Pennsylvania Utility: Some Retail Suppliers, "Are Not Putting Customers First"

Consumer Group: Retail Supplier Pricing During Polar Vortex Shows Need For Default Service

August 27, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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In reply comments in a Pennsylvania PUC proceeding concerning potential changes to electricity default service, including a potential move away from a "plain vanilla" default service product, PPL Electric Utilities said that, "some retail suppliers are not putting customers first"

As noted in EnergyChoiceMatters.com'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 PUC also specifically sought comments on various wholesale cost allocation issues (capacity tags, transmission cost allocation, etc.)

As exclusively reported by EnergyChoiceMatters.com, a coalition of retail electric suppliers proposed in initial comments in the proceeding that the default service obligation be assigned to retail electric generation suppliers (EGSs) via a competitive bidding process, with the EDCs removed from the default supplier role. See details on the retail suppliers' proposal here

PPL was responding to this proposal and other calls from competitive supply parties to remove the EDC from the default provider role.

PPL made note of the electric generation suppliers' (EGS) proposal to remove the EDC as the default service provider, as well as recent comments from EGS parties in a separate docket concerning service to Customer Assistance Program (CAP) customers.

PPL said, "In RESA's CAP Shopping Comments, RESA proposed the Commission allow EGSs to charge highly vulnerable, low-income CAP customers a 20% premium to the EDC PTC. WGL's CAP Shopping Comments offered products and services beyond the per kWh PTC measure that should be incorporated when considering if a CAP customer should be able to shop and choose a rate above the PTC."

"Both examples show that some retail suppliers are not putting customers first, in that instance, low-income CAP customers. The same analysis should be applied here to conclude that the EGS Coalition, RESA, WGL, P3 and other similarly situated parties are acting in their own interests, not a customer's, when seeking to eliminate the PTC and an EDC's role in providing default service. PPL Electric recommends the comments by these parties be completely rejected," PPL said

Other utilities, including the FirstEnergy Pennsylvania EDCs, PECO, and Duquesne Light also separately filed comments opposing removal of the EDC from the default supplier role

The FirstEnergy Pennsylvania utilities said that, "The current default service framework has been successful in creating robust competition and affording retail customers the ability to shop for their electricity or choose to remain with their EDC provider, while consistently allowing for procurement of a competitively-sourced product consistent with the statutory mandate that such be secured at the least cost over time. The procurement methodology is well understood by all participants- suppliers, EDCs, independent evaluators, and regulators."

"Removing the EDC would eliminate a type of product that some electricity customers may prefer -- a product where a customer receives all power supply components from one provider -- the host EDC. Moreover, the introduction of various alternative providers of default service would inject confusion and informational complexity for customers who may not know who their default service supplier is or, even worse, may think they are shopping when in fact they are not. From a regulatory perspective, playing the game of 'Who is the default service supplier now?' may result in other adverse outcomes. For instance, periods of placing less financially stable companies in that key role would increase, ironically, the risk of default of the default service provider and, at the very least, this inefficient option would likely increase the cost of the products provided and the need for regulatory oversight of providing default service -- contrary to the 'least cost over time' standard," the FirstEnergy EDCs said

"The Companies disagree with the propositions advanced by some commenters -- namely PJM Power Providers, EGSC and RESA -- that by removing the EDC as the default service provider all retail customers -- shopping and non-shopping -- will experience benefits. To the contrary, the removal of the EDC as provider of default service removes a choice from a customer who affirmatively elects not to shop and instead prefers- for many possible reasons that they as customers should be entitled to -- the 'plain vanilla' power supply service from the host EDC. Eliminating that choice would be counter to competitive and efficient outcomes, the inherent spirit of 'choice' that was intended by the effort to deregulate Pennsylvania's electric industry, and ultimately, the public interest. For the reasons listed above, the Companies are strongly against removing the EDC from its customary and valued role of default service provider and believe the EDC is a critical market participant to preserve in a default service market structure that is sustainable into the foreseeable future," the FirstEnergy EDCs said

The Coalition for Affordable Utility Services and Energy Efficiency in Pennsylvania (CAUSE-PA) also said that the PUC should reject retail suppliers' request to, "transform default service to a product offered by competitive suppliers at prevailing market rates," citing, in particular, the polar vortex.

