Public Service of New Hampshire Files New Proposal for Alternative Default Service Rate

Public Service Company of New Hampshire has proposed a revised alternative default service rate (Rate ADE), available to competitive supply customers returning to utility supply, after the New Hampshire PUC rejected an earlier proposal.

As before, the pricing under Rate ADE would be based on PSNH's marginal costs to serve these returning customers plus an adder.

Specifically, the forecast of the marginal cost will include forward energy market prices, forward capacity market prices, forecasted ancillary service costs, forecasted ISO-NE market administration costs, and forecasted renewable portfolio standard compliance costs, all of which will be determined in a manner consistent with that utilized in filings for standard default service (Rate DE). In practice, the marginal cost to provide full requirements service to the New Hampshire load zone will be calculated as the change in cost to serve energy service load divided by the change in energy service sales resulting from the removal of migration from the energy service rate forecast.

The adder will be equal to the non-operating costs of the Merrimack Station wet flue gas desulfurization system (scrubber) divided by forecasted Energy Service sales under Rate DE. Non-operating costs include depreciation, return on rate base including income taxes and any incremental property taxes.

Pricing under Rate ADE will be determined annually and the rate will remain in effect for a full year unless there is a significant shift in the market, as described below. PSNH is proposing that the initial price for Rate ADE be effective as of July 1, 2012 for a twelve-month period. The price will be subject to change if PSNH's forecasted marginal costs have increased by a predetermined amount.

PSNH will monitor its forecasted marginal costs on a monthly basis and compare those prices to the prices used to calculate the annual rate. If new projections of average marginal costs for the remaining months of the annual period have increased by at least 75% of the amount of the adder as compared to the marginal costs for the those same months that were used to determine the annual rate, PSNH will file a request with the Commission to increase the rate under Rate ADE for the last six months of the annual period.

Since PSNH's marginal cost of providing energy service is currently lower than its average cost, pricing under Rate ADE will, at the outset, be below the pricing under PSNH's Rate DE (standard default service). The initial rate proposed for Rate ADE for effect on July 1, 2012 is 6.40 cents per kilowatt-hour.

Aside from adjustments to Rate ADE during the 12-month period, if costs exceed the 75% threshold, PSNH proposes to "close" the availability of Rate ADE to new customers, until the rate is modified.

If Rate ADE is closed, any customer otherwise required to take Rate ADE (discussed below) would instead be served under the standard default service rate (Rate DE). Once the rate under Rate ADE is adjusted at the end of the six-month period and Rate ADE is re-opened, all customers who had been placed under Rate DE due to the closure of Rate ADE would be transferred to Rate ADE.

PSNH describes the purpose of Rate ADE as, "to provide an option to customers who have already migrated in a manner that benefits all other customers who are served under Rate DE."

Therefore, PSNH said that it, "is absolutely essential that Rate ADE is still attractive to customers who have migrated."

"PSNH could design the rate in a manner that would completely eliminate any risk for all other customers. For example, PSNH could design a rate that changes on a monthly or hourly basis and/or put restrictions into the rate that would prevent customers from either leaving or commencing service under certain conditions (i.e., restrictions that would completely eliminate any possibility of 'gaming'). However, doing so would no doubt result in a design that was so restrictive that few, if any, migrated customers would actually take service under the rate," PSNH said.

Rate ADE would only be available to customers who have taken service from a competitive supplier for at least 12 consecutive months and who return to PSNH. Rate ADE would be mandatory for such returning customers, unless Rate ADE is closed by operation of the provision noted above.

Customers returning to Rate ADE would be required to be served under Rate ADE for 24 months to the extent they are supplied by PSNH. During this 24-month period, customers may return to competitive supply without restriction, but may not take standard default service.

During this twenty-four month time period, if the customer subsequently switches to a competitive supplier for at least twelve consecutive months, the twenty-four month “clock” is reset and begins counting anew when and if the customer returns to Rate ADE for energy service. If the customer switches to a competitive supplier for less than twelve continuous months and returns to Rate ADE within those twelve months, the twenty-four month “clock” continues to run. Stated differently, the customer can return to a competitive supplier for up to eleven consecutive months and then return to service under Rate ADE without resetting the twenty-four month “clock”. Once the twenty-four month period expires, the customer will thereafter be rendered service under Rate DE (as long as the customer takes energy service from PSNH and unless the customer again qualifies for service under Rate ADE).

Initially, the availability of Rate ADE will be limited to those returning customers taking delivery service under Primary General Service Rate GV, Large General Service Rate LG, or Backup Service Rate B (the rate classes for PSNH's largest customers). Within nine months after Rate ADE becomes effective for larger customers, PSNH will file revised tariff pages making the rate available to all customers returning to PSNH after at least 12 months of competitive supply, including residential and small commercial customers (the lag is needed to complete needed billing system modifications).

The Retail Energy Supply Association said of PSN H's latest proposal:

"This complex rate design is likely to lead to customer confusion, especially among smaller customers, which is likely to deter customers from participating in the competitive market because they will not understand how that participation will affect their pricing should they ever wish to return to PSNH; thereby, creating a disincentive for customers to consider competitive supply options and having an adverse effect on competition in direct contravention of the [earlier] Order [denying the initial proposal]."