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NRG: Regulator's Proposed Default Service Changes Would Make "Chumps" Out Of Certain Customers

At Current Migration, Residential Default Service Customers Will Pay $329 Million More Than Retail Supply, At Single Utility, NRG Says

Wholesale Supplier Proposes Longer Term Fixed Procurements Of Default Service (Fixed Volume Financial Block)

February 9, 2023

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Copyright 2010-21
Reporting by Paul Ring •

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Increasing the amount of default service load that is procured through contracts that are not load following full requirements, with the retention of the current socialization of any reconciled costs, would make "chumps" out of customers who prudently shopped for lower rates, the NRG Retail Companies (NRG) said in comments to the Massachusetts DPU addressing certain straw proposal revisions for default service (basic service)

See background on the DPU's straw proposal here

Among the proposed changes are establishing standards for deeming a procurement as failed, with the utility "self-supplying" SOS load to the extent a procurement fails and there is no upcoming scheduled procurement to fill the tranches. Default service prices would still be set in advance of the actual self-supply costs, meaning the self-supply costs would be subject to reconciliation

The DPU did not propose to modify the current reconciliation process under which all basic service reconciliations are nonbypassable (though the DPU proposed more frequent reconciliations to reduce the amount recoiled)

NRG said that this would make "chumps" out of shopping customers, since they would be responsible for a portion of the costs to serve non-shopping customers

"[T]he Department appears to suggest that the reconciliation of possible under-recoveries should be recouped not just from basic service customers—but from all customers, including those who struck a bargain with third-party suppliers who did offer a fixed-rate guarantee to customers – either via a direct arrangement with a competitive supplier or through a DPU-approved municipal aggregation plan," NRG said

"Such an outcome would make chumps out of those customers who prudently locked in a rate for supply in advance of a winter where the markets were volatile, but who then would be forced to pay other customers’ energy costs in addition to paying the rate they willingly bargained for (presumably including a risk premium associated with their supplier accepting the risk in question)," NRG said

"The proposal is thus unfair to shopping customers, and it would also create a marketplace with a glaring asymmetry, where one segment of residential customers could be served by suppliers who did not bear the fundamental risks of this industry, while the other segment of customers were served by suppliers who did. Such an approach is incompatible with a competitive retail market and the statutory intent of the Restructuring Act," NRG said

Noting the savings available from competitive retail supply, NRG faulted the DPU for not focusing on getting customers into lower retail supplier rates this winter as a solution to the high basic service prices

NRG calculated the savings available to residential customers at National Grid, based on the current migration level, as $329 million, if the current SOS load were shifted to retail supply

"At this very moment, the NRG Retail Companies, including Direct Energy and Green Mountain Energy, offer Massachusetts residential customers a fixed-price rate plan that is 100% renewable energy with no early termination penalty (meaning that the customer is not bound to the contract and with proper notice can de-enroll from supply service) that can save between 51% and 36% respectively in the National Grid and Eversource service territories. Right now, Massachusetts electric customers may log onto the Department’s Energy Switch Massachusetts shopping website, sign up, and begin saving on their energy bills this winter. Massachusetts electricity consumers need only to examine the Energy Switch website to learn that in the Eversource East (Metro Boston) service territory, 29 out of 30 posted residential competitive rate plan offers beat the Eversource Basic Service rate of 25.776 cents/kWh. The average of these competitive rate plan offers is 17.552 cents/kWh, which equates to an 8.224 cent/kWh, or approximately 32% savings, compared to the current basic service rate. Similarly, in the National Grid service territory, 32 out of 32 posted residential competitive rate plan offers beat the National Grid Basic Service rate of 33.891 cents/kWh. The average of these competitive rate plan offers is 18.658 cents/kWh which equates to a 15.233 cent/kWh or an approximately 45% savings compared to the current basic service rate," NRG said

"Taking only the National Grid service territory, in the Company’s basic service filing, it projected that approximately 49 percent of its residential customers, using a projected 2.2 billion kWh, would be served under basic service this winter. If those numbers held, then those customers will be paying a cumulative total of $329 million more this winter than they would have, had they shopped and entered into a contract with an average (not even the least expensive) retail offering available," NRG said

"These additional costs are attributable just to residential customers in National Grid service territory. If one were to include Eversource and Unitil in the analysis, it is reasonable to expect that consumers paid the better part of a billion dollars more than they should have, because a large number of customers regrettably did not shop heading into this winter. That is an unfortunate outcome and the omission of any discussion of this from the Order is striking," NRG said

"[T]he Department, the Healey-Driscoll Administration, the Attorney General and non-governmental stakeholders should take this opportunity to empower customers by urging them to shop for an alternative energy supplier as an adequate protection against rising basic-service rates, and the Department should consider how to amplify customers’ options during times of price volatility," NRG said

NRG said that the Department should focus its basic service reforms on, "ensuring that the basic service rate is actually reflective of the wholesale market, including by having a time-varying component—something which the Department has relegated to a second phase of this docket."

