Retail Supplier Seeks Hearing In Regulator's Declaratory Ruling Proceeding Addressing Pass-Through Of ISO Charges Under Fixed Price Contracts

Says OCC Ignores Scaling Factor, Other Impacts On Capacity Costs

July 17, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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Spark Energy LLC has requested that the Connecticut Public Utilities Regulatory Authority hold a hearing in PURA's proceeding addressing a declaratory ruling regarding the altering of the prices in fixed-price contracts, specifically, with respect to ISO charges

Spark reiterated that legal briefs are an inappropriate medium to introduce factual evidence into the record.

"Nevertheless, as introduced by the Connecticut Office of Attorney General ('AG') in its brief and as addressed by Spark in its reply, significant predicate facts relating to Spark’s actual costs to secure capacity in the ISO New England markets and changes to those market rules that increased costs have not been explored by the Authority. Spark has thus far not been afforded the opportunity to present a witness or testimony on the matters at issue in this proceeding," Spark said

"Spark is willing to make available its wholesale market procurement experts deeply familiar with the ISO New England capacity markets. These experts can explain, in detail and in a live forum, precisely the analysis and factors that impacted Spark’s capacity procurement costs in 2018," Spark said

"For the Authority to truly render a full, fair, and objective analysis in this proceeding, a hearing is required. Indeed, even the Connecticut Office of Consumer Counsel ('OCC') in its reply brief appears to acknowledge that the evidentiary record in this proceeding is inadequate. As stated by the OCC 'A thorough response to the Request for Briefs by Direct and Spark would have materially furthered this proceeding, providing all parties with a greater understanding of the issues and perspectives thereon, resulting in a ruling by the Authority that takes into full account the positions of third-party suppliers and consumers alike.' While Spark disagrees with the OCC that briefs are the appropriate procedural vehicle for introducing facts into the record, Spark agrees with OCC that the Authority’s decision in this matter would be improved by 'providing all parties with a greater understanding of the issues and perspectives thereon, resulting in a ruling by the Authority that takes into full account the positions of third-party suppliers and consumers alike.' That greater understanding of the issues and perspectives will be achieved via a hearing," Spark said

Separately, in a reply brief, Spark said that the AG’s and OCC’s, briefs, "provide a highly simplistic and misguided analysis of the actual costs to secure capacity and the impacts of recent market rule changes in the wholesale market."

In particular, Spark noted that the AG’s and OCC’s briefs cite the Forward Capacity Auction (FCA) clearing prices which are set three years in advance

However, Spark noted that, "The costs a retail supplier incurs each month to secure capacity, however, is not just the auction clearing price, but a collection of factors and calculations rendered monthly by ISO New England. At a high level, a retail supplier’s actual costs to secure capacity on a monthly basis for a single customer consists of three key variables multiplied together: (Cap Tag of the Account) x (Scaling Factor/Multiplier) x (Clearing Price)."

Spark noted that, "the FCA auction clearing prices as referenced by the AG describe the incremental cost for capacity paid to generators and does not, however, reflect the actual monthly charges assessed by ISO New England against load-serving entities such as Spark."

"The charge actually assessed monthly against load serving entities is not the auction clearing price, but rather ISO New England’s Forward Capacity Market ('FCM') charge, which is reflected monthly on invoices from ISO New England. The annual FCA auction clearing prices are settled (i.e. actually assessed against load serving entities) on a monthly basis and include a wide-array of variables beyond the initial auction clearing price. This monthly price is known as the Net Regional Clearing Price," Spark said

Spark further said that, "the AG’s singular-focus on auction clearing prices completely ignores the impact of the multiplier (scaling factor) on the monthly costs to secure capacity. The scaling factor is the amount of capacity that ISO New England requires load serving entities to purchase above the actual sum of their load served (i.e. the sum of all capacity tags). After applying both the actual load served and the scaling factor, ISO New England determines a load serving entity’s capacity load obligation ('CLO'). The scaling factor is not published in advance by ISO New England. Therefore an increase in scaling factor dramatically increases the amount of excess capacity a load serving entity is required to procure. Price aside, the costs of securing capacity obviously increase when more excess capacity is required to be purchased by the load serving entity as part of their CLO."

Spark said that the Net Regional Clearing Prices and the FCM charge, "significantly increased over the 2018 timeframe based on the historical average. Clearing price costs increased in June 2017, a year before the rise again in June 2018."

Spark further said that the scaling factor during this 2017 increase was not significantly impacted, "mitigating the effect of the price increases and keeping costs at a manageable level."

However, Spark said that, "As the Net Regional Capacity Price increased on June 1, 2018, so too did the scaling factor, rising to historically high levels. On June 1, 2018 the Net Regional Capacity Price increased (as expected) but the increase to the scaling factor was both unexpected and significant. Two of the three components of the costs to secure capacity increasing at the same time significantly increased the costs beyond those experienced previously in the market."

Spark said that the effective scaled price for capacity it was charged increased from about $4/kW-month in 2016/17, to about $10/kW-month in 2017/18 and to about $14/kW-month in 2018/19

Docket 19-02-13

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