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Various Parties Seek Longer-Term Default Service Contracts
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In comments in a Connecticut PURA review of standard service (customers under 500 kW) procurements due to recent legislation, several parties proposed use or consideration of contracts longer than the current six-month contracts
As previously reported, Public Act 25-173 requires that the standard service (default service under 500 kW) procurement plan "shall" include a requirement that the EDCs be able to, "engage in dynamic market purchases," for not less than 25% of the standard service load, subject to various terms including risk mitigation. PURA has also asked for comment on related changes to default service procurements
See more background here
PURA previously established a comment deadline of Sept. 26, but, in a ruling issued today, further extended the deadline to October 1. Several parties have already filed comments, however -- United Illuminating, the Office of Consumer Counsel, and Constellation Energy Generation, LLC ("Constellation")
All three parties either supported, or proposed consideration of, longer-term standard service contracts, though the three parties differed on specifics
Notably, Constellation favored expanding the delivery term for a portion of the standard service supply contracts to longer terms such as one year, from the current six months
While all current standard service contracts are for six months, the EDCs procure such 6-month contracts at varying times, with flexibility on how much to procure in a specific RFP, subject to oversight by the state's procurement manager and PURA
Constellation noted, "Connecticut has a tiered procurement structure for standard service offers, wherein the supply for any six-month period is procured over four procurements encompassing a whole year. During the procurement period, and subject to PURA approval, the EDCs retain the discretion to determine the number of tranches awarded in each procurement and may also conduct additional procurements as necessary."
Constellation said, "In addition to the current tiered procurement structure, Connecticut should procure supply for longer terms such as a one-year term for 20-50% of the standard service load."
Constellation said, "Laddering in one-year terms along with six-month terms would provide additional price stability for Connecticut customers."
Constellation further said, "If Connecticut decides to procure supply for longer terms, it should do so subject to all such procurements being market based and competitive. Also, the product terms should align with the market design. For example, the one-year procurements should be conducted for the terms where capacity prices are known. Additionally, if the procurement is for a combination of six-month and one-year terms, procure at least 50-80% of the supply through the six-month procurements to ensure alignment with market prices."
In separate comments, United Illuminating, in addressing a PURA question on the standard service contract term length and the timing of procurements, said, "For purposes of overall price diversification in its supply rate it may be beneficial to offer one tranche for a longer term than one year."
UI said, "Doing this effectively begins the the [sic] competitive solicitation process earlier than one year before the service term, for this specific tranche."
UI also cited a comment UI had made in 2023, in which UI had stated, "Further, requiring bidders who offer service terms greater than six months to submit bids for six-month periods equivalent to the longer-term service duration being offered would create greater transparency. If there is no linking of bids or contingent bids, UI anticipates that this approach would lead to lower prices for the six-month periods closer to delivery than an all-in price for 12 or 18 months. UI sees no substantial challenge to implementing this approach."
In separate comments, OCC said that its stance on contract term length has not changed since Docket No. 17-12-03RE10. In such docket, OCC had previously said, "OCC is generally in support of seeking longer term bids as long as flexibility remains in place," with OCC also noting the tradeoffs between shorter term and longer-term bids, and with OCC favoring flexibility in evaluating bids
As noted, the relevant legislation requires the EDCs to have the capability to engage in dynamic market purchases (EDC procurements directly from the ISO-NE markets, aka "self supply")
UI supports the inclusion of an initial defined target percentage of 10% of the standard service load for the self-supply or dynamic market purchases, set in advance of the first procurement period, "as a prudent and transparent mechanism to guide dynamic market participation."
UI recommended that a target percentage for self-supply be set annually or for each six-month procurement period, based, in part, on experience gained with the initial self-supply tranche
"As experience is gained in self-supply and the results, market conditions and outlook evaluated, higher percentages can be considered," UI said
"UI supports a procurement structure that initially relies primarily on load-following, full-service requirements contracts (90%) coupled with initial target amounts of self- supply (10%)," UI said
OCC believes that setting a non-binding target for the level of dynamic market purchases is a prudent approach.
"This would give the procurement team a 'soft' target that would be considered throughout the four bid days. Flexibility is one of the strongest tools of the procurement plan and we want to preserve that," OCC said
OCC also believes that setting an initial target "range" of 0%-20% for dynamic market purchases for each individual rate period would be a good starting point
"Establishing a target gives stakeholders visibility into how much exposure to market prices they can expect, and it sets expectations without tying the procurement manager’s hands with rigid targets," OCC said
Constellation generally opposed dynamic market purchases due to, among other reasons, the shifting of risks onto customers
Concerning a proxy price to be used to translate dynamic market purchases into the retail standard service rate, UI proposes to utilize the weighted average of the Bid prices awarded in the last round of the standard service procurement (which is currently 100% full requirements).
