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Four EGSs Propose Retail Bid Process To Assign Default Service Obligation To Retail Suppliers In Pennsylvania

EGSs Propose Winning Retail Suppliers Be Required To Pay A Per-Customer Charge Into "Social Responsibility" Fund

Consumer Advocate Does Not Support PUC's Suggested Changes, Use Of PLC, NSPL Tickets For Small Customers

July 29, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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In comments filed in the Pennsylvania PUC's review of default service cost assignment, rate structure, and procurement issues, a coalition of retail electric suppliers proposed that the default service obligation be assigned to retail electric generation suppliers (EGSs) via a competitive bidding process

The coalition ('EGS Coalition') includes NRG Energy, Inc., Direct Energy Services, LLC, Interstate Gas Supply, Inc., and Vistra Energy Corp.

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

The EGS Coalition said, "The Commission should take the initiative to relieve EDCs of the default service obligation and reassign the default service obligation to EGSs through a competitive bidding process, with service to customers on customer assistance programs being handled separately to ensure access to affordable electricity supply."

The EGS Coalition said, "The competitive bidding process for default service that is envisioned by the EGS Coalition would replace the existing wholesale auction structure with a retail provider structure, in which five retail EGSs for each service territory that bid the lowest price in an auction to supply the residential default service load would be selected to provide a portion of the default service load at a fixed retail price for two years. Three providers would be selected to supply the small commercial default service load at a fixed retail price for two years. One supplier would be selected to serve the large commercial default service load for two years. The large commercial default service customers, defined as those customers with a peak consumption of 100 kw or greater at any time during the year, would be served on a market-based pass-through rate for all of the market components, plus an administrative fee that would be competitively bid and that would cover the winning suppliers' costs to serve that market."

The EGS Coalition said, "The winning suppliers for the residential, small commercial and large commercial customer classes would be chosen independently, and collectively, they would serve 100% of the default service load. New residential and small commercial customers who do not choose to be supplied directly by an EGS would choose one of the retail default service providers, or be randomly assigned to one of those entities. Customers assigned to the retail default service provider would be free to shop at any time without penalty in favor of an EGS's retail product."

The EGS Coalition said, "At the end of the first two-year term, and every two years thereafter, until the Commission elects to move to a more pro-competition model, the Commission would conduct retail default service auctions and select five residential, three small commercial, and one large commercial retail default service provider(s) to serve the customers remaining on default service."

The EGS Coalition said, "As to concerns that may be raised about low income customers, the EGS Coalition envisions that a separate competitive bidding process would be held for the express purpose of serving customers who are on customer assistance programs. While the auction process would generally be similar, the EGS Coalition expects that a benchmark would be established for EGSs to bid at levels that would ensure that low-income customers are charged a price that is lower than the default service price produced by the general auction process."

The EGS Coalition said, "Importantly, all retail default service providers -- under the vision of the EGS Coalition -- would be required to meet a 'social responsibility' requirement by donating $2.00 per customer acquired through the default service auction to a fund that would disseminate customer rebates spent on energy management measures and for customer education efforts directed at those customers to help them understand the benefits of being served by the competitive market. In year two, those winning suppliers would donate $3.00 per customer who remained on default service to that same fund. With 3.5 million customers currently not shopping for electric supply in Pennsylvania, the EGS Coalition estimates that funding for these programs in the first and second years would likely be in the millions of dollars."

The EGS Coalition said, "Adoption of this proposal of the EGS Coalition would also set the stage for a move to a fully competitive model, in which all customers procure their electric service from the competitive market, with a provider of last resort or other 'backup' rather than 'first stop' service to accommodate short term service unavailability or supplier market exit. Such a market construct has been extremely successful in Texas, where electric customers enjoy a wealth of innovative products and services and shop for electric service using smart phone apps and the like, just like any other product or service, with over 100 different retail suppliers from which to choose. Ninety percent of all customers have made an affirmative choice in that market. The EGS Coalition's proposal will provide an efficient transition to such an 'ideal' structure when the Commission determines that it is in the public interest to move in that direction."

Separately, the Office of Consumer Advocate filed comments stating that OCA does not support most of the kind of changes to default service suggested by the Commission’s order opening the proceeding (see our prior story for such specific proposals)

OCA said, "OCA finds the existing default service program to be a successful and reasonable approach to the provision of energy supply for the vast majority of residential customers. The OCA submits that there is no need to disrupt a program that is working well and that satisfactorily serves the needs of customers. If a goal of this investigation is to assist residential customers to better utilize electricity, then the OCA submits that a better course would be to rely on the programs originally authorized by Act 129 – Energy Efficiency and Conservation (Demand Response). Demand Response programs such as a peak-time rebate program are one method of giving residential customers greater control over their household energy usage. So too are a wide variety of Energy Efficiency programs. The OCA will continue to work on well-designed voluntary TOU programs and recognizes the need for potential new rates in the future, such as for electric vehicle charging. The OCA, however, does not support a move to mandatory TOU rates or demand charges for residential customers."

OCA said, "The establishment of a demand charge equal to or similar to the Peak Load Contribution ('PLC') and Network Service Peak Load ('NSPL') tickets for residential default service customers moves towards attempting to match each customer’s contribution to costs to each customer’s obligation to pay those costs. Using these types of demand charges would result in average per-kWh costs increasing for low load factor residential default service customers (e.g., low income customers and elderly using relatively few kWh per month) and decreasing for high load factor customers. While the OCA recognizes the general importance of assigning costs on the basis of causality, the OCA also views electricity as a necessity. Access to affordable, reliable, and safe electricity profoundly affects the health and well-being of Pennsylvania’s citizens. Some reasonable degree of intra-class subsidization has consistently characterized residential rate design not only in Pennsylvania but throughout the U.S. This recognizes the fact that residential customers as a class benefit when electric bills are affordable for all customers. Therefore, as a way of ensuring continued access to affordable electricity for all of Pennsylvania’s residential customers, the OCA opposes the imposition of any demand charge on residential default service customers."

Docket M-2019-3007101

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