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In Reviewing SOS Bids, Utility Seeks PUC Input On "Policy Calls" As Part Of Bid Evaluation In Current Market Climate -- How "Market-Reflective" Should Default Service Be?

EDC Seeks Confidential Technical Session With PUC, Consumer Advocate To Review RFP Results Versus Alternatives

November 21, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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Public Service Company of New Hampshire (Eversource) has petitioned the New Hampshire PUC to modify the current default energy service framework to allow the potential for PSNH to self-supply default service based on ISO-NE market procurements, and to provide for a confidential technical session under which the PUC, the state's Department of Energy, and Office of Consumer Advocate could provide input concerning results from the standard sealed bid RFP versus alternatives, such as PSNH self-serving the load

PSNH proposed that this bid result consultation could serve as a forum for regulators' input on decisions which may require policy calls in regard to how market-reflective default energy service should be, balanced against the interests of default service customers.

The PUC's prior order governing default service at PSNH does not currently provide for any alternative means of procurement other than an RFP. PSNH has issued an RFP for the six-month default service period beginning February 1, 2023, with bids due the morning of Dec. 6

"Based on the Company’s recent experience in Connecticut and Massachusetts, there is a distinct possibility that the Company will receive bids from only 1-2 bidders and that prices may be outside what has been historically considered to be an acceptable range and unrelated to market prices," PSNH said

"[T]he conditions exist for a partially or fully failed RFP that either does not cover all default service load or that produces bids that are so far beyond the pale of market reflectiveness that those bids have to be deemed unacceptable," PSNH said

"The high wholesale energy prices and extreme volatility in the wholesale market has caused liquidity to decrease and the increased possibility of load migration has made load certainty decrease as well, so there are fewer bidders. The failure of the wholesale market is affecting solicitations for default service supply across New England jurisdictions leading to situations where there is an insufficient number of bidders and bids; price offers are inordinately high, and not reasonably reflective of actual market prices; and bids may not cover the full load requirements solicited, leaving some load unfulfilled," PSNH said

"[T]he Company will need the flexibility to reject unacceptably high-priced bids," PSNH said

Specifically, PSNH sought approval for modification of the default service process to allow PSNH, upon a partial or full failure of an RFP, to self-supply the load, under which PSNH would assume responsibility for managing the load asset for default energy service load in the ISO-NE market. These responsibilities will include scheduling the Default Service load in the ISO-NE Day Ahead Energy Market. In effect, this approach means that PSNH is effectively buying energy from the ISO-NE hourly energy market.

"[T]he Company is not looking to conduct [self-supply] market-based procurements unless it is a last resort and would only do so with the approval of the Commission," PSNH said

Concerning self-supply market purchases, PSNH said, "If the Company were to undertake procurements in the manner described, customers are exposed to spot-market prices. Therefore, the prices the customers will ultimately pay following a reconciliation for actual costs will be a function of where the price for energy ultimately settles in the ISO-NE market. The Company would not make any forward energy buys or sells to mitigate price or load volatility but instead will be a price taker at whatever the ISO-NE market settles. Although this exposes customers to the volatility of the spot market, there is the possibility that price volatility will occur on a limited number of days, and in any event will maintain fidelity with market-reflective pricing. Even with this volatility, this may be a better choice for customers where the bid offers submitted in response to the RFP are substantially over market and those exorbitantly high prices are applicable to the entire service period. Whether the Company’s direct, market-based procurements result in a price that is higher or lower than bid prices in the final result is impossible to discern in advance. Moreover, market-based procurement will be a necessity where the bid solicitation does not cover the full load requirements, which is a distinct possibility. Therefore, reasoned judgments must be made regarding the integrity and value of bid offers that do not appear to be reflective of market conditions."

Concerning the retail rate in a self-supply scenario, PSNH proposes a six-month fixed rate, as used currently

"To determine a reasonable price for the portion of load covered by market-based procurement, the highest-priced of the acceptable bids received would be used, and if no bids are accepted, price would be based on current market conditions and recent acceptable bids received in neighboring jurisdictions," PSNH said

Actual costs would be recovered through PSNH's June 2023 reconciliation rate filing, consistent with the default service process. Along with any contractual commitments, the annual reconciliation will be a function of prices obtained in purchasing supply and ancillary costs from the daily ISO-NE market as opposed to a fixed, contractual six-month price. Renewable Portfolio Standard (RPS) compliance obligation costs will also be included in the reconciliation, as will the minimal incremental costs mentioned above.

"The objective is to chart a path forward that maintains market-based prices to the extent possible and that, at the very least, has a backstop procurement strategy in place that will have customers paying as close to market prices as possible, if the bid solicitation should fail to any degree," PSNH said

PSNH also requested that the Commission, "consider a more consultative and collaborative approach to the review of bids on December 6th that would involve the potential participation of all stakeholders to obtain the most complete information and input available so that the Company can best navigate the results of a bid solicitation that could fail in whole or in part."

Specifically, PSNH proposes a confidential technical session on December 6, after the bids from the RFP have been received, open to the PUC and the state's DOE and OCA. PSNH would share bid pricing, load coverage and analysis to inform consensus guidance

"Eversource’s request for a confidential technical session on bid day is designed for the primary purpose of providing a forum for careful deliberation in extraordinary circumstances so that the Company has the most complete information upon which to make its decision," PSNH said

Notably, PSNH said, "Consultation and discussion on December 6 at 11-12 p.m. would allow the DOE, OCA and the Commission, at their own option, to provide input to Eversource’s decision-making process at a point when there may be options for customers that require policy calls as to whether the pricing is 'market-based' and acceptable for customers as compared to pricing that would result from direct, market-based procurement by Eversource."

Using slightly different (but notable) wording, PSNH also said that such consultation would allow the PUC, DOE, and OCA to opine on, "Consultation and discussion on December 6 at 11-12 p.m. would allow the DOE, OCA and the Commission, should each choose to participate, to provide input to Eversource’s decision-making process at a point when there may be options for customers that require policy calls in regard to how market-reflective Default Energy Service should be, balanced against the interests of Default Service Customers." [emphasis added -- discussion of how market-reflective SOS rates should be, rather than whether the RFP results are market-reflective and acceptable]

Noting that a second RFP (if desired after a failed initial RFP) would not likely be successful, nor can the initial bids remain open, PSNH said, "[O]nce the decisions are made by 3 p.m. on bid day [Dec. 6], further options may not exist for customers meaning that, for all intents and purposes, the decision made by 3 p.m. that day [Dec. 6] is likely to be decisive for customers, notwithstanding any future filing for the Commission’s review and approval. Under these circumstances, it may be important for the OCA, DOE and the Commission to weigh in to provide input on New Hampshire policy preferences and risk tolerances in regard to how market-reflective Default Energy Service should be, at a time when influence over that decision can still be exercised."

Docket DE 22-021


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