Party's Over: Connecticut Procurement Manager Recommends CL&P Self-Manage 20% of Default Service Load

Connecticut's procurement manager has issued recommendations to modify the procurement of Standard Service in light of last year's Public Act 11-80, including a recommendation that Connecticut Light & Power self-manage 20% of its Standard Service load, applicable to customers under 500 kW.

CL&P currently has 70% of Standard Service supplies for 2013 procured under the current full requirements laddering.

"CL&P, through its corporate service company, Northeast Utilities Service Company (NUSCO), has the requisite manpower resources, information technology, and the credit and risk management policies and procedures to assume the LSE responsibility," the procurement manager said in a proposed procurement plan.

"Hence, this Power Procurement Plan authorizes CL&P to self-manage 20% of its remaining 2013 Standard Service load, in other words, two of the remaining three slices for 2013," the plan recommends. The plan remains subject to PURA approval.

The remaining 10% slice of CL&P Standard Service for 2013 would be procured as full requirements service.

While the initial limit for the self-managed portfolio is 20% of CL&P's Standard Service load for 2013, "the Procurement Manager may increase or decrease this limit each year no later than October 1 for the subsequent calendar year based on the performance of the active portfolio."

For the slices of Standard Service that are not self-managed by CL&P, CL&P will solicit bids for fixed price full requirements products following the conventional process for Standard Service

The schedule of the laddering and the contract terms for the full requirements service slices should be modified for 2013 and future years so that, to the extent possible, the start of delivery for any slice will not exceed 6 months from bid day, the procurement plan states. The intent of this schedule is to reduce the magnitude of the risk premium suppliers incorporate to compensate for various time-related risks and costs.

The objective of the procurement schedule for the full requirements slices is to create a portfolio of overlapping 12-month service terms, procured on four different dates

For the full requirements service slices, two or three tranches, each representing 10% of CL&P's Standard Service load for a 12-month service term will be solicited in each quarterly procurement. However, due to the transition it is likely that six-month service terms must be procured for 2014. The Procurement Manager, in consultation with CL&P, may revise the number of tranches per service term (or the percentage of load per tranche) in the future if the total Standard Service load changes appreciably due to migration or reverse migration. The procurement design allows for the selection or rejection of discretionary tranches, provided that the prompt period is fully contracted by the start of that service term.

Link: CL&P Target Laddering Schedule with Self-Managed Slices

In contrast, the procurement plan does not recommend that United Illuminating self-manage any default service load, because, "[a]t this time, UI does not have available manpower resources or infrastructure to assume the LSE responsibility without redeploying personnel from other required power supply-related business activities."

"The opportunity cost of such potential management redeployment is expected to be high in relation to the potential economic benefits associated with the LSE responsibility. In light of UI's relatively small Standard Service load, potential continued migration of customers to competitive retail suppliers, and UI's resource constraints, UI is unlikely to achieve the same portfolio benefit that is available through its wholesale suppliers. Simply put, the incremental cost for UI to add the requisite manpower resources, credit facilities, infrastructure, and risk management procedures to effectuate the LSE role for Standard Service is likely to exceed the expected benefits achievable through self-managing a portion of the Standard Service portfolio," the procurement plan states.

UI currently has 70% of its Standard Service supplies for 2013 already procured. For the remaining 30%, UI will continue to procure full requirements service, through sealed-bid RFPs.

However, the procurement plan notes that benefits for customers may be derived by modifying the schedule of the laddering and the contract terms for 2013 and future years. "Shortening the time to delivery is expected to reduce costs to customers. Once the transition to the new design is fully implemented, 12-month contracts for 10% tranches will be procured quarterly, creating a portfolio of overlapping service terms, with the start of delivery not exceeding six months from bid day ... [S]horter contract terms and, potentially, larger tranche sizes may be procured for 2014 to accommodate the transition."

As at CL&P, the schedule of the laddering and the contract terms at UI should be modified for 2013 and future years so that, to the extent possible, the start of delivery for any tranche does not exceed six months from bid day, the procurement manager said. Two or three tranches, each representing 10% of UI's Standard Service load for a 12-month service term will be solicited in each quarterly procurement

Link: UI Target Laddering Schedule

The procurement manager noted that under the recommendations for both CL&P and UI, at the beginning of 2014, the full calendar year will not be fully procured, and the total cost to serve load for all of 2014 will not be known with certainty. The process for developing retail rates for 2014 will be addressed by the Procurement Manager in a subsequent update to its Power Procurement Plan. PURA will continue to establish retail rates in a formal rate-setting docket.

Link: Procurement Manager's Power Procurement Plan (Docket 12-06-02