PUC Staff Do Not Oppose Elimination Of 36-Month Contracts From Utilities' Default Service Portfolio

October 30, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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In testimony in the electric security plan proceeding of the FirstEnergy Ohio EDCs, Staff of the PUC of Ohio stated that Staff does not oppose the FirstEnergy Ohio EDCs' proposal to eliminate 36-month contracts from the default service procurement portfolio under the next ESP

The proposed elimination of 36-month SSO contracts had been first reported by EnergyChoiceMatters.com in April

See more background on the proposal and rest of the ESP here

Staff said testimony that Staff does not oppose the elimination of the 36-month SSO contracts

Staff said, "The Companies’ independent auction administrator has conducted anonymous surveys in which suppliers have indicated a preference for shorter-duration products. Shorter products present reduced term risk to potential suppliers and therefore may result in lower risk premiums being incorporated into bids. While this modification may cause SSO rates to become slightly more volatile, it may also cause them to be more closely in alignment with current market conditions."

As previously reported, the FirstEnergy EDCs had also proposed a volumetric cap on SSO suppliers' exposure to load migration back to SSO service, as more fully detailed in our prior story here

Staff noted that the EDCs propose to limit SSO suppliers’ volumetric exposure to a maximum of 20 MW above the benchmark for the tranche. The initial benchmark level would be set at the Peak Load Contribution ('PLC') per tranche as of the first day of the delivery period, with an annual scaling update based on PJM Interconnection, L.L.C.’s ('PJM') PLC target value for the zone at the start of the new planning year for two-year products. Should the load exceed the exposure limits, it would be supplied by the EDCs at real-time market prices.

In response, Staff said, "Staff offers the following perspective and recommendations for the Commission’s consideration in determining whether the proposal is in the public interest. Staff recognizes that this proposal is intended to cap the migration risk exposure of SSO suppliers, which should theoretically translate into lower risk premiums in SSO auction bids and therefore lower SSO auction clearing prices. This would come at the expense, however, of transferring market and migration risk from suppliers to SSO ratepayers, who would now be exposed to market prices rather than a fixed auction price should the cap be exceeded. Of relevance here is the Commission’s Opinion and Order in AES Ohio’s most recent Electric Security Plan ('ESP'), in which the Commission was 'not prepared, at this time, to adopt any mechanism that shifts migration risk from wholesale suppliers to consumers in this state.'"

Staff said, "For context, each tranche in the Companies’ most recent SSO auction was approximately 100 MW, before considering migration. Customer switching levels in the Companies’ service territories have been steadily increasing. Assuming an 80 percent shopping rate, this brings the tranche size to approximately 20 MW. Applying the 20 MW load cap brings the supplier’s maximum obligation to 40 MW. This leaves 60 percent of the Companies’ load without a fixed default service price, which would be subject to being procured at market prices should the customer migration cap be exceeded."

Staff said, "Should the Commission conclude that the above tradeoff is in the public interest, Staff would make the following recommendations. The Companies should publish the daily PLC value for non-shopping load on their auction website as expeditiously as possible so interested parties can evaluate migration levels and determine whether the cap is likely to be exceeded during a delivery year. Staff would also recommend that for two-year products, the cap be reset at the start of the second delivery year based upon the actual tranche PLC at that time. This would effectively reset the cap based upon the migration levels that were observed at the start of year two. Finally, Staff would recommend that, should the cap be exceeded, the Commission initiate a process to evaluate whether it is prudent to continue with real-time market purchases or to consider alternative procurement strategies. Staff does agree that, as proposed, it should be the Companies, at least initially, which would be responsible for procuring any load in excess of the cap."

Case No. 23-301-EL-SSO, 23-0301-EL-SSO

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