PECO Seeks to End Use of Spot Purchases for Small Customers, Use 12-Month Reconciliations Under New Default Service Plan

PECO has proposed an annual reconciliation of default service costs, rather than the currently quarterly reconciliation, in an electric default service plan for the period June 1, 2013 through May 31, 2015, filed with the Pennsylvania PUC.

The filing also includes proposals for an opt-in retail auction and customer referral programs, and changes in the default service contract mix and procurement schedule.

PECO currently adjusts and reconciles its default service rates on a quarterly basis for customers with load requirements up to 500 kW (i.e., residential, small commercial, and medium commercial customers) and on a monthly basis for large commercial and industrial customers. Under its proposed Default Service Program (DSP) II, PECO proposes continue to adjust the cost of generation supply in the same manner, but is proposing an annual reconciliation of the over or under collection component of the Generation Supply Adjustment (GSA) for residential, small commercial and medium commercial customers to replace the existing quarterly mechanism.

"[The] timing, in combination with billing cycle lag (the time between when default service supply costs are incurred and revenue to pay those costs is billed) and seasonal variations, results in swings in the over/under collection component of the GSA that are unrelated to the current costs of default service supply," PECO said. "An annual over or under collection reconciliation would significantly reduce these swings so that the GSA more accurately reflects current supply costs and provides better information for customer shopping decisions."

For large commercial and industrial customers, PECO's monthly projected GSA can also be affected by billing lag and result in significant fluctuations that do not directly reflect supply costs, PECO added. "For these customers, PECO is proposing tariff changes to allow mitigation strategies such as combining over/under reconciliation amounts in months with large over or under collections to avoid unnecessarily large monthly changes in the price-to-compare ('PTC')."

PECO also proposed several changes to the current product mix used in the default service portfolio, including elimination of spot market purchases for all but the largest customers, and PECO also generally proposed shortening the time between the procurement date and delivery period.

Under DSP II, PECO is proposing to transition the residential class supply portfolio from its current contract mix to a blend of laddered one-year and two-year full requirements products, with six-month spacing between the commencement of contract delivery periods. PECO would cease use of block energy purchases (once current contracts expire) and spot purchases to serve residential load.

Because of the structure of its existing mix of full requirements and block contracts for residential customers, PECO will transition to this new blend of contracts during DSP II using products with term lengths that vary from six months to eighteen months. After the first procurement to be held in Fall 2012, each of the supply contracts for the residential class will be procured approximately two to four months prior to the beginning of the applicable contract delivery period. Under the previous DSP I, by contrast, procurements have occurred four to eight months before the beginning of the applicable contract delivery period.

"In order to reduce price exposure risk to the Residential class, particularly in light of the increasing retail electric shopping in PECO's service territory, PECO does not propose further procurement of block energy products for the Residential class. Instead, PECO will create additional tranches of load for the full requirements products as its current block energy contract terms expire," PECO said.

For small commercial customers with less than 100 kW of peak demand and lighting customers, PECO proposes to eliminate the two-year and spot-priced full requirements products and replace these contracts with one-year full requirements products, each laddered with six-month spacing between commencement of delivery periods.

Each of the contracts for the small commercial class will be procured approximately two to four months prior to delivery of the energy, with an initial transitional procurement of six month full requirements contracts to facilitate laddering.

"[R]emoval of the separate spot price component in the Small Commercial default service portfolio is appropriate given the replacement of two-year products (in DSP I) with one-year products (in DSP II), and with shorter times between procurement and delivery," PECO said.

For medium commercial customers whose peak demand is equal to or greater than 100 kW but less than or equal to 500 kW, PECO proposes to replace the current mix of eighty-five percent one-year fixed-price full requirements products and fifteen percent spot-price products entirely with six-month fixed-price full requirements products without overlap. Each of the contracts for the medium commercial class will be procured approximately two to four months prior to delivery of the energy.

With respect commercial and industrial customers with peak demands greater than 500 kW, PECO proposes to eliminate spot-priced full requirements contracts entirely and procure all default service supply for this class directly from the PJM energy markets.

PECO is soliciting electric generation supplier (EGS) participation to provide the commodity service associated with PECO's time-of-use pilot, which the Commission has previously approved as part of PECO's smart meter program. If interested, an EGS may also bid on the entire implementation requirement

Opt-in Auction
PECO is proposing to implement an "opt-in" retail auction program in which EGSs will bid to provide competitive retail electric service to fifty percent (50%) of PECO's non-shopping default service residential customers, whose eligibility will be randomly selected by PECO.

The program will be implemented through a one-time RFP for twelve-month fixed-priced retail service offers from EGSs for service beginning after June 1, 2013. EGSs may submit multiple bids consisting of an offer price and the number of customers to be served at that price, with a minimum of 25,000 customers. Each offer price must be at least five percent (5%) less than PECO's projected PTC for June 1, 2013. The RFP would be conducted no later than April 2013.

