Utility Seeks Alternative Default Service Procurement Approach, Switch To Average Costs & Lower Rates, More Mitigation Authority
August 18, 2022 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
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Fitchburg Gas and Electric Light Company d/b/a Unitil (the Company) filed at the Massachusetts DPU for approval of an alternative approach to procuring and pricing basic service, "which is designed to address uncertainty relative to the Fitchburg municipal aggregation."
Although the City of Fitchburg municipal aggregation has received approval, it has not set a formal launch date as the City continues to monitor the electricity market and volatile rates
Unitil is seeking approval for a one-time eight month basic service supply period (vs. the standard 6 months) of December 1, 2022 through July 31, 2023, "[i]n an effort to address the issue of projected high prices," during this period.
Thereafter, the Company proposes to procure and price basic service semi-annually for the six month periods August 1 through January 31, and February 1 through July 31, shifting the 6-month default service pricing periods from the current June 1 to November 30 and December 1 to May 31
"The above-proposed shift would have benefits in both the short and the long term for Unitil and its basic service customers," Unitil said
"In the short term, for the next solicitation, the Company believes that adding the two early summer months of June and July to the solicitation will have the benefit of mitigating what are likely to be extremely high winter basic service prices," Unitil said
"Unitil estimates that the addition of those two months to the solicitation would likely result in a reduction in the overall basic service rate of twelve percent (12%) or 2.8 cents per kWh relative to the rate from a six month solicitation," Unitil said
"In the longer term, adjusting the solicitation schedule and resulting service periods will split the traditionally higher priced
winter months, as well as the traditionally highest priced summer months. Historically, Unitil’s service periods have resulted in a higher winter rate and a lower summer rate. By splitting the higher priced months, the resulting rates should reflect more of an annual 'average' rate over the course of the year and be less prone to significant differences between seasons," Unitil said
Specifically, for the upcoming period of December 1, 2022 through July 31, 2023, Unitil intends to issue an RFP seeking 100 percent of its supply requirements for that period for its small customer group (including residential customers) and its medium customer group. Similar to a recent procurement, the RFP would seek both fixed rate supply and bids with varying prices. Under the variable price bids, the RFP will permit bidders to offer varying wholesale prices where they would specify monthly fixed adders to be added to the relevant load-weighted average real-time locational marginal price ('LMP').
In the event that Unitil receives both fixed and varying price offers that otherwise qualify, Unitil would evaluate those offers based upon the lower overall prices from each offer given the Company’s projected monthly purchase requirements, with a preference for fixed rates, and taking into consideration other factors such as bidders' financial strength
In addition to the solicitation for 100 percent of the supply requirements for the upcoming period of December 1, 2022 through July 31, 2023, Unitil will also seek bids to supply 50 percent of supply requirements for the period of August 1, 2023 to January 31, 2024. For this second period, only fixed price offers consistent with typical Basic Service procurement practice would be accepted.
With respect to setting retail rates, Unitil said, "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. Further, although the Company intends to set and maintain fixed retail pricing, that may not be a viable option, and the Company, therefore, has included potential mitigation measures as part of this proposal."
"In the event the Company contracts with a wholesale supplier with a varying price bid, Unitil proposes to calculate rates based on the winning fixed adder bid, along with the ISO LMP Futures and Evaluation Loads. All other retail charges and adjustments would be added to this rate consistent with prior practice and precedent. If, however, the solicitation fails and Unitil is required to serve the load directly, it will set the retail rates based upon Forward Capacity prices, ISO LMP Futures and Evaluation Loads, plus a set percentage for Ancillary Services. As with the supplier provided price, the other retail charges and adjustments would be added to this rate consistent with prior practice and precedent. Ultimately, the goal will be to produce retail rates that are stable and consistent across the service period, including a single price (or a fixed price, as the term is used to describe retail rates) for the full supply period and fixed monthly prices (or variable prices, as the term is used to describe retail rates) throughout the rate period, in line with wholesale pricing trends, and reflective of appropriate market prices," Unitil said
With respect to mitigation of default service rates, Unitil said, "With respect to potential mitigation, in instances where the Company is serving customers either from a contract that includes varying price provisions or directly there could be substantial differences between the actual ISO LMP prices paid relative to the futures prices at the time the rate is set. Such differences could lead to significant over- or under-collections. Reconciling those variances could lead to cost shifting into future periods. A potential means of mitigating that impact would be through interim adjustments to the retail rate. Accordingly, the Company proposes that it be permitted to seek an adjustment of the fixed and monthly retail 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. This approach balances rate stability, which is an important aspect of the Department’s approach to basic service pricing while mitigating the potential for significant over- or under-collections."
Unitil said that if an interim adjustment occurs, the Company would make a filing for approval of a new rate on the 15th of the month prior to the proposed effective date, which would be the first day of the month. The Department approved a similar proposal in D.P.U. 22-BSF-A2. Fitchburg Gas and Electric Light Company, D.P.U. 22-BSF-A2, Order at 13, 14 (March 21, 2022).