"In NRG’s view, the basic service rate should be a time-varying rate that reflects both the typical trends of intra-day wholesale costs and also the inflection points, like certain days this past winter, when a wholesale marketplace is especially reliant on high-cost fuels or performing under tight supply conditions. These considerations are especially profound for New England, where oil made up 11.3 percent of the fuel mix in ISO-New England in January 2022, almost ten times what it did on average throughout that year. There is reason to believe that Winter 2022- 2023 saw this statistic, and concomitant pricing, arise even more profoundly. While basic service should not be a mirror to real-time wholesale pricing, it should generally be reflective of these trends. A TOU/TVR rate structure, incorporating a critical-peak-price component, is a crucial step for basic service in that regard," NRG said

Other Comments

National Grid said that the DPU should remove certain non-market costs from the basic service wholesale bids, with costs instead being added to the basic service cost as a pass-through (National Grid specifically made this proposal previously with respect to Mystic costs)

"[T]he Department should consider streamlining the EDCs’ requests to exclude certain wholesale costs from bids that may be difficult for the suppliers to estimate if the inclusion of these costs would result in unacceptably high-risk premiums or impact bidder participation. Rather than requiring suppliers to include these unknown wholesale costs in bids, these requests would allow suppliers to pass through the costs directly to the EDCs as they are incurred," National Grid said

"In this approach, the EDC would include an estimate of these costs in its basic service rate filings and recover the difference between the estimate and the actual costs passed on by the suppliers through the operation of the basic service reconciliation," National Grid said

"Now that the industry is more mature, the EDCs should have greater flexibility to request to change basic service acquisition methodologies when needed to address higher risk premiums and decreased bidder participation to ensure successful procurements for customers," National Grid said

National Grid also "strongly recommends" that the Department consider changing its requirement that the EDCs procure 50 percent of their Residential and Commercial Customer Classes’ load from each of two overlapping 12-month procurements to adopting a method in which the EDCs procure 25 percent of this load from each of four overlapping 12-month procurements.

The Massachusetts Attorney General, noting an upcoming broader phase of the DPU's SOS investigation, said, "This re-examination should include, at minimum, a discussion around time-varying rates, changes to the layering and laddering of rates that Massachusetts EDCs currently use for residential and small C&I customers, the implementation of timelines that will create regulatory certainty for municipal aggregation approvals, various potential approaches to unique problems posed by the electric supply markets, e.g., costs associated with the Mystic Cost of Service Agreement, see generally National Grid, D.P.U. 22- BSF-D4 (Dec. 9, 2022), and last, but not least, strategies for customer education, outreach, and engagement around basic service and supply issues generally."

More specifically, the AG said, "the AGO recommends that the Department consider a transition rate for potential load that would migrate back to basic service due to a municipal aggregation’s early termination and / or failure to renew an existing contract."

Constellation Energy Generation, LLC also supported a pass-through of Mystic costs, such that the costs would not be the responsibility of wholesale suppliers

"Constellation suggests that the DPU consider removing the Mystic Agreement’s costs from the basic service solicitation going forward, similar to the proposal put forward by National Grid in Docket 22-BSF-D4. In other words, in future basic service solicitations with terms that overlap with the term of the Mystic Agreement, suppliers would not include the Mystic costs in bids for basic service, and the actual Mystic Agreement costs would be passed through (without mark-up) to the distribution companies," Constellation said

Constellation also suggested that the DPU consider more frequent and lower-volume procurements for residential and small C&I solicitations. "For example, instead of procuring 50% of a month’s expected load in two separate solicitations during the year, the distribution companies could procure 25% of each month’s load in four separate solicitations. The distribution companies already hold four separate solicitations annually for large commercial customers, which should minimize the administrative burden of adding solicitations for residential and small C&I solicitations," Constellation said

NextEra Energy Marketing, LLC also said the DPU should create a pass-through structure for certain products that fail to promote efficient financial hedging such as the Mystic Cost of Service Agreement (Mystic) and the Inventoried Energy Program (IEP).

NextEra also proposed, "Implementing long term procurements of fixed volume financial blocks of power, layered into overtime, to reduce extreme volatility caused by short term market events. Fixed volume financial blocks of power could then be converted into basic service utilizing the existing procurement processes."

"Instead of self-supply, as an alternative procurement approach, the Department should also consider implementing longer term fixed procurements of power. Fixed volume financial block purchases can be layered into overtime, to reduce extremely volatility caused by short term market events. Fixed volume blocks could then be converted into basic service utilizing existing request for proposal ('RFP') process. For example, NSTAR could run a 10-year request for a fixed volume of Mass Hub futures for 10% of the load. As the years roll forward, the position builds to a desired coverage level. Then, when standard RFPs for standard service are distributed, wholesalers can include the bids for the blocks of power and incorporate them into their all-in price. The effect is a reduction in the short-term movements of the market in exchange for longer-term commitments and predictability for customers," NextEra said

Docket 23-50


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