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Utility Formally Proposes Wholesale Auction Process & Specific Details For Default Service, In Sought Move Away From Managed Portfolio

Details Include Bypassable Vs. Nonbypassable Costs; Start Date; Credit Requirements

Proposal Includes Listing Price To Compare On Shopping Customer Bills

April 28, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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Duke Energy Ohio (the Company) has filed its specific proposal to transition to a wholesale Standard Service Offer (SSO) auction to procure its natural gas supplies for default service customers, from the current gas cost recovery mechanism

Duke's commitment to file such an application had been exclusively first reported by last summer, and PUCO recently approved a settlement containing such commitment (see details here)

In the application, Duke said that it will obtain SSO supplies by conducting a wholesale descending clock auction consistent with those conducted by the Dominion East Ohio Gas Company, CenterPoint Energy, Inc., and Columbia Gas of Ohio, Inc.

Under the new default service mechanism, non-shopping customers would pay Rider SSOR and Rider SSOCR

Rider SSOR would be a bypassable rider that will be updated monthly and will show the calculated rate resulting from adding the Retail Price Adjustment (RPA) from the SSO auction to the New York Mercantile Exchange (NYMEX) closing price for the month in which the rate will be in effect, converted from a rate per dekatherm (Dth) to a burner-tip rate per Ccf by applying the system loss factor and rolling 12-month average BTU. This rate will apply to Rates RS, RSLI, GSS and GS-L.

Rider SSOCR would be established as a bypassable rider to recover costs or refund overcollections for incremental costs associated with providing service under the Company’s SSO, including, but not limited to, any incremental provider-of-last-resort costs, costs associated with managing the annual audit, adjustments to charges billed through the SSOR during prior periods, costs associated with storage and transportation costs needed to utilize storage, revenues and penalties received from Commission-approved balancing services, charges that Duke Energy Ohio pays to Duke Energy Kentucky for transportation across Duke Energy Kentucky’s system, reconciliation of actual costs to SSO revenue, pipeline transportation charges and credits, and other costs or credits applicable to SSO service. Initially, Rider SSOCR will also be used to recover or pass back the Unrecovered Gas Cost Balance and Refunds remaining from the GCR mechanism. This rider will be updated quarterly and will be subject to annual audits by the Commission at its discretion.

"Because Rider SSOCR is bypassable to customers who are served by a retail supplier, the Company proposes to include an emergency provision such that Rider SSOCR could convert, for an interim time and with Commission authorization, to being non-bypassable if the percentage of customers who have switched to a competitive supplier exceeds ninety-percent of all natural gas customers of the Company," Duke said

Rider SSOCR will be adjusted quarterly and will be subject to annual audits by the Commission at its discretion.

Additionally, a rider (Rider ATC) to recover transition costs associated with the move to an SSO auction would apply, and its bypassability will depend on customer type

Duke said that Rider ATC would recover the prudently incurred costs to transition to the SSO Auction structure and away from the GCR.

Rider ATC would be non-bypassable for residential customers and bypassable for non-residential customers

As a wholesale auction, SSO Suppliers' names would not appear on customers’ bills.

As previously reported, as part of the SSO transition, Duke proposes to include a price to compare message on all utility bills, including those for shopping customers

Duke included sample bills in its filing, which were for combined electric and gas service. In such sample combined bill, the gas price to compare message appeared on page 4 of the bill for both shopping and non-shopping customers.

The message for shopping customers would state: "PRICE TO COMPARE: In order for you to save money, a natural gas supplier must offer you a price lower than $X.XX per CCF for the same usage that appears on this bill. When shopping for a natural gas supplier, it may be useful to compare supplier offers with the standard service offer (SSO) rate available to eligible customers, which varies monthly based on the market price of natural gas. Price represents one feature of an offer; there may be other features which you consider of value. More information about the SSO and other suppliers' offers is available at or by contacting the PUCO."

The timing for the first SSO auction is to be determined based on PUCO approval, but Duke proposes that the first SSO delivery period start in November 2022

Duke proposes that the first SSO period run from November 2022 to March 2024, with the subsequent SSO periods (starting April 2024) being a one-year term running from April to March

Duke highlighted certain differences between its SSO mechanism and those put in place at other Ohio LDCs

"The first difference between Duke Energy Ohio’s proposed transition to an SSO and previous transitions to an SSO process is that the Company proposes to retain all storage assets used to balance and serve the Company’s customers. This is necessary in order to maintain the current Choice and interruptible transportation services in the same manner as they operate today. Currently, the Company provides a virtual storage and balancing service for the Choice brokers, which is backed by the Company’s storage. Releasing the storage to the SSO suppliers would have necessitated changes to the current Choice tariffs, thus making the impact of transitioning to an SSO service not limited to only the GCR customers," Duke said

"The second difference is in how the Company allows the balancing of its interruptible transportation customers. Duke Energy Ohio currently operates so as to allow the interruptible transportation customers’ demand to be served. In order to minimize impact to shopping customers, it was best to not change how interruptible transportation customers are balanced. In addition, the current flexibility in the balancing process for the interruptible transportation customers further demonstrates why the Company needs to retain all storage for balancing and SSO customer use," Duke said

Duke proposes various SSO Supplier Credit Requirements, including the following

Potential bidders in the SSO Auction must be pre-qualified. All bidders will be required to provide auction security in order to participate in each SSO Auction in an amount determined by Duke Energy Ohio prior to the SSO Auction. This amount, per tranche, will be the same for all bidders and will be returned to non-winning bidders following the conclusion of the auction. Winning bidders’ auction security will be returned after they have signed the agreement and provided any required credit support as determined by the creditworthiness evaluation versus exposure calculated for number of tranches won. Security must be in the form of either cash or a letter of credit. The pre-qualification process shall include a creditworthiness evaluation, and bidders must demonstrate the ability to meet Duke Energy Ohio's creditworthiness requirements in advance of participation in the Auction. Bidders will have their creditworthiness assessed against exposures that include 150% of the tranches that they express the intent to bid on. This level is required in order to allow for sufficient credit to enable an SSO Supplier to accept an increase in its tranche volumes in the event of an SSO Supplier default, up to a level equal to 150% of the design day demand of the original tranche level won by the SSO Supplier in the SSO Auction. Based on the creditworthiness evaluation, Duke Energy Ohio will determine the amount of unsecured credit that each bidder’s creditworthiness supports, which will be communicated to each bidder prior to the SSO Auction. For bidders wishing to provide a parent guaranty, the unsecured credit amount will be based on their guarantor’s creditworthiness.

In consideration of various exposures, Duke Energy Ohio will determine for each SSO Auction the exposure amount per tranche representing the credit requirement that each SSO Supplier will have to meet. Upon the conclusion of the SSO Auction, SSO Suppliers shall provide appropriate credit support including any parent guaranty utilized to establish an unsecured credit amount, and cash or letters of credit to the extent the exposure for tranches won in the SSO Auction exceeds the amount of the SSO Supplier’s unsecured credit threshold.

In addition to those creditworthiness requirements addressed above, upon the awarding of tranches, each winning bidder shall provide Duke Energy Ohio with a cash deposit in the amount of thirty-five cents per Mcf multiplied by the initial estimated annual delivery requirements for the SSO Period of the tranches won by that SSO Supplier. This financial security shall be held and administered by Duke Energy Ohio exclusively for the benefit of the other SSO Suppliers who are called upon to cover for the SSO Supplier in case of its default.

Case No. 21-903-GA-EXM

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