vague on the benefits that the adoption of a retail model would provide. No persuasive evidence has been presented that demonstrates that handing SOS customers to retail suppliers via a competitive allocation would mean lower prices, more innovative product and service offerings, or create an overall, better customer experience for the District’s electricity consumers. Commenters simply assert that there would be more innovative products and services under a retail model but they do not provide any details regarding or examples of these products and services," the PSC said

"Direct Energy, NEM, NRG, RESA, and WGL Energy all support a transition to an end-state retail model, while asserting that the current, wholesale SOS model is inhibiting the development of the retail electricity market in the District NEM and NRG specifically state that the SOS has been particularly detrimental to the development of the residential retail market. Direct Energy, NEM, NRG, RESA, and WGL Energy all ignore the possibility that the SOS product is something that residential customers choose because it suits their particular needs and they are happy with this service. NEM and NRG claim that the SOS product is not reflective of market conditions. NEM and NRG incorrectly presume that the only market is the short-term or spot market. In fact, the wholesale electricity market offers products of varying lengths. Just as consumers can choose among mortgages of 15 or 30 years or other lengths, the wholesale market can provide full requirements service for 3 years, 2 years, 1 year, or 3 months. Simply because the Commission has created a reasonably priced portfolio that retail competitive suppliers cannot, evidently, compete with on price for residential customers is not a reason to claim that the portfolio should be changed as some have advocated," the PSC said

"There is the underlying and unproven assumption by the supporters of the retail model that a competitive marketplace without a regulated, market-priced default service like SOS is the best choice for consumers. In reality, in the Large Commercial sector, the competitive market is beating SOS handedly in the District in terms of load. When given a fair opportunity to compete with a government-regulated product (the Residential SOS product), competitive electricity suppliers cannot compete. The examples of Georgia and Texas that are touted as success stories are anything but. There simply is no successful program for the type of retail model that most of the retail proponents advocate for on which we can model our own," the PSC said

"The supporters of the retail model basically ask the Commission to replace a wholesale SOS model that works and has been successful with a retail model that no other jurisdiction has been willing to implement – evidently with good reason. Amazingly, none of the proponents of this type of retail model, except RESA, even claim that this model will lead to lower rates for Residential and Small Commercial customers. Based on the above, the Commission believes it is in the best interest of the District ratepayers to continue to use the current wholesale SOS model. All further comments based on the approval of a retail model are moot and will not be addressed," the PSC said

As noted in our related story today (click here), the PSC elected to maintain the current wholesale model for SOS

FC 1017

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