Retail Opt-In Auctions In Pennsylvania Limited to Service After

Opt-in auctions to place retail electric customers in Pennsylvania on competitive supply would not include service prior to June 1, 2013 under a tentative PUC intermediate retail market workplan.

The proposed intermediate retail market workplan was contained in a tentative order published Friday, and is not final.

Under opt-in retail auctions, customers affirmatively agree to take service from an electric generation supplier (EGS) selected via the auction, at a price determined through the auction.

Certain retail suppliers had argued for a pilot opt-in auction for service in 2012. However, the PUC said in a tentative order that, "it is inappropriate to risk tampering with current default supply contracts," which generally run through May 2013. Accordingly, the PUC tentatively proposes that the initial retail opt-in auctions would be for service starting in June 2013.

Additionally, for distribution companies with full requirements contracts that extend beyond May 2013, the PUC has left open the possibility of delaying retail opt-in auctions in those cases.

Only residential customers would be included in the opt-in auctions. The auctions would be marketed to default service customers, but any residential customer could opt-in to the retail auction.

Retail products under the auction would be for a term no shorter than six months and no longer than 12 months; however, the PUC is seeking comments on two pricing structures for the products:

(1) Fixed Rate Product with a Bonus: The fixed rate would provide certainty to both EGSs and customers. While the possibility exists that the fixed rate could eventually exceed the default service rate at some point (depending on quarterly adjustments), the customer would have received a bonus of $50-100 to ameliorate this concern.

(2) Percent-Off Rate, No Bonus: The rate would be set at a certain percentage off the electric distribution company's (EDC) default service rate and will be adjusted to reflect the quarterly fluctuations of the EDC's default service rate. This would provide customers with the certainty that they will never be paying more than the EDC's default service rate. However, in return for this certainty, the EGS does not have to provide a bonus payment.

There would be no early termination fee for the auction product. However, any bonus would not be paid until the customer has served at least three months with their supplier, as determined by the auction.

The PUC tentatively said that an introductory rate structure is inappropriate for the opt-in auction, and said that the only kind of variable rate structure to be permitted would be a structure linked to the default service rate as discussed in the "percent-off" Price to Compare (PTC) option above.

At the end of the auction product's term, a retail supplier would continue to serve the customer on a month-to-month product with no early termination fee, absent affirmative action from the customer.

The retail auction would be not be held prior to the default service auctions. To provide some certainty to wholesale default service suppliers, the PUC proposed a cap on retail auction participation.

The PUC tentatively proposed a cap for auction participation of 50% of an EDC's default service customer base. "This cap should be set at a date before the auction begins, in order to provide participating EGSs with an indication of the potential number of customer participants," the PUC said.

"We also want to make clear that we envision these retail auction pools to be a one-time event and, as such, we do not foresee follow-up auction pools," the PUC added.

The retail auction would occur prior to any customers opting-in to service under the auction.

Additionally, a load cap would be imposed on the auction.

"We do not want to replace one default service provider with another, which would continue on with the same problems we are trying to combat - customer inertia and status quo bias. We also do not want to drive smaller suppliers out of the market; we believe a diversity of suppliers is best for the long-term health of the competitive residential market. A market consisting of a handful of dominant EGSs will not benefit consumers and could ultimately result in a more costly, less-competitive market in the long-run," the PUC said in its rationale for the load cap.

"We believe that we can protect both the diversity of the market and obtain a reasonable retail auction price by imposing an EGS participation cap of 50% of the customer class default service accounts for each EDC service territory. An EGS participation cap of 50% of default service accounts is large enough to provide the necessary economies of scale to deliver a reasonable price while making it impossible for one supplier to capture the entire load."

Especially given the use of tranches discussed below, it is unclear precisely how the load cap would work, since all residential customers -- not just default service customers -- are eligible for the auction.

"In addition to a 50% EGS participation cap, we envision that a tranche structure, similar to the structure used in wholesale default service auctions, could help support participation from a diversity of EGSs. To illustrate, such an auction could offer for bid ten tranches, each tranche representing 10% of participating default service customer accounts under an EDC's customer participation cap. Interested EGSs could then bid on anywhere from one to five tranches," the PUC said.

Referral Programs
The tentative order would require implementation of two types of customer referral programs.

Under the "New/Moving Customer" referral program, designed for customers calling the EDC to initiate service, the customer would be informed of customer choice and, if desired by the customer, transferred to a retail supplier under a "hot transfer" in order to receive specific information and enroll.

The tentative order does not discuss exactly what information would be presented to the customer by the EDC under this program, but does say that no specific supplier terms would be disclosed. As such, it is unclear why a customer would ask to be transferred to a specific supplier (nor is it clear whether the EDC will read a list of suppliers to the customer) unless the customer was previously on competitive supply and is seeking to re-establish service after a move, etc. Additionally, as there will not be a specific or standard "referral product" under the New/Moving Customer referral program, it would not appear that there would be an option for the customer to hot-transfer to a randomly selected retail supplier, though the tentative order does not address this.

The PUC said that this New/Moving Customer program could be extended to any customer calling the EDC for a non-emergency; however, in such case, it is unclear if the second referral program, discussed below, would be offered as well.

The PUC said that the New/Moving Customer referral program is possible in 2012.

The New/Moving Customer referral program would be open to both residential customers and the smallest general service business rate class.

The PUC also contemplates that under the New/Moving Customer referral program, the customer would have the option to take competitive supply coincident to the start of delivery service, and would not have to take default service for any period.

The PUC also proposed a "Standard Offer" customer referral program, which would be limited to residential customers, and only those on default service.

Under the Standard Offer referral program, customers could elect to choose, or be randomly assigned, to a standard referral program product, which, "should be comprised of a percentage reduction from the effective EDC PTC and should be provided for a minimum of three months."

The Standard Offer referral program would be presented during customer contacts to the EDC call centers, other than calls for emergencies, terminations and the like.

After the conclusion of the term of the referral product, "it is expected that the customer would remain with the EGS on a month-to-month basis without the imposition of early termination fees," the PUC said.

Education
The PUC's tentative order also includes various customer education efforts. Among these is directing the utilities to place the current Price to Compare on customer bills, and listing when this Price to Compare will be in effect.

Furthermore, in addition to the customer postcard required by a Secretarial Letter reported by Matters last week (see 12/16), the PUC intends to direct the EDCs to send to customers in May 2012 a tri-fold flyer regarding PA Power Switch. The flyer includes a highlight of savings that can be achieved by the consumer when simply saving just a half cent per kilowatt hour (kWh).

In the fall of 2012, the EDCs will be directed to mail a letter from the EDC, "that will encourage consumers to shop for a competitive supplier, direct customers to PAPowerSwitch.com and reinforce the notion that all consumers, regardless of who supplies their electricity, will continue to receive safe and reliable electric service from their EDC."

Additionally, the PUC intends to add specific customer rate offers for commercial customers under 25 kW on PA Power Switch. "We have worked with Communications to explore this option and anticipate that it can be completed in early 2012 in the price range of $25,000 to $30,000, an expenditure which will require the Commission's approval."

The docket is I-2011-2237952.