Pennsylvania Orders Utilities to Consider Use of Annual Default Service Reconciliations

Pennsylvania electric distribution companies (EDCs) will be required to "contemplate" the use of semi-annual or annual reconciliations of default service costs under their next default service plans, in addition to the current quarterly reconciliations, the Pennsylvania PUC directed in a final order regarding the EDC's next default service plans published Friday.

A tentative order had originally proposed directing the EDCs to consider semi-annual changes for default service rates (not just reconciliations) as opposed to the current quarterly adjustments. However, the final order limits the recommendation to encompass only reconciliations, and not other rate components.

As such, more frequent default service rate changes required by the start date of staggered full requirements contracts, or due to changes in the estimate of spot market prices (as most portfolios contain some spot purchases) are not impacted.

As to reconciliations, the PUC, "recommends that EDCs contemplate the incorporation of quarterly, semi-annual and/or annual default service rate over/under collection reconciliations within their next default service plans, and include more detailed information on how supply charges will be calculated for default service customers."

The PUC said that, "concerning reconciliations, a majority of the parties appear to agree that semi-annual, or even annual, adjustments would be beneficial."

Notably, Commissioner James Cawley said Thursday that EDCs should move from annual to quarterly reconciliations for transmission rates --the exact opposite of the PUC's recommendation here -- citing large deferrals that have accrued (12/16).

The PUC said that it, "recognizes the argument that semi-annual rate adjustment may create rates that are less market-reflective," but added that it, "agrees that longer reconciliation periods may help to smooth out over/under collections and therefore keep default rates more market-reflective."

The Commission found merit in comments that the method of calculation of reconciled amounts may have contributed to the volatility of reconciliation adjustment amounts to the generation and transmission bills. Therefore, EDCs were directed to include in their default service filings a clear description of how quarterly changes in supply charges will be calculated, adjusted, and reconciled, and how various components of the default service costs will be allocated among default service customer rate classes.

The PUC's final order also rescinds its prior directive that EDCs lower the hourly pricing threshold to 100 kW, citing the lack of interval metering and ongoing smart meter deployment plans that would make any investment in new interval meters wasteful.

"Note that this rescission should not be interpreted as a Commission policy against the expansion of hourly-priced service, only that the Commission recognizes the hurdles of expanding hourly-priced service to customers with demand greater than 100 kW for default service plans commencing June 1, 2013," the PUC said.

The PUC also directed that the EDCs' default service plans should create a separate procurement group for medium C&I customers, noting that these customers may shop more frequently than small commercial customers, and that creating a separate procurement class would eliminate any cross subsidies created by including small and medium C&I load in the same procurement class.

Otherwise, the PUC's final order on recommendations for the next EDC default service plans did not make any changes. The period for the next default service plans will be June 1, 2013 through May 31, 2015.

The PUC recommended that EDCs include both an opt-in retail auction and customer referral program in the default service plans. Specific details of each program were left to the PUC's order on the intermediate retail market workplan (see related story today)

The Commission continues to recommend (1) that EDCs file default service plans limiting or eliminating the existence of short-term energy contracts extending past the end date of the upcoming default service plan time period (May 31, 2015); and (2) that EDCs limit the proportion of long-term contracts that make up their default service plan energy portfolios, and consider using already existing long-term contracts from previous or presently effective default service plans.

"The Commission reiterates that it will not mandate a prescriptive portfolio of contract lengths and will allow EDCs to retain flexibility in developing plans that meet Act 129 requirements."

The PUC said that concerns about a "hard" stop date of May 31, 2015 for default service contracts "may be legitimate," and recognized that some EDCs may have delivery periods that extend beyond the end date of the next plan under a laddered approach, hence its use of the language recommending that EDCs "... limit or eliminate..." overhanging short-term contracts.

"Additionally, the Commission would like to note that spreading out purchases over time, for example purchasing energy nine months and three months prior to the 'hard stop,' may help to mitigate any adverse impact created by unfavorable market conditions. However, consistent with the comments of Dominion Retail and IGS, any such contracts should be assignable," the PUC said.

The PUC continues to recommend that EDCs contemplate contracting with a retail supplier in order to satisfy their statutory requirement to offer a Time of Use generation rate to default service customers. "The Commission does wish to clarify that this recommendation is not, in and of itself, a rejection of the other proposals raised, such as instituting peak time rebate offers or creating a separate wholesale auction for TOU rates," the PUC said.

The docket is I-2011-2237952.