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Pennsylvania PUC's Consumer Advisory Council Opposes Contemplated Changes To Default Service, Says Customers Can Shop For A Retail Supplier If Innovative Rate Desired

Generators: "Opportune Time" For Pennsylvania To Reconsider Non-Utility Default Service Providers

July 26, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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Several stakeholders have filed comments in the Pennsylvania PUC's review of default service cost assignment, rate structure, and procurement issues

As noted in's exclusive analysis (story here), the PUC has opened a proceeding which may end the state's "plain vanilla" default service mechanism

As previously reported, the inquiry was prompted by a desire for non-shopping customers to realize the benefit of "smart energy" behaviors, such as load shifting and peak reductions, and may include value-added default service alternatives

Under the current flat default service rates for mass market customers, any benefits of "positive" behaviors by default service customers flow only to the wholesale LSE. In contrast, customers who shop may contract for plans from retail suppliers which reward customers for "positive" behaviors, and indeed the Pennsylvania market already has several dynamic pricing and similar competitive retail products for customers who shop (including free weekends, peak time rebates, etc.)

As further in our prior story, the PUC has asked, among other things, if default service should have a Time of Use, critical peak, peak time rebate, or other dynamic pricing structure

The PUC also asked for comments on changes in the procurement and contract used for default service, including whether full requirements contracts remain appropriate or whether long-term contracts should be used

See a full discussion of the issues to be addressed in the proceeding in's prior exclusive analysis (story here)

Addressing the market structure broadly, the PJM Power Providers Group (P3) said in comments to the PUC that, "Now is an opportune time for the Commission to consider alternative approaches to default service that move away from the utility-centric POLR mode. In 1996, the legislature realized the default service was not the exclusive domain of the EDC and provided a process by which an alternative supplier could petition the Public Utility Commission to provide default service. To date, no alternative supplier has petitioned the Commission to provide, default service, however, the Commission has never actively promoted the idea of a default supplier other than the utility."

P3 said, "The current process in which the EDC is the sole supplier of default service is worthy of reexamination. Competitive markets are best served when many buyers and many sellers can transact in the market. Seeking ways to enhance competition for default service and expanding opportunities for buyers and sellers will better serve Pennsylvania consumers and the goals of the Choice Act. The Commission should expand this proceeding to include a fundamental review into the default service model and how to best modify its design to support a proper and robust competitive market with specific consideration given to non-utility suppliers providing default service."

P3 also urged flexibility in any default service procurement structure, as opposed to specific carve-outs for certain product types and lengths

P3 noted how quickly the market can change, citing hurricanes, recessions, terrorist attacks and other global conditions have dramatically impacted Pennsylvania's power markets since restructuring began.

"Accordingly, the Commission should not dictate a specific percentage of default load that should be procured from spot purchases, long term contracts, etc., as the Commission has questioned in the January 2019 Order. Default service regulations in Pennsylvania should not attempt to 'guess the market' with a prescribed percentage of purchase of differing lengths. Instead, default service providers and the Commission should allow flexibility to determine a 'prudent mix' at the time. A flexible regulatory platform for default service combined with the Commonwealth’s vision of competitive retail opportunities will yield a market structure in which both shopping and non-shopping consumers benefit from competition," P3 said

Turning to proposals to modify how various wholesale costs are assigned to default service load (such as capacity and transmission assignment), P3 urged a 'Go Slow' approach

"P3 would urge caution in introducing concepts such as 'seasonal cost allocators for capacity' or broad changes to wholesale cost allocation at PJM. While P3 does not in any way want to discourage discussion, the organization does not believe there is a sense of urgency that demands quick action and any changes should be approached incrementally. P3 appreciates the opportunity to offer these initial comments and would be happy to participate in any further discussions," P3 said

In separately filed comments filed last month, the Consumer Advisory Council (Council) to the PUC urged the Commission to reject the proposed changes to default service at this time

The Consumer Advisory Council touted that under the current default service structure, customers, "have received the benefit of stable, reasonably-priced, default service for many years[.]"

The Council said that the changes suggested in the Commission's order are inconsistent with the framework established for both default service and smart meters in Act 129 of 2008, "and would be potentially harmful to the millions of Pennsylvania consumers who rely on understandable reliable default service pricing."

The Council noted that while Act 129 required Time of Use to be available to customers, the Act specifically provides that customers "may elect" such rates, as the Council said that the General Assembly, "clearly and explicitly stated that such rates could not be imposed upon residential and commercial customers without their consent."

The Council noted the PUC's observation that while the current default service rate based on a fixed price per kilowatt hour is easy to describe and understand, it does not align well with actual cost causation at the wholesale level

"The Council would urge the Commission to give greater weight to the ability of a customer to understand his or her electric bill than to a theoretical alignment with a wholesale cost allocation methodology. Most consumers have no way of predicting when PJM’s five peak demand hours will be, and even if they could be predicted, it would be difficult for most consumers to respond to those specific price changes in a meaningful way. The Commission need only look back to the Polar Vortex in 2014, when thousands of Pennsylvania customers with variable rate contracts were hit with sudden massive increases in real time PJM prices, but only found out about it when they received their catastrophically high bills at the end of the month. In contrast, customers who were on default service (or who had purchased fixed price contracts from competitive suppliers) weathered the Polar Vortex with only modest increases over time," the Council said

"To the extent that customers want something other than a fixed price default service, they are free to choose from the multitude of competitive suppliers in the Pennsylvania retail market. Customers (and marketers) are free to utilize our smart meter technology to offer services such as 'free nights and weekends' or other time-of-use and real-time products that may arise in this market. Indeed, that is the fundamental premise of the Pennsylvania model: a basic, understandable, competitively-priced default service for customers who wish to receive it, and an array of choices for customers who want to take advantage of the technology and market opportunities provided by retail competitors," the Council said


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