Duquesne Light Anticipates Moving Residential Default Service to Full Requirements Contracts

Duquesne Light anticipates relying on competitively bid full requirements contracts to serve residential customers under its next default service plan (POLR VI), it said in recent comments to the Pennsylvania PUC.

Under the current default service plan, Duquesne Light is serving 100% of the residential default service load itself, under a managed portfolio offering a 29-month fixed price of 7.86¢/kWh (base generation) established in 2010 (5/21).

For the POLR VI plan to begin June 1, 2013, Duquesne Light said that it, "anticipates altering the default service 29-month fixed-rate structure for residential customers to shorten the fixed rate period and to rely on fixed-price full requirements solicitations obtained in the competitive market."

However, despite transitioning to full requirements contracts, Duquesne Light, "continues to believe that reasonable rate certainty in default service rates is important for small customers."

The specific frequency of small customer default service rate changes to be proposed by Duquesne Light, "will depend on the procurement schedule and the duration of the supply products to be obtained, and has not yet been determined."

Given this, Duquesne Light requested that the PUC, in an interim order on "bridge" default service plans covering the period June 1, 2013 through May 21, 2015, specify that rate adjustments be required at intervals no shorter than six months (rather than a mandatory change every six months). Apart from Duquesne, default service rates typically change quarterly, but the PUC has tentatively proposed dropping quarterly rate adjustments in favor of semi-annual adjustments.

Duquesne Light asked that the PUC allow EDCs propose a longer period between rate adjustments, "where doing so is in the interest of the class and supports the continued development of retail markets and aligns with the rate certainty intentions of Act 129."

Duquesne Light said that it has been its experience that, "fixed default service rates for extended periods can advance retail competition, especially for smaller customers, as a simple fixed default service rate allows EGSs to offer savings relative to a known default service rate, and to clearly show a prospective customer what the savings will be."

As to the duration of any full requirements contracts under POLR VI, Duquesne Light cautioned against the PUC's tentative order that such contracts may not extend past May 31, 2015 (to minimize any overhang if the PUC changes the retail market design), as Duquesne Light noted the proposed prohibition could stymie rate stability.

"DLC [Duquesne Light Company] recognizes the Commission's desire not to inhibit the ability of the Retail Market Investigation stakeholders to recommend, and develop for implementation, changes in the competitive market that can help foster a more dynamic and robust retail electricity environment. DLC believes that this objective should be balanced with the needs of customers for rate stability and to avoid situations where 100 percent of the supply is purchased at one point in time and/or all of the supply requirements for a particular customer class have to be fully replaced for a given delivery period."

Duquesne Light agreed that, "it would not be prudent to enter into long-term, fixed-price, fixed-quantity commitments at this time since this would impose considerable risks on its customers given the high level of shopping in its service area and the uncertainty regarding future shopping levels resulting from the Retail Market Investigation."