"The market has faced a number of challenges since 2013, all of which underscore the need for stable default service provided at the least cost over time, consistent with the mandates of the Competition Act. The 2014 polar vortex caused electric supply prices to spike dramatically. As a result, thousands of Pennsylvanians who were served by EGSs – including many uniquely vulnerable low income households – faced dramatically increased and often substantially unaffordable winter heating costs. Several multi-year investigations and enforcement actions resulted from this extreme weather event, which brought to light a range of deceptive and abusive trade practices by suppliers across the state. In fact, the Commission only recently concluded an enforcement action against one of the offending suppliers. By any account, justice has been slow to materialize for some consumers through the course of these enforcement actions. Fortunately, many ratepayers who elected to remain on default service were shielded from the worst of the financial hardship caused by the prolonged and extreme cold weather that year. In the absence of default service as presently designed, the devastating financial impact of the polar vortex would have been even more profound, and the ability for consumers to access meaningful relief available through the Public Utility Code and Commission regulations may have been significantly constrained and/or further delayed. If anything, the challenges presented since the Commission’s 2013 RMI, End State Final Order have underscored the need for stable, least cost default service to remain available to all Pennsylvanians in its current form," CAUSE-PA said

In contrast, the EGS Coalition, which includes NRG Energy, Inc., Direct Energy Services, LLC, Interstate Gas Supply, Inc., and Vistra Energy Corp., said that the implication in the PUCs inquiry -- that default service should serve as a source of rate innovation -- reflects the real barrier that default service presents to the retail market

The EGS Coalition said, "Default service, as we know it, currently stands as a stark barrier to the growth of the competitive market. Indeed, the Commission's inclination to rely on regulated utilities to develop innovative products illustrates that the time has come to transition to an end-state in which all consumers receive their electricity from the retail market. The optimal end-state is one in which default service is nothing more than a backstop supply service when contracted supplies are not delivered by the selected EGS. As a transition to that ultimate end-state, it is critical that the Commission take steps to move the utility out of the default service provider role and immediately implement measures to ensure that default service remains a plain vanilla product, which is properly priced to reflect current market conditions and all of the costs that are incurred to provide the service."

The Retail Energy Supply Association pushed back against claims that customers have "chosen" default service.

"The claim by some commenters that the shopping statistics prove there is a competitive market in Pennsylvania today and nothing more needs to be done lacks empirical support. The majority of those consumers availing themselves of competitive supply options are large commercial and industrial customers. Of the residential consumers, 29.8% of them are receiving competitive supply from an EGS. Stated another way, 70.2% of Pennsylvania's residential consumers are continuing to receive utility provided default service. This is not a market functioning to its full potential," RESA said

"Moreover, the trend in recent years has been a steady decline in residential consumer shopping. After steadily growing starting in 2009 and peaking in April, 2014 at 1,864,000, as of July 2019 the number of residential customers taking service from suppliers fell to 1,528,757. This is the lowest level of residential shopping since 2012. Between April 2009 (when 128,000 residential accounts were taking service from an EGS) and April 2014, the Commission was embarking upon a significant number of appropriate market structures to nurture the initial growth of competition including: Purchase of Receivables, Customer Referral, Eligible Customer Lists, ensuring EGS access to critical customer information, development of a best-in-class Power to Choose website and a robust consumer education campaign endorsed by the Commission. Following the Polar Vortex in 2014, the Commission shifted focus to tightening consumer protections requirements, more aggressive enforcement of suppliers and restrictions on the ability of low-income customers to freely shop. Now that the Commission's processes focusing on customer protection and enforcement have been well-developed and established, the steady decline in residential shopping statistics supports the need to redirect attention to designing structures to reinvigorate the competitive market," RESA said

"RESA does not agree with commenters who argue that consumers are 'choosing' utility provided default service and, therefore, the low shopping statistics for residential customers is not indicative of a less than optimal competitive market structure. There is no valid evidence upon which to support this claim. Where, as here, the default service product is provided by the utility and consumers have never been required to actively make a choice to affirmatively select the utility provided default service product, there is no basis upon which to conclude that the default service customer made an 'active choice' to receive default service," RESA said

"Also important to remember is that the default service product and the competitive EGS product are not reasonably comparable products developed by the same type of entity within the same set of rules. The EDCs enjoy certain competitive advantages in their provisioning of default service that are not available to any EGS today. This includes the Commission's historical efforts to encourage consumers to compare the EDC's default service rate (known as the Price to Compare, or 'PTC') to EGS pricing. As such, the consumer is not (because he or she cannot be) presented with a real choice between two similarly situated and reasonably comparable products," RESA said

"For all these reasons, one cannot reasonably conclude either that default service customers are: (1) 'actively' choosing a utility's default service; or, (2) such alleged 'active' choice one that is fully informed about the differences between the default service product and the EGS products. Thus, RESA vigorously rejects the view that the current state of the Pennsylvania market and/or the current shopping statistics mean that the Commission need not do anything else to support the development of the competitive market. On the contrary, there are significant barriers standing in the way of unleashing the full potential of the competitive market for consumers and RESA urges the Commission to take this opportunity now to start addressing these barriers," RESA said

Docket M-2019-3007101

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