PPL New Default Service Plan Includes Six-Month Fixed Price; Nov. 2013 Opt-in Auction

PPL Electric Utilities has filed a default service plan for the period beginning June 1, 2013 that would offer residential customers a fixed generation rate for six months, rather than three months, and would delay service under an opt-in retail auction until 2014.

The default service plan would cover the period June 1, 2013 through May 31, 2015, and retain the current classification of customers (and demand thresholds) as residential, small commercial and industrial, and large commercial and industrial.

For residential and small C&I customers, with the exception of legacy residential block supplies (and interim spot purchases associated with the wind down of such blocks), default service would be supplied exclusively by load following, full requirements contracts for energy, capacity, transmission (other than Non-market-based Transmission Services), ancillary services, transmission and distribution losses, congestion management costs, and such other services or products that are required to supply default service to PPL Electric's retail customers, including Alternative Energy Credits.

The load following supply would be obtained primarily through a series of nine and twelve-month term procurements solicited beginning in April 2013. In October 2014, procurements would scheduled for six and three-month products so that all fixed-price contracts end May 31, 2015, though if PPL's default service obligation were to extend beyond this date, the term lengths could be adjusted.

Link to chart showing the mix of products constituting the residential and small C&I default service portfolio from June 1, 2013 through May 31, 2015 under this proposal

Under its currently effective default service plan, PPL Electric acquired 300 MW of block residential energy and capacity committed through August 31, 2013; 250 MW of energy and capacity committed through November 30, 2013; 200 MW committed through February 28, 2014; 150 MW committed through December 31, 2015; and 50 MW committed from January l, 2016 through May 3l, 2021

As these blocks roll off, PPL proposes to procure approximately 3 MW of energy through PJM's spot market for residential customers for the period June through November 2013. After this time, there would no longer be a spot component to the default service portfolio.

A distinct GSC-1 charge will apply to the residential class and the small C&I class, and will be adjusted every six months to reflect the then-current default service supply contracts for the upcoming six-month period. The GSC-1 charge for each class will be reconciled every six months on a rolling 12-month basis for over and under recoveries by customer class. The bypassability of any reconciliation is being addressed in a separate case as previously reported.

For large C&I customers, PPL proposes to continue the current spot market mechanism under which PPL would issue a single annual solicitation to obtain competitive offers from suppliers to provide default service supply on a real-time hourly basis through the PJM spot market. However, PPL does propose to eliminate the procurement of the Optional Monthly Pricing Service for large C&I customers. This product, intended to be a monthly fixed rate alternative for large C&Is, has never been subscribed in PPL's procurements, and has never been offered.

As noted above the current default service groupings will continue. These specifically are:

Residential: Rate Schedules RS, RTS and RTD

Small C&I: GS-1, GS-3 under 500 kW, LP-4 under 500 kW, GH-1, GH-2, IS-1, BL, SA, SM, SHS, SE, TS, SI-1

Large C&I: GS-3 over 500 kW, LP-4 over 500 kW, ISP, LP-5, LP-6, LPEP, IST

PPL asked that it not be required to implement hourly priced service for customers 100-500 kW until June 2015 in order to minimize the impact on the currently effective default supply contracts. Some small C&I supply contracts procured under the current default service plan continue until February 2015.

PPL is proposing to implement a modified Time of Use program under the new default service plan, with TOU supply rolled into supply requirements procured for residential and small C&I customers. As part of the full requirements solicitations, PPL will require winning bidders of the six- and twelve-month product to serve the default service load of customers electing the TOU option.

TOU default service rates for the residential and small C&I customer classes will be fixed for a six month period and linked with each energy auction, i.e., June - November and December - May supply periods, with an adder to the standard default service rate in the on-peak periods and a discount in the off-peak periods. The adder to the on-peak rates and the discount for the off-peak rates will be determined using the ratio of the historic (3 years) load weighted average hourly on- or off-peak PJM PPL zonal energy prices to the historic (3 years) load weighted average hourly PJM PPL Zonal energy prices. Suppliers of the fixed-price service who are required to serve default service TOU load will be paid for default service provided to TOU customers based upon the amount that PPL Electric bills to TOU customers for on-peak and off-peak service, exclusive of gross receipt taxes, PPL administrative charges and E-Factor amounts.

