Regulator Issues Final Report On Potential Modifications To Default Service

February 1, 2024

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

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The Connecticut PURA issued a final 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 by PURA 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 state policy PPAs to standard service customers, with costs proportionally 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 final report does not make any specific recommendations or conclusions on SS design or procurement. On most issues, the report suggests that further analysis or investigation is needed, even in cases where some preliminary findings are discussed

The report concludes that each modification could potentially contribute to achieving the respective policy objective as indicated in the table below:

The report's conclusion 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 Legislative Report. Finally, the Authority also underscores that a key strength of the SS procurement process is its flexibility, allowing the Procurement Team to respond to changing market dynamics. This flexibility is essential to preserve in light of any potential future modification to the process."

The report suggests next steps as follows: "To act on the analysis and preliminary findings of this Legislative 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 Legislative Report. Specifically, the Authority found that Modification Nos. 3, 4, and 10, at minimum, could benefit from additional, 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 report did not recommend any specific changes to SS, the potential use of current public policy long-term PPAs, currently recovered via nonbypassable surcharge, for a portion of SS drew the most attention and discussion from PURA in the report

In such case, and subject to legislative changes, the costs of the PPAs would be proportionally split between the bypassable GSC, for portions used for SS, and the nonbypassable charge for any supply under the PPAs not used for SS

Concerning the use of supply from the long-term policy PPAs for SS, the report says, "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."

The use of the long-term PPAs for SS, plus self-management by the utilities for any remaining supply needs, "warrants serious consideration," the report says

The report notes that use of the long-term PPAs would not meet the statutory goal that SS be reflective of the market

Concerning this, the report states, "the Authority finds that this potential imbalance in serving the SS Procurement Objectives is appropriate to protect customers during times of unusual market volatility."

Concerning the use of the long-term PPAs for SS, the report says, "the Authority notes that this potential modification requires further investigation to evaluate the proposed approach and the potential customer bill impacts. Navigating potential implementation will require deep market knowledge and sound judgement on the part of all members of the Procurement Team, similar to the current opportunistic use of self-management."

"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 GSC in addition to the NBFMCC, as appropriate. Whether conforming changes to Conn. Gen. Stat. § 16-244m are necessary is not yet clear because the statute already provides broad latitude for the EDCs to enter into a variety of contracts for various energy and financial services," the report states

"Additionally, any necessary customer protections should be further evaluated before the potential modification is adopted. For instance, Eversource raised the possibility of potentially large over- and under- recoveries through the true-up of forecasted revenues collected and actual costs incurred, which could lead to customer rate shock," the report states

"Potential guardrails for large over- and under- recoveries should be considered to mitigate significant swings in rates," the report states

The report also sets forth how PURA will proceed with Topic No. 2 in the proceeding, addressing RPS and REC issues

"The issuance of this Legislative 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," the report states

Docket 17-12-03RE10

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