Settlement Would Allow Pennsylvania Utility To Use Financial Hedge For Portion Of Default Service Load
November 26, 2018 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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A settlement in Pike County Light & Power Company's default service plan proceeding (DSP) would allow Pike County to implement a financial hedging strategy for a portion of its default service load, "to promote price stability and more closely align Pike’s DSP procurement strategy with those utilized by other Pennsylvania EDCs."
The settlement would establish Pike County's default service plan for the period June 2019 to May 2021
Under the settlement, Pike County would continue to procure its default supply from the NYISO spot market pursuant to the terms of the Electric Supply Agreement with O&R.
However, for each 12-month period during the plan (e.g. June 2019 - May 2020, and June 2020 - May 2021), Pike County would hedge a portion of default service load using a fixed price financial hedge. The amount of load subject to the financial hedge was redacted in the settlement. Only supply services will be hedged, not capacity or ancillary services
Under the settlement, the hedging will be subject to various pricing thresholds and protections. If bids are not within a certain threshold, Pike will not accept them and will try to procure the hedge again within those parameters. The specific threshold was redacted.
For the period June 2019 - May 2020, Pike would attempt to procure half of the hedge 5 to 6 months prior to the beginning of the plan year. Pike would attempt to procure the subsequent half of the hedge 2 to 3 months prior to the beginning of the plan year.
For the period June 2020 - May 2021, Pike would attempt to procure half of the hedge 14 to 15 months prior to the beginning of the plan year. Pike would attempt to procure the subsequent half of the hedge 8 to 9 months prior to the beginning of the plan year.
While the specific quantities were redacted, under the hedging mechanism, as Pike draws closer to the full commitment date, a larger portion of the default service load will be hedged, i.e. converted to the fixed rate.
Under the settlement, Pike would maintain the current rate design including keeping the current customer rate classes, resetting of the rates quarterly, and continuing with the Electric Supply Adjustment Charge to recover the delta between billed vs. actual costs. This includes retaining the Electric Supply Adjustment Charge limitation of 2.0 cents per kWh per quarter. The quarterly default service rates are currently calculated based on Pike’s forecast of NYISO Zone G spot market prices for the upcoming quarter along with the other default service related costs (NYISO capacity and ancillary costs), Orange & Rockland Utilities (O&R) contractual costs which include cost of maintaining and operating the physical infrastructure of O&R required to deliver electric supply to Pike and O&R’s service fee, PA AEPS costs and the Electric Supply Adjustment Charge. The monthly settlement on the hedge transactions described above would be incorporated into the quarterly default service rates. This would be accomplished by replacing the forecasted spot market rates for the hedge quantities with the fixed rate hedge price. The fixed rate hedge price and quantities will be known at the time the quarterly default service rates are determined for the upcoming quarter. The hedge quantities would be allocated to the rate classes based on each rate class’s pro-rata load.
As part of the settlement, the parties agree to request that the Commission approve that Staff from the Office of Competitive Market Oversight facilitate a collaborative regarding the implementation of, "cost-effective customer data sharing measures that are fundamentally necessary to ensure a properly functioning competitive retail market in Pike’s territory," essentially addressing whether EDI or alternatives should be adopted.
In the interim, Pike has agreed to various operational measures
The settlement provides that, pursuant to the Commission’s Orders in Docket No. M-2010-2183412 and pursuant to providing customers notice and opportunity to opt out as stated in those Orders, Pike would develop an eligible customer list (ECL) by March 1, 2019 and will update its ECL on a monthly basis. Pike would provide its ECL to electric generation suppliers serving in its territory on a monthly basis and upon request. The ECL is to include, at a minimum, the following information:
Under the settlement, commencing 30 days following entry of the Commission’s final order in the proceeding, Pike will provide cash reconciliation files to electric generation suppliers on a monthly basis during the week that the supplier receives wired funds.
Pike is to also provide electric generation suppliers with billing files that, at a minimum, provide the following information: read dates, usage, rate, tax, invoiced amount and purpose of the transaction (i.e., original, cancel, rebill).
Pike is to also provide electric generation suppliers serving customers in the service territory with monthly sync lists that provide a list of accounts the electric generation supplier is currently serving, has recently enrolled but the enrollment is still pending, or has dropped within the past 12 months.
The settlement was signed by Pike County Light & Power Company, the Office of Consumer Advocate, the Office of Small Business Advocate, and Direct Energy Services, LLC