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Regulator Issues Draft Report On Potential Modifications To Default Service

January 12, 2024

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Copyright 2010-23
Reporting by Paul Ring •

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The Connecticut PURA recently issued a draft report outlining consideration of 10 potential changes to standard service (default service) procurement in light of the statute's current three objectives for standard service (SS): (1) the portfolio of service contracts be procured to reduce SS prices, or ensure SS rates are just and reasonable (lower prices), (2) ensure SS rates are relatively stable (price stability), and (3) ensure SS rates reflect wholesale market prices (reflective of market)

The ten potential changes evaluated were as follows:

1: Initiate SS Procurement Earlier than One Year in Advance

2: Move the SS Rate Change to Shoulder Months

3: Procure Contracts for Longer than 6-Month Service Periods

4: Seek Bids with Supplier Costs Disaggregated

5: Seek Economies of Scale in Procurements

6: Offer a "Green" SS Option

7: Make Time-Differentiated Rates the Default for SS

8: Establish a Market Monitor Role

9: Explore Shifting Risk from Wholesale Suppliers to Customers (including dedicating current state-sponsored nonbypassable PPAs to default service)

10. Consider More Than 10 Tranches Per Service Period

With respect to potential modification #9, PURA included consideration of dedicating supply under long-term PPAs to standard service customers, with costs moved into the bypassable generation rate. Currently, the supply under such PPAs is sold into the wholesale market and recovered on a nonbypassable basis

The draft does not make any specific recommendations or conclusions. On most issues, the draft suggests that further analysis or investigation is needed, even in cases where some preliminary findings are discussed

The draft would conclude each modification could potentially contribute to achieving the respective objective as indicated in the table below:

The draft states, "In considering the potential SS procurement process modifications, it is important to balance the impact on all three SS Procurement Objectives, given that none is identified in statute as having preference over the others. The existing SS procurement process was designed and has been refined over time to account for each SS Procurement Objective as a part of a whole. Necessarily, any potential modification to the process must consider the trade-offs and unintended consequences among the SS Procurement Objectives. As such, the Authority respectfully suggests that the General Assembly abstain from advancing modifications that serve only a specific SS Procurement Objective, and instead pursue only modifications that it deems to be most promising as a means to advance multiple objectives based on the discussion and analysis provided in this report."

The draft further states, "To act on the analysis and preliminary findings of this report, the Authority suggests that the Energy and Technology Committee of the Connecticut General Assembly consider the following next steps. First, conduct outreach to wholesale suppliers to solicit confidential input on the ten potential modifications discussed in this report. Specifically, the Authority found that Modification Nos. 3, 4, and 10, at minimum, could benefit from confidential input from the wholesale suppliers. Second, where necessary, further investigate the potential impacts of high-interest SS procurement process modifications. Third and finally, adopt any legislative changes necessary to implement the Energy and Technology Committee’s priority modifications to the SS procurement process. The Authority stands ready to continue supporting the Energy and Technology Committee’s interest in this topic as may be helpful"

While the draft does not make any specific policy recommendations, certain preliminary conclusions regarding the use of state-sponsored PPAs for SS is warranted, though the draft ultimately would state further consideration, and legislative changes, would be needed

The draft states, "The Authority preliminarily finds that Eversource’s proposal to use state-sponsored PPAs plus spot market procurements for residual amounts has promise as an additional, optional procurement tool to help keep rates just and reasonable under certain circumstances, aligning with SS Procurement Objective number one. Such circumstances are times of unusual market volatility, such as over the past year when natural gas prices, which drive electricity prices in New England, have been unusually high and volatile because the energy market disruptions stemming from Russia’s invasion of Ukraine. The comparative analysis provided by Eversource to illustrate historical costs between scenarios of the status quo, use of the Millstone PPA plus self-management on the spot market, and full self-management on the spot market, yielded compelling theoretical customer savings under the proposed approaches; so much so that this proposal warrants serious consideration. Further, the use of state-sponsored PPAs to serve SS customer load provides an elegant connection between resources leveraged for policy goals and the active energy needs of Connecticut EDC customers. However, it must be acknowledged that state-sponsored PPAs are “out of market” contracts that are not necessarily reflective of current power market prices because they were generated to both serve policy goals and at past points in time not reflective of current dynamics. Therefore, this potential modification may serve lower prices and more stable prices, at the expense of ensuring that prices are reflective of the market. Nonetheless, the Authority finds that this imbalance in serving the Procurement Objectives is appropriate to protect customers during times of unusual market volatility."

The draft observes, "Notably, Eversource’s back-cast analysis for years further in the past shows that use of a state-sponsored PPA like Millstone does not always provide a more advantageous price for customers. Eversource Interrog. Resp. UPA-43, Att. 1b – Backcasts. As such, the Authority notes that this potential modification must be used only when market conditions are such that there is a very high likelihood of cost savings to customers from use of a state-sponsored PPAs to serve SS load."

"Potential implementation of this proposed modification would likely require statutory changes, consideration for further customer protections, and addition to the current procurement plan. The Authority agrees that implementing the use of state-sponsored PPAs to serve SS load would likely require changes to Conn. Gen. Stat. § 16a-3m in order to allow for cost recovery of such PPAs through the generation services charge (GSC) in addition to the NBFMCC, as appropriate," the draft states

"[T]he proportional allocation of state-sponsored PPA net costs from the NBFMCC [nonbypassable charge] to the GSC [bypassable generation charge] will suffice for cost recovery, provided that the statutory changes discussed herein are made to allow it," the draft states

The draft would also initiate a second part of the proceeding, examining RPS and REC issues.

The draft states, "The issuance of this report marks the conclusion of the Topic No. 1 investigation in this proceeding. As such, the Authority will continue the instant proceeding by shifting focus to Topic No. 2, a review of the efficacy of and potential process improvements related to the use of RPS and RECs to serve policy goals and customer interests. To kick-off the next phase of this proceeding, the Authority will update this docket’s external schedule to alert Participants and stakeholders to the upcoming events and milestones. Topic No. 2 is expected to conclude with a Decision discussing the findings of the Authority’s review of RPS and RECs as informed by Participants and stakeholders in the proceeding. The Authority welcomes and is appreciative of the continued engagement of Participants and stakeholders in the Topic No. 2 investigation"

Docket 17-12-03RE10


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