The bids submitted in response to the RFP will be opened by the RFP monitor and tabulated in ascending order, with the price associated with the bid that results in the cumulative number of potential opt-in customers equaling or exceeding the eligible number of customers establishing a common clearing price for offers. Each EGS that offered the clearing price (or a lower price) will be assigned a portion of the eligible customers corresponding to its winning bid.

Upon PUC approval of the auction results, each winning EGS will be obligated to send an offer letter to each of its assigned customers. The offer letter, which will be developed jointly by PECO, the Commission, EGSs, and the Office of Consumer Advocate, will explain the standard terms and conditions of service and include the corporate marks of both PECO and the winning EGS.

The enrollment period for the auction product will last for thirty days. If a customer elects to accept the offer, the customer will be required to contact the winning bidder making the offer via its website and phone number in accordance with the offer letter.

Participating customers can select another EGS or return to default service without penalty after enrollment. At the end of the twelve-month period, an enrolled customer will not return to default service automatically. The EGS may establish new prices but must inform each customer of the customer's right to choose a different EGS or to return to default service.

The cost of the RFP process, including the cost of the independent monitor and consultant performing the random selection of eligible accounts, and all costs associated with the development of the offer letters will be recovered by PECO from the winning EGSs, in proportion to the number of customers awarded to each EGS. In the event that the RFP process does not result in any winning EGSs, the costs of the Opt-In EGS Offer Program will be recovered by PECO through a discount on purchased EGS receivables until such costs are fully recovered.

Customer Referral Programs
PECO proposes two types of customer referral programs under its default service plan.

The Standard Offer Customer Referral Program is designed to highlight EGS offers to PECO's residential customers. While PECO believes this program should be part of a larger statewide program, to the extent a statewide program is not implemented, PECO proposes to implement the Standard Offer Customer Referral Program in the form of a "Supplier of the Month Program."

Each month, participating EGSs will submit to an independent evaluator a binding, fixed-price bid (in cents per kilowatt-hour) to provide electric generation service to residential customers for a twelve-month period beginning approximately six weeks after the bid date. The EGS with the lowest offer will be presented on PECO's website, which will be updated monthly. The offer of a winning supplier must be held open and available to customers for the entire month. In the event that the winning bid price is not lower than the PECO PTC in effect at the time of the solicitation (or the PTC that will take effect the following month), there will be no standard offer selected for that month.

Customers will participate in the program on an opt-in basis and may switch to a different offer with the winning supplier, to a different supplier or return to default service at any time. Customers will be permitted to switch to other EGSs or back to default service without penalty. In addition, before the end of the 12-month offer term, "the winning EGSs will be required to clearly communicate the change in their rates that will occur following the initial twelve month period, and inform the customer that it may cancel the agreement without penalty."

Additionally, PECO proposes to implement a New/Moving Customer Referral Program for residential customers. This program will include revised and enhanced call center scripts promoting shopping and PAPowerSwitch.com. In addition, PECO will create an updated version of its "New/Mover Kit" for residential customers that will provide an enhanced description of shopping and will include the listing of current supplier offers and contact information to be provided by the Commission. PECO anticipates that this program ultimately will be coordinated with the Supplier of the Month Program for efficiency and to avoid creating customer confusion.

Other Changes
PECO is proposing to eliminate its add-on wind REC program for default service customers. As the PECO wind program is eliminated, PECO will refer current PECO wind customers to interested EGSs who can offer these customers a "green energy" product.

PECO will also initiate a collaborative with interested EGSs to develop technical requirements and cost estimates for system changes required to permit residential and commercial customers to change their address of service and maintain EGS service. "Because these system changes will require additional expenditures, PECO will implement this change only if fifty percent of the EGSs participating in the collaborative agree to support implementation," PECO said.

Implementation costs will be recovered through a temporary discount on EGS receivables purchased from all EGSs.

PECO is proposing to include the cost or credit associated with Auction Revenue Rights (ARRs) in the GSA 'C' factor (base energy, capacity, and ancillaries) for residential, small commercial and medium commercial customers and the GSA ancillary services factor for large commercial and industrial customers. This formalizes current practice. Additionally, while PECO has passed-through one-hundred percent of the benefits and costs from its exercise of ARRs to customers under the current GSA, PECO now proposes a 50-50 split between the company and GSA customers.

PECO also proposes to include in the GSA (1) the cost of the pricing forecast necessary to project rates for each default service adjustment period for residential, small commercial and medium commercial customers; and (2) any other costs incurred due to enhancements recommended by the Commission in its Retail Market Investigation, to the extent the costs are not recovered directly from EGSs or in other surcharges approved by the Commission (such as the Consumer Education Surcharge).