Hard End Date to Pa. Default Service Contracts Risks Repeat of Pike County Experience, OCA Says

Requiring all short-term default service contracts in Pennsylvania to have an end date on or before May 31, 2015, "would not adequately protect default service customers from the risk of purchasing under adverse market conditions," the Pennsylvania Office of Consumer Advocate said in response to a tentative PUC order (I-2011-2237952).

The tentative order (see 10/17) proposes to limit short-term default service contracts, for the period June 1, 2013 through May 31, 2015, to a length of no more than two years, such that they would not continue beyond May 31, 2015. The direction is intended to allow flexibility should the PUC later adopt any structural changes in default service as part of its retail markets investigation.

However, the OCA said that, if no ultimate changes are ordered in default service structure for the period beginning June 1, 2015, the PUC's "hard" end date of May 31, 2015 for existing default service contracts will prevent the default service providers from creating laddered portfolios that provide price stability to customers.

"This 'laddering' concept has been the foundation of the default service plans and avoids the potential catastrophic consequences of making a single large purchase at the exact wrong time as happened in Pike County," OCA said.

"By simultaneously ending supply procurements for 100% of the short term contracts at the end of the two year period, it is virtually assured that Default Service Providers will have to purchase significant supply at the end of the period under a singular market condition," OCA noted.

Spreading the purchases over only three to four months, as might be the case without laddering, "would not adequately protect default service customers from the risk of purchasing under adverse market conditions," OCA said in asking that default service providers be allowed to ladder some contracts beyond May 31, 2015 to avoid this risk.