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Pennsylvania Utilities Seek Changes In New Four-Year Default Service Plan To Lower Risk Premiums In Prices

December 13, 2017

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

The FirstEnergy Pennsylvania utilities have sought approval at the Pennsylvania PUC for a proposed default service plan covering the period June 1, 2019 through May 31, 2023.

The proposal largely retains the design of the current default service plan, with several proposed changes designed to reduce risk premiums

As previously reported, the new plan does propose to implement the previously contemplated lowering of the hourly pricing cutoff from 400 kW to 100 kW, starting June 1, 2019 as affected customers receive smart meters

The price charged to hourly customers will include a fixed adder of $4/MWh (first introduced in the current DSP) that will be in addition to the winning price bid by the winning hourly default service supplier in an hourly-priced auction and the applicable PJM zonal real-time hourly LMP. The adder is intended to capture an estimate of costs of other supply components associated with meeting this full-requirements obligation, including capacity, ancillary services, NITS, AEPS compliance, and other costs.

For residential and commercial (under 100 kW) customers, Prices to Compare would be a single flat per kWh energy charge per each class, which would change quarterly.

The EDCs propose to serve residential customers on a blend of 5% variable priced products and 95% fixed-price 12 and 24-month products. The fixed price products (for residential and for commercial under 100 kW noted below) would be full requirements contracts (defined further below) procured via competitive descending clock auctions

The 5% variable priced products for the residential supply would be priced at the real time hourly load locational marginal price (LMP) for the Delivery Point plus a fixed adder of $20.00 per megawatt-hour (MWh). This additional adder is intended to capture an estimate of costs of other supply components associated with meeting this full-requirements obligation, including capacity, ancillary services, NITS, AEPS compliance, and other costs, the EDCs said

Generally speaking, apart from the 5% variable, one-half of residential default service will be served under 12 month contracts, and one-half under 24 month contracts (% varies during the term from 45-55% for both contract types), procured anywhere from 2 to 8 months in advance of delivery

The EDCs propose to serve commercial (under 100 kW) customers on a blend of fixed-price 3, 12 and 24-month products, with each contract term length serving (roughly) about one-third of load

See a proposed schedule and laddering of the default service procurements and products here

In a proposal meant to lower risk premiums in default service prices, the FirstEnergy EDCs propose to conduct each fall auction between October 20 and November 20 in order to allow participants in the fall auction to have access to any applicable proposed formula NITS rate changes for the upcoming calendar year for several weeks prior to the auction. "This should benefit default service customers by reducing any risk premium that might be added by bidders associated with uncertainty over upcoming NITs rate changes," the EDCs said

The full requirements products will require winning suppliers to comply with AEPS Act requirements, with the exception of 100% of the solar photovoltaic alternative energy credit (SPAEC) requirements for Met-Ed, Penelec and Penn Power, and potential increases in AEPs requirements (discussed further below)

Additionally, winning bidders will not be responsible for the following charges: Regional Transmission Expansion Plan charges ("RTEP"); Expansion Cost Recovery Charges ("ECRC"); Reliability Must Run/generation deactivation charges ("RMR") associated with generating plants for which specific RMR charges that began after July 24, 2014; historical out of market tie line, generation and retail customer meter adjustments; unaccounted for energy ("UFE"); and any FERC-approved reallocation of PJM Regional Transmission Expansion Plan charges related to Docket No. EL05-121-009 (collectively referred to as "non-market based charges," or "NMB charges"). Charges under any FERC-approved reallocation of PJM Regional Transmission Expansion Plan charges related to Docket No. EL05-121-009 would be a new component of the NMB charges. The FirstEnergy EDCs would assume responsibility for costs/compliance with the NMB charges on behalf of all distribution customers (retail suppliers would not be assigned any such costs)

More specifically regarding AEPs, default service suppliers in the Met-Ed, Penelec and Penn Power service territories will also be responsible for meeting 100% of the non-solar Tier I and Tier II AEPS Act requirements. Met-Ed, Penelec and Penn Power will procure all necessary solar photovoltaic requirements on behalf of both default service suppliers and EGSs that serve load in their respective service areas. In the West Penn service territory, default service suppliers will be responsible for all Tier I and Tier II AEPS Act requirements (including solar photovoltaic requirements) less any Tier I AECs or SPAECs that are allocated to the default service suppliers from existing long-term purchases made by West Penn.

The FirstEnergy EDCs propose that winning default service suppliers shall not be responsible for any additional AEPS requirements resulting from legislative or administrative changes implemented following the effective date of the supplier master agreement

"The Companies recognize that having winning default service suppliers bear the risk of additional future legislative or administrative changes to the AEPS requirements following the effective date of an executed SMA may cause these default service suppliers to add an additional risk premium into their bids. To alleviate this uncertainty and the risk premium associated with it, the Companies propose that the Companies themselves be responsible for any incremental AEPS compliance requirements to ensure these additional requirements are met through procurements at market prices. The costs associated with any incremental AEPS compliance requirements and/or potential penalties will be recovered from default service customers through the reconciliation process and added to the weighted average cost of default service supply," the EDCs propose

The EDCs propose to maintain the current load cap of 75% for the procurements

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