PUC Staff Recommends End Of Program Assigning Customers To Retail Suppliers; Re-introduction Of Auction For Default Service

Retail Suppliers Propose New Eligibility Requirements, Pricing Guardrails For Customer Assignment Program

November 15, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Public Utilities Commission of Ohio filed testimony in support of Staff's previously reported recommendation to eliminate the Monthly Variable Rate (MVR) program at Dominion East Ohio for residential and nonresidential customers

The current applicability of the Standard Choice Offer (SCO) and MVR varies by customer class at Dominion East Ohio

For residential customers, the SCO, under which a retail auction is conducted to set an SCO adder to NYMEX prices, with winning suppliers awarded the right to serve specific SCO customers at the NYMEX price plus the adder, is the default service provided to customers who have never shopped (or who elect the SCO service).

For residential customers who have shopped (including via municipal aggregation) and whose service with a supplier is then terminated, the customer is placed on SCO for two months. If the customer does not take affirmative action after two months, the customer is assigned to a retail supplier, based on a rotating list, with the customer charged that supplier's Monthly Variable Rate (MVR program). The MVR rate can not exceed any of the supplier's rates listed on the PUCO's Apples to Apples chart; however, some suppliers list on Apples to Apples a single rate that is nearly four times the SCO rate.

For non-residential customers, there is no SCO. Any non-residential customer without a supplier selected by the customer or through opt-out aggregation are assigned to a supplier under the MVR program.

In testimony, PUCO Staff recommended that: "Staff recommends that the Commission eliminate the MVR for both residential and nonresidential customers and initiate a process whereby an auction-based Standard Choice Offer (SCO) is restored as a default service choice for nonresidential customers of Dominion."

Staff cited customer confusion and the financial impact on customers as prompting its recommendation

"Staff is particularly concerned that some MVR rates are many multiples higher than prevailing market prices and that customers are therefore being assigned to MVR rates that are unconscionably high, to the point of being unjust and unreasonable," Staff testified, citing average residential MVR rates which were generally $2/Mcf more than the SCO, with the maximum MVR rate over $7/Mcf higher than the SCO

"Staff observes that, as with residential MVR rates, nonresidential MVR rates consistently exist at a multiple to market price that constitutes a rate that is so unconscionable as to be unjust and unreasonable," Staff said

Staff testified that, "In order to make an informed decision, customers should know the price of the natural gas service and what makes the price fluctuate, the terms and conditions of service, in addition to the choice options that they have available to them. The customer should be able to compare pricing models to determine which will serve their natural gas needs the best. It is the policy of this state to '[p]romote the availability of unbundled and comparable natural gas services and goods that provide wholesale and retail consumers with the supplier, price, terms, conditions, and quality options they elect to meet their respective needs.' Staff believes that the SCO meets this criterion because the results of the competitive auctions, the formula that sets the price for the next 12-month period, and the winning SCO bidders are disclosed. Furthermore, regardless of the CRNGS [retail] provider assigned to directly provide customers SCO service, the price is the same for all SCO customers. In contrast, the MVR is not set by formula and varies from CRNGS provider to CRNGS provider. Because customers are randomly assigned to an MVR provider, customers are not informed of the supplier or price prior to that assignment. Therefore, the customer cannot make an informed decision of whether that natural gas option would meet their need. Although the MVR rates are posted on the Energy Choice website and DEO’s website, a customer will not know the assigned CRNGS provider until the customer receives their bill."

"[M]any customers are not informed of the MVR option or rate that they will pay once assigned to the MVR provider and get stuck paying high rates for service," Staff said

"Many times, that customer has to bear the burden of a high variable rate for months before the customer can make an informed choice about their natural gas supply and the process to switch to a different option. Staff does not believe that is in the public interest," Staff said

Staff testified that a 2017 Survey, "indicated that only 53% (up from 39% in 2014) of Energy Choice customers knew that they were energy choice customers. In addition, 40% of MVR customers believed that they were Energy Choice customers, and 20% of non-residential customers did not know if they were Energy Choice customers. Another concerning factor is that in 2014 22% of MVR customers identified themselves as SCO customers, and in 2017 that number increased to 32%. Based on the customer survey results, Staff believes that many customers are still uniformed about what rate option provides their natural gas supply, which leads Staff to believe that the majority of customers are not making informed decisions."

