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State's Procurement Manager Recommends Reduction In Use Of Full Requirements Contracts For Default Service
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Connecticut's Procurement Manager (PM) for electricity default service has recommended that the utilities rely on direct purchases (self-supply) from the ISO New England markets for a non-binding target of 20% of default service load for customers under 500 kW (standard service)
The PM recommends that the utilities begin using the 20% target for direct ISO NE market purchases, also termed dynamic market purchases, in the earliest feasible procurement term. The level for the non-binding dynamic market purchase target would be reviewed annually, under the PM's recommendation
The PM's recommendation was made in a report on proposed changes to standard service procurement due to legislative changes adopted last year (see background here)
Citing previously reported data from the utilities, the PM said that the use of direct ISO-NE purchases for 20% of standard service load could have saved $677 million between 2013 and 2024, compared to the use of 100% full requirements contracts
The 20% level for dynamic market purchases was recommended by the PM initially as undertaking a "walk before we run" approach
Additionally, the PM said that the target for dynamic market purchases should be set in advance of the full requirements bid days. The PM cited the complexity and "compressed timeline" which already occur in evaluating the full requirements bids, with determining the level of dynamic market purchases on such bid day only adding to such complexity
At the recommended 20% level for dynamic market purchases, the PM does not recommend any new risk mitigation strategies due to such market pricing.
The PM said that past data (2013–2024) shows that, had 20% of ISO NE market purchases been used for standard service, the highest under-collection due to setting standard service rates using a proxy (due to the use of dynamic market purchases) would have amounted to less than 0.57 cents per kWh. The PM said that this level of difference would be unlikely to affect retail customer migration. To the extent PURA adopts a level of dynamic market purchases above 20%, the PM made certain recommendations regarding risk mitigation, discussed further below
The PM recommends that, for the portion of standard service still procured via full requirements contracts, the contract length, procurement timing (months ahead of delivery), and number of procurements should remain the same as used currently. The PM observed that as the EDCs typically conduct four full requirements procurements in constructing the standard service portfolio (with flexibility on the amount of full requirements contracts procured in each specific bid day based on pricing), the decision on whether to use dynamic market purchases is most relevant for the final procurement date in a cycle
The PM said, "The Procurement Manager emphasizes that the dynamic procurement target should not be treated as a binding target. At the direction of the Procurement Manager, EDCs must retain the flexibility to deviate from the pre-determined level based on the competitiveness of FRS [full requirements service] bids, future market expectations, and any other relevant factors. In its bid evaluation memo, the Procurement Manager should be prepared to defend any deviation, for example because the bids received were deemed particularly competitive."
The PM further said, addressing default service in general, "A rigid, prescriptive approach, either for dynamic market purchases or any other component of standard service procurement, would risk locking customers into uneconomic rates and diminish input by the EDC and OCC subject matter experts ... It is critical that the amended procurement plan ensures flexibility to alter the procurement strategy in response to unexpected events."
Concerning the evaluation of prices in a specific bid day, the PM said that there was not strong evidence to recommend a specific methodology or metric to use to decide whether to go forward with the non-binding target for dynamic market purchases, versus accepting the full requirements bids
"In the absence of evidence supporting one method over another, the Procurement Manager refrains from recommending a specific approach or numeric threshold for bid competitiveness," the PM said
The PM suggested several metrics which could be used for deciding between FRS bids and dynamic market purchases, such as the proxy price developed for procurement days, forward prices, or recently accepted bids, but the PM suggested that "planning committees" composed of the utilities' procurement staff and the PM should further develop appropriate metrics to be used
The PM said that planning committees should meet annually to: (1) determine the soft target for dynamic market purchases; (2) develop a heuristic to assess FRS bid competitiveness; (3) review past performance of dynamic market purchases; (4) discuss wholesale market price forecasts to be used during the procurement year and any relevant market reforms (e.g., capacity auction changes); and (5) establish credit requirements related to serving as load-serving entities in ISO New England. Further, the PM said that the planning committees may wish to also evaluate volatility modeling, financial impact assessments, and customer migration risk
To the extent PURA adopts dynamic market purchases above 20% of standard service load, the PM recommends, as a volatility mitigation measure, that PURA explore the use of the nuclear PPAs, which are currently not used for default service, as a financial hedge. Specifically, the PM said that a portion of the nuclear facilities’ output could be allocated to standard service based on the average load of the standard service tranche(s) to be hedged, with the balance procured via spot purchases (the nuclear PPAs are not load following)
The PM cited potential inequities arising from the use of the nuclear PPAs, whose costs are currently recovered on a nonbypassable basis, for default service.
The PM said that, "One approach to mitigate this concern is to establish an asymmetric reconciliation mechanism. If the nuclear PPAs are in the money, the EDCs could allocate benefits from the portion of output allocated to SS only up to the proxy price, with any excess flowing back to the NBFMCC [Non-Bypassable Federally Mandated Congestion Charge]. If on the other hand the nuclear PPAs are out of the money, then the full costs associated with the portion of output allocated to SS [standard service] would be recovered via SS customers."
The PM said that the use of the nuclear PPAs should be weighed against other types of hedges (both financial and physical).
The PM recommends the use of a proxy price, reflecting a proxy of the ultimate future cost of dynamic market purchases, in order to set fixed retail standard service rates in advance of delivery. As actual costs under ISO NE market purchases will deviate from the proxy, the PM made recommendations concerning standard service rate reconciliations
The PM said that the utilities should put in place a mechanism to "consider (but not necessarily exercise)" a mid-period reconciliation and SS rate adjustment during the normally 6-month fixed standard service rate term. A reconciliation balance exceeding an established threshold would trigger the potential mid-period rate adjustment to address reconciliation. The PM does not recommend a threshold for this trigger, though the PM said such reconciliation would occur in "extreme circumstances". The PM said that the planning committees should develop this trigger annually
As to regular reconciliations (those not resulting in a mid-point rate change), the PM also offered a recommendation to address reconciliation volatility
Specifically, the PM proposes a plus-or-minus 0.5 cent deadband for the regular 6-month reconciliation.
If the standard 6-month reconciliation calculation exceeds the deadband, the PM recommends that PURA consider measures to recover (or credit) the amount of the reconciliation which falls outside of the deadband over a longer period, rather than wholly recovering all of the reconciliation balance in the next 6-month standard service rate period, "so as not to distort the signal to enroll in SS."
As to the development of the proxy price used in retail rates, the PM recommends that the lowest rejected bid in the final FRS procurement date should be used for the proxy price of all tranches served by dynamic market purchases
The PM said that the use of the lowest rejected FRS bid as a proxy price is a conservative approach (versus a lower proxy price based on anticipated savings under dynamic market purchases), but said that erring on the side of over-recovery, due to a higher proxy rate, is prudent given that dynamic market purchases will be a new endeavor in the state
The PM recommends that policymakers may reconsider the development of the proxy price as the state gains more experience with ISO NE market purchases
Under dynamic market purchases, the EDCs will essentially be price takers for self-served load
The PM does not recommend the use of active portfolio management, calling the approach impractical at this time due to the lack of current staff at the utilities to undertake such
The PM said that any changes to default service due to potential ISO NE capacity market changes, which are still pending, would be premature at this time
Regarding environmental attributes for self-served load, the PM endorses United Illuminating's recommendation to use existing PPAs and a market-based transfer price to fulfill the CT Class I RPS requirement corresponding to the portion of standard service load procured via dynamic market purchases.
Dockets 12-06-02RE05, 12-06-02RE04
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February 17, 2026
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Copyright 2026 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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