Delaware Staff Recommend Rulemaking on Variable Rate Contracts

Delaware PSC Staff have recommended that the Commission consider reopening Regulation Docket 49 to revise the electric supplier rules to address the potential for residential and small commercial customers to mistakenly commit to variable rates for long terms.

The recommendation came during consideration of the electric supplier application of People's Power & Gas, LLC, which was granted in an order published earlier this week (see related story). The PSC's order granting the license did not opine on Staff's recommendation, nor has an order re-opening the rulemaking yet been published.

Staff's recommendation for a review of the variable rate rules was borne out of People's Power & Gas' sample residential contract filed with the PSC.

People's Power & Gas initially filed a variable rate that included, "a month-to-month variable rate as determined by [People's Power] for all electric energy." Staff advised People's Power that this provision did not satisfy Rule §3001-2.1.1.9.2 requiring, "the price stated in cents per kWh or a clear and unambiguous statement of the precise mechanism or formula by which the price will be determined."

In response, People's Power revised the contract to provide that the, "rate will not exceed [People's Power's] cost of electricity purchased through the PJM Interconnection in the DPL zone, based upon the blended hourly real time average over the previous month plus a maximum of $(0.07) per kWh during the Term."

Staff said that even with this modification, People's Power's contract differed from other, previously approved variable rate contracts, because its enrollment term was for longer than one month. Specifically, the People's Power variable contract provided that the initial term shall commence on the transferred meter read date, and continue until December 31 of the following calendar year. Thereafter, the term shall be for a twelve-month period, from January 1 through December 31 of each calendar year.

Staff asked People's Power to shorten the term for its variable rate product to one month to allow residential and small commercial customers to exit the contract if the rate increased to an excessive level; however, People's Power initially declined to do so.

People's Power also planned to offer a fixed-rate product, which also carried a term that extended to the end of the calendar year following the year in which the customer transfers to People's Power. At the expiration of the initial term of this fixed-rate product, the fixed rate automatically converts into a variable rate and another year-long term commences.

Staff said that if a fixed-rate customer fails to notify People's Power 30 days prior to the end of the initial fixed term that the customer wishes to terminate the contract, that customer automatically becomes a variable rate customer with a new one-year term. If that customer then wishes to terminate the contract, the customer must pay an exit fee equal to their average monthly usage for each of the months remaining in the term. Given that the variable rate can be as high as seven cents over the wholesale rate, Staff anticipated disputes when fixed-rate customers are rolled over to the variable rate for a year-long term.

In light of these provisions, Staff recommended that the PSC consider reopening Regulation Docket 49 to revise the electric supplier rules to address the potential for residential and small commercial customers to mistakenly commit to variable rates for long terms.

Ultimately, People's Power agreed to revise its standard small customer terms of service to provide:

"Fixed prices are good until the end of the Term, when Customer's rate then becomes variable. The month-to-month variable rate will not exceed the Company's cost of electricity purchased through the PJM Interconnection in the DPL zone, based upon the blended hourly real time average over the previous month plus a maximum of seven cents ($.07) per kWh. The People's Power fixed and variable rates do not include transmission and delivery charges, applicable federal, state, or local taxes and any tariff charges. The variable rate Term is monthly. The initial fixed rate Term shall commence on the transferred meter read date, and continue until December 31 of the following calendar year. Thereafter, the fixed rate Term shall be for a twelve month period, from January 1 through December 31 of each calendar year. Customer may cancel this Agreement with a 30 day notice prior to the end of either the fixed or variable rate Term."

This language was satisfactory to Staff, which stated that the contract now provides protection to residential and small commercial customers choosing the variable rate product to change to another supplier or return to Standard Offer Service with 30 days' notice to People's Power. Staff's concern that these customers would be locked into a long-term contract has been addressed.