Retail Suppliers Propose Eligibility Requirements, Pricing Guardrails

A witness for Direct Energy Services, LLC and the Retail Energy Supply Association proposed that PUCO establish a new qualification for participation in the MVR program, under which suppliers would need to actively serve at least 100 non-MVR, non-SCO customers in the Dominion service territory in order to participate in the MVR program

"In addition to the long-standing qualifications to participate in the MVR program (i.e., must hold a valid CRNGS certificate, must satisfy Dominion’s collateral requirements and must satisfy Dominion’s capacity requirements), an additional participation requirement that the supplier actively serves at least 100 non-MVR, non-SCO customers in the Dominion service territory ensures that the MVR supplier has an incentive to market to the assigned customer in order to convert the customer to a shopping contract. There is no incentive for a supplier with only an MVR program rate to market and educate an assigned customer to shop for natural gas. Ensuring that MVR suppliers are actively marketing products in the DEO territory corresponds with the original purpose of the MVR supplier actively investing in the Choice program," a witness for Direct and RESA said Direct and RESA also proposed that MVR customers be reassigned if they remain on an MVR rate for 12 months "Reassigning customers on a random basis if they stay in the program more than 12 consecutive months would give another supplier a chance to target marketing to that customer and offer products. It would also provide the existing supplier an incentive to market to its assigned customers and a disincentive to keeping customers on the MVR. Any MVR supplier would be eligible for assignment of this customer group, although under the random reassignment process, it is possible that an MVR customer could be reassigned to the same MVR supplier given the random nature of the assignment," a witness for Direct and RESA said

Another witness for RESA proposed pricing guardrails for the MVR program

"[O]ne concept that could be applied to the MVR program (which assigns customers to a supplier) is to implement a competitive market component to the program which would result in customers only being assigned to MVR suppliers that are at or below the monthly median MVR price of all suppliers," the witness for RESA said

"In addition, although perhaps unnecessary given my recommendations, as well as those of other RESA witnesses , [sic] the current issue of a few suppliers charging high rates can be further addressed by limiting any supplier that does not qualify for customer assignments in a month to charge previously assigned MVR customers a MVR price of no more than that month’s median monthly MVR price," the witness for RESA said

"The median approach would add a competitive element as a guardrail for the benefit of the assigned customers. Under the median approach, the assignment would still be random but suppliers having a price above the monthly median MVR price would not be assigned customers. Suppliers would then have an incentive to price their MVR rate in line with monthly market variable rates and that in turn would help eliminate the current structure that randomly assigns customers to supplier without price considerations. Some suppliers have taken advantage of that and charge rates that are much higher than other MVR program rates. Also, restricting suppliers that have been assigned customers in prior months but do not qualify for customer assignments in the current month to a maximum MVR price that is no more than the median monthly MVR price will eliminate the scenario of a few suppliers charging MVR assigned customers significantly higher than market prices," the witness for RESA said

IGS Energy filed testimony stating, "The SCO is not a market-based product. First, many of the customers enrolled in the SCO have not affirmatively enrolled in the SCO product. When Dominion exited the business of providing natural gas commodity to customers, customers on Dominion’s legacy Gas Cost Recovery ('GCR') rate that did not choose a provider were assigned to the SCO without their consent. Moreover, currently customers that newly enroll in natural gas service must remain on the Standard Service Offer (which is the same rate as the SCO rate) for a minimum of two months before they are even allowed to affirmatively choose a natural gas product. Additionally, all of the costs to administer the SCO, including customer service, are recovered through distribution rates, not through the SCO rate itself. The SCO does not have to comply with all of the consumer protection requirements applicable to other products in the market, including contracting requirements and other consumer protection rules. The SCO has no acquisition or customer enrollment costs, which all other products in the market must incur. In short, the SCO is a non-competitive product and continues to be favored and subsidized at the expense of all other products in the market."

"There are hidden costs of the SCO that are not reflected in SCO rates. The SCO continues to be subsidized through utility distribution rates costing all customers money. There are greater regulatory costs because the SCO requires Commission Staff and utility time to administer, which is not captured in the SCO pricing," a witness for IGS Energy said

Case No. 18-1419-GA-EXM

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