"For instance, the Bid prices procured in the October RFP should be used to calculate the proxy price of the self-supply tranche. Furthermore, the process will remain the same when establishing the rate filed in May and November by using the weighted average of all procured Bids (i.e. tranches), including the self-supply proxy for its tranche. The advantage of using the last procurement round for the applicable rate period offers the advantage of minimizing the amount of time between setting the proxy price and time of delivery," UI said
OCC recommends using the lowest selected bid for a rate period to set the proxy price for the self-management tranches
"Using this methodology skews conservative, meaning there generally should be an overcollection of the GSC," OCC said
Concerning RPS compliance and cost recovery for self-supply load, UI said that the process that UI has used for Last Resort Service (large C&I) self-supply should be used
UI has followed two paths for fulfilling its RPS requirement for Last Resort Service self-supply. In recent history, UI purchased CT Class I RECs for a single Last Resort rate period from the third-party market. "Additionally, the Company purchases Class I Renewable Energy Certificates ('RECs') from PPAs, state-administered renewable energy programs, [sic] These RECs were then allocated to self-supply Last Resort service using a transfer price methodology," UI said
The transfer price applied in these cases was based on the quarterly market value of RECs, as determined on the first day of the trading period. This price was reviewed and approved by PURA’s procurement manager, "ensuring transparency and consistency with market conditions," UI explained
UI said, "The Company recommends that this same framework be applied to environmental attribute purchases for self-supply or dynamically procured standard service load. This approach maintains
regulatory continuity, aligns with existing market-based valuation practices, and ensures that standard service customers receive appropriate environmental attributes without distorting REC markets or creating inequities among customer classes."
Concerning RPS for self-supply, OCC said, "Cost of the RECs and risk of making those purchases would be shifted to standard service customers for any load met with dynamic market purchases. The REC market is dynamic with ever-changing pricing. Full requirement service contracts put the risk and burden of REC purchases on wholesale suppliers. The EDCs would have to actively procure RECs to meet RPS requirements for the tranches that are met with dynamic market purchases. OCC supports leveraging state PPA RECs at a market rate transfer price to fulfill a portion of the dynamic market purchase RPS requirement. Doing so would avoid some costs that are associated with REC brokers and the fees they charge."
UI also provided insight concerning changes in the ISO-NE capacity market, moving from a forward to prompt price, and the impact on LSEs with forward or longer-term commitments
UI said, "The impact of ISO New England’s capacity auction reforms ('CAR'), including transitioning from a forward to prompt auction and from annual to seasonal commitment periods, set to go into effect on June 1, 2028, is that there will be price uncertainty for certain parts of the
rate period being procured at any time. Procurements are held quarterly, one year in advance of delivery. Per CAR, capacity auctions will be held shortly before each six-month seasonal period. The result is that for each load auction most if not all the monthly capacity costs will be unknown. This could lead to higher bid prices, especially right after the transition goes live as it is unknown how the prices will react to the new process."
"Under the current forward market design, capacity prices are known up to three years in advance, allowing LSEs to incorporate those costs with certainty into their procurement strategies and retail rate structures. The move to a prompt capacity market, however, eliminates this forward price signal, thereby introducing uncertainty around future capacity costs at the time LSE bids are submitted," UI said
"This uncertainty will likely result in an increased risk premium embedded in LSE bids for Standard Service full requirements, as suppliers will need to account for the unknown capacity price at the time of bid submission. While this added risk may elevate bid prices in the near term, it is anticipated that over time, as market participants gain experience and confidence in the prompt capacity market framework, the magnitude of this risk premium may decline. It is premature to offer definitive comments on the nature, structure, or availability of capacity-related hedging products at this time. The market has yet to provide clarity on how such instruments will be designed, regulated, or integrated into the broader wholesale market framework. Until further details emerge, either through stakeholder initiatives or commercial product offerings, it remains uncertain how LSEs will be able to manage capacity price risk under the reformed market design. In any event, until the emergence of any capacity hedging products, for any self-supplied tranches, the rate payer will bear the cost clearing price, as it currently does now, given that capacity costs are known three years in advance," UI said
OCC raised concerns about using supply from the nuclear PPAs for standard service, given that the nuclear PPAs are currently treated on a nonbypassable basis. UI also urged careful consideration for similar reasons, stating, "while nuclear PPAs may serve as a tool in the broader energy procurement toolbox, their use in conjunction with self-managed procurement for standard service load may introduce challenges that outweigh potential benefits."
Docket 12-06-02RE04
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September 26, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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