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Pa. ALJ Recommends Price Cap Be Imposed On Retail Supplier Rates For Certain Customers

Addresses Sought Default Service Adder, POR Clawback, Hourly Pricing Cutoff

June 11, 2018

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

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A recommended decision from a Pennsylvania ALJ concerning the default service plan of the FirstEnergy Pennsylvania utilities would institute a price cap on retail supplier offers to Pennsylvania Customer Assistance Program (PCAP) customers

CAP Shopping

The ALJ recommended that, on or before June 1, 2019, the FirstEnergy utilities shall implement the following PCAP shopping rules:

a. PCAP customers are prohibited from entering into any retail electricity contract with an EGS which would charge rates exceeding the applicable price to compare for the entire duration of the EGS contract.

b. EGSs are not permitted to enter into contracts with PCAP customers charging early termination or cancellation fees.

c. EGS enrollments submitted for any PCAP customers that do not meet these requirements will be rejected.

For the purpose of transitioning PCAP customers who are currently being served by an EGS, as of June 1, 2019, the ALJ recommended that:

a. PCAP customers who are served under a fixed duration contract with an EGS as of June 1, 2019 (a 'pre-existing fixed duration contract') may remain with their EGS until the expiration date of the fixed duration contract or the contract is terminated, whichever comes first.

b. Non-PCAP customers served under a fixed duration contract who subsequently enroll in PCAP (also considered to be served under a 'pre-existing fixed duration contract') may remain with their EGS until the expiration date of the fixed duration contract or the contract is terminated, whichever comes first.

c. Upon expiration or termination of a pre-existing fixed duration contract, the EGS must either: (a) enroll the PCAP customer under a contract compliant with the new PCAP shopping rules; or, (b) return the PCAP customer to default service. For EGSs serving PCAP customers under a month-to-month contract as of June 1, 2019, the EGS must either: (a) return the PCAP customer to default service effective June 1, 2019; or, (b) enroll the PCAP customer under a contract compliant with the provisions, above, with an effective date of June 1, 2019.

d. For EGSs serving non-PCAP customers under a month-to-month contract who subsequently enroll in PCAP, the EGS must either, within 120 days of the customer’s PCAP enrollment: (a) return the PCAP customer to default service; or, (b) enroll the PCAP customer under a contract compliant with the provisions, above.

The ALJ proposed the price cap described above by noting that, "Any plan which allows the Companies’ PCAP customers to receive service from an EGS must continue to tie the affordability of electric service to a customer’s ability to pay for that service through policies, practices, and services that help low income customers maintain utility service."

"There is ample support in this record to conclude that unrestricted PCAP shopping is harming both PCAP participants and non-PCAP residential ratepayers," the ALJ said

"[T]he evidence demonstrates that of the PCAP customers who shopped, the overwhelming majority paid more than the price to compare," the ALJ said

"Aggregated, the data shows that over a nearly five-year period (58 months), two-thirds (65%) of all PCAP customers who shop have contracted for, and obligated PCAP to assume, rates higher than the price to compare," the ALJ said

The ALJ cited an $18.3 million increase in PCAP costs over a 58-month period (nearly five years) as, "a direct result of the Companies’ current practice of allowing PCAP customers to accept any EGS offer regardless of cost."

Default Service Adder

The ALJ recommended that the FirstEnergy utilities' proposed bypassable retail market enhancement rate mechanism ('PTC Adder') be denied. The utilities had proposed a bypassable adder equal to $1.25 per residential default service customer per month.

"[T]here is no justification for the PTC Adder and that the Companies have failed to prove that the proposal is just and reasonable. Accordingly, I recommend that the Commission reject the proposal," the ALJ said

"The PTC Adder will result in an increased volumetric charge for residential default service customers, but it is not predicated on the cost of generation. Instead, the PTC Adder is calculated arbitrarily, and it is being assessed solely to influence residential default customers’ decisions to enter the retail market," the ALJ said

"[T]he PTC Adder will allow the Companies to recover charges that are not demonstrated to be lawful – the charges do not reflect a cost of providing service – without any empirical support or measurable costs," the ALJ said

"The Commission should reject the PTC Adder. The design of the PTC Adder is arbitrary. There is no evidence that the design of the adder is connected in any way to incentivizing switching or will achieve its stated goal. Nor does it represent the recovery of a cost to the Companies for providing default service. The Companies provide no justification for returning revenue collected from default service customers to all customers or for retaining a portion to cover unspecified costs," the ALJ said

Other Issues

The ALJ recommends that the FirstEnergy utilities' default service procurement plan be adopted as proposed, covering the term June 1, 2019, through May 31, 2023.

Under the recommended decisions, residential customers would be served under a blend of 5% variable priced products and 95% fixed-price 12 and 24-month products. The fixed price products (for residential and also for commercial under 100 kW noted below) would be full requirements contracts 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

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 would 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 the recommended schedule and laddering of the default service procurements and products here

Prices to Compare for residential and small commercial customers would change each quarter

The ALJ would adopt the products included in the full requirements products as proposed by the companies (see our prior story for a description)

The ALJ recommends adoption of the FirstEnergy EDCs' plan to lower the hourly pricing cutoff to 100 kW, including the EDCs' proposed methodology for calculating whether a customer exceeds the hourly pricing threshold

Under the ALJ's recommendation, the FirstEnergy EDCs shall conduct an annual review (on April 1) of each commercial customer’s measured demand for the previous year (April 1 to March 31). If the actual measured demand in any of the twelve months is less than 100 kW, then the non-shopping commercial customer will receive default service under the provisions of the applicable fixed priced PTC Rider. Otherwise, the commercial customer will receive default service under the provisions of the applicable hourly priced service rider. Any changes will become effective June 1 of every year and the hourly or non-hourly designation for a commercial customer will remain in effect for 12 months.

The ALJ would deny RESA's alternative mechanisms for determining commercial eligibility for fixed price default service, which would require that the customer have two consecutive months in a twelve-month period below the threshold, or, in the alternative, would base a customer’s migration on the customer’s peak load contribution (PLC).

The ALJ recommends continuing the current design of the EDCs' customer referral program without change

The ALJ would accept, without substantive modifications, settlements concerning various aspects of the default service plan, including continuation of the Purchase of Receivables (POR) clawback charge

See a discussion of the POR clawback settlement here, which the ALJ recommends adopting without substantive modification

The ALJ also recommended adoption of a settlement addressing Non-Commodity Billing, Non-Market Based Charges, and Time-of-Use Rates as filed without modification. See details of this settlement here

P-2017-2637855 et. al.

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