PPL will continue to procure full requirements supply via RFP, and an individual bidder cannot supply more than 85% of a customer class's default service load offered in each solicitation.

PPL Electric is proposing not to extend the optional block REC product available to default service customers, which is scheduled to terminate on May 31, 2013. Only approximately 150 customers are currently participating in the program.

Opt-in Auction, Referral Program
In response to the PUC's interim retail markets workplan, PPL sought authority to conduct an opt-in retail auction in November 2013.

PPL said that the opt-in retail auction should not be held prior to November 2013 because the company has several fixed-price contracts under its current default service plan that do not expire until November 2013.

Under PPL's proposed opt-in retail auction, participating electric generation supplies (EGSs) would offer to residential customers a 6-month, fixed price product, at a minimum 5% discount off the then-current Price to Compare (PTC) at the time of the auction. Customers participating in the auction also will receive a $50 cash payment from the EGS who acquires the customer in the auction.

Under this proposal, suppliers will bid on tranches, representing a percentage of participating residential customers, in a sealed-bid. PPL Electric proposes to bid 10 tranches, with each tranche equal to 10% of the capped residential customer base, plus any participating shopping customers (discussed further below). To ensure a diverse bidding process, a supplier may only win a maximum of 50% of the offered tranches, i.e., 5 of the 10 tranches.

Under the sealed-bid format, the price offered to customers will be the highest of the winning bids but in no event may the price reflect less than a 5% discount off the then-current PTC. In other words, the 10 lowest eligible bids will be awarded tranches (subject to the load cap and 5% discount threshold), but all tranches will be paid the price of the last awarded (or highest priced) tranche.

If the auction is not fully subscribed, that is, if there are insufficient eligible bids to take all 10 tranches, the program will not proceed.

All non-shopping residential customers will be eligible to participate in the auction, but participation will be capped at 50% of such non-shopping residential customers base. Tranches will be designed based on this amount (each representing 10%). Additionally, the opt-in auction will be open to shopping residential customers, whose participation is not limited by, and will not count against, the participation cap of 50% of non-shopping customers. Any shopping customers opting into the auction will be assigned to the tranches presumably on a pro rata basis.

PPL Electric will send two mailings to all non-shopping customers. The first customer mailing will inform customers about the upcoming opt-in auction program, and the second mailing, which will follow the auction, will include the resulting price and instructions on how to participate.

Residential customers interested in participating will be required to make their election within 30 days after the auction. Customers will be accepted on a first-come, first-served basis until the capped number of non-shopping customers is met.

Service under the opt-in auction would start on or about January 2014.

PPL also proposes to implement a "Standard Offer" customer referral program that would be available to residential customers, and under which EGSs would offer a standard 7% discount off the PTC for a term for six months (the EGS discount would have to follow any changes in the PTC during that time).

PPL proposes that this program not be offered until mid-2014 to avoid confusion with the opt-in auction. Additionally, PPL said that programming needed to support the Standard Offer program cannot be completed in 2013.

PPL did not discuss the random assignment process under the Standard Offer program in its initial filing, which was one of the issues not resolved by the PUC's prior retail markets order concerning the Standard Offer program. This will addressed in forthcoming supporting testimony from PPL.

Because of the delay in conducting the opt-in auction (which the PUC said could serve customers as soon as June 2013) and Standard Offer program, PPL proposed, contingent on the delays being accepted, a one-time customer referral mailing under which an EGS could provide to PPL an offer to residential customers, presented on a standard 5" x 8" page, which PPL would then send to customers in a bundle with other offers along with a letter from PPL describing the contents of the mailing (similar to the FirstEnergy EDCs' program). As with the opt-in auction and Standard Offer program (as previously ordered and reported), the cost of referral mailing would be borne by EGSs.

The mailing would occur in the 2nd or 3rd quarter of 2013.