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Regulator Approves Alternative Default Service Procurement Mechanism At Utility

Denies Request For More Frequent True-up Between Potentially Unlinked Retail Rates, Wholesale Costs

March 21, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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The Massachusetts DPU has approved as-filed an alternative electricity basic service (default service) procurement mechanism at Fitchburg Gas and Electric Light Company d/b/a Unitil for the small and medium customer groups

As previously reported, Unitil has proposed the alternatives due to uncertainty concerning the start date of the City of Fitchburg's opt-out municipal aggregation, which has resulted in risk premiums in wholesale bids under the standard basic service procurement mechanism. Customers in the City of Fitchburg account for approximately 77 percent of Unitil's basic service customer base

Unitil's alternative basic service mechanism, which was approved as-filed, was discussed in detail in our prior story here (click here for details)

In brief, with respect to the summer pricing period, to the extent fixed price offers from wholesale suppliers are not deemed reasonable, Unitil may elect variable price supply offers from such bidders, or, if those prices are also not deemed reasonable, Unitil may serve the load itself as it does for large customers, with prices based on ISO-NE prices.

Notably, "regardless of how the wholesale procurement process occurs, the Company intends to set retail rates at a fixed level during the service period in the manner to which customers have been accustomed of many years," Unitil said

However, in cases where the wholesale supply cost is not fixed, due to the procurements described above, Unitil proposed, and the DPU approved, a mitigation measure which may apply if supply costs diverge too much from the fixed retail basic service rates

Under the DPU's order, Unitil will be permitted to seek an adjustment of the fixed and monthly retail basic service rates if the projected wholesale power supply costs for the balance of the period vary by more than twenty percent (20%) from the wholesale power supply costs projected over the same period at the time the retail rates were set.

Colonial Power Group (CPG) asserted that the proposed 20 percent threshold for a rate change is too large and recommended, instead, that the Department establish a lower threshold of five or ten percent to adjust retail rates.

The DPU denied this request

"The Department places a high priority on rate stability for residential and small business customers. D.T.E. 02-40-B at 44. Unlike CPG’s proposal which could likely result in frequent rate adjustments, the Department finds that the Company’s proposed 20 percent threshold strikes an appropriate balance between maintaining rate stability and the need to make a rate adjustment should there be a substantial mismatch in projected revenues and costs," the DPU said

The DPU further said, "Given the unique circumstances present in this case, namely the uncertainty surrounding the size of the Company’s basic service load related to the potential future launch of Fitchburg’s municipal aggregation program, energy price volatility related to recent world events, and based on our findings above, the Department finds that it is appropriate and in the public interest to adopt the Company’s alternative basic service procurement and pricing proposal. Unitil’s proposal represents the first time an electric distribution company has adopted this alternate basic service procurement approach. Accordingly, the Department finds that it would be premature to adopt CPG’s recommendation to allow the Company employ the alternative basic service procurement strategy indefinitely (see CPG Comments at 3). Here, the Company proposes to resume using the Department-approved basic service procurement method to solicit 50 percent of its applicable basic service load for the period December 1, 2022 through May 31, 2023. D.T.E. 02-40-B at 45."

Unitil intends to procure 50 percent of its anticipated basic service supply and set retail rates for its small (including residential) and medium customer groups for the period December 1, 2022 through May 31, 2023 consistent with Department-approved pricing and procurement practices (Petition at 5-6; Prefiled Testimony at 9). D.T.E. 02-40-B at 45. If Unitil is unable to secure basic service supply contracts for this period (or the June 1, 2022 through November 30, 2022 period), the Company proposes to issue a supplemental RFP once the launch date of the Fitchburg municipal aggregation program is known. The Department found that this approach is reasonable.

The City of Fitchburg has indicated that it will not launch its municipal aggregation program prior to June 1, 2022. However, the DPU noted that there is a significant, continued risk of uncertainty if Fitchburg does not quickly launch its municipal aggregation program after Department approval

While the newly adopted authority for interim rate adjustments at certain thresholds may potentially decrease the amount of unrecovered default service costs, a prior rate mitigation approved by the DPU due to aggregation-related premiums made the entirety of any reconciliation of those prior unrecovered costs nonbypassable (see story here)

D.P.U. 22-BSF-A2

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