Direct Energy Seeks Changes to PPL Purchase of Receivables Program, Calls Sought Discount Rates "Overstated"

Direct Energy Services, LLC has sought a modification to the treatment of uncollectibles under PPL Electric's purchase of receivables program, in testimony filed in PPL's rate case (R-2012-2290597).

As only reported by Matters, PPL is proposing to update its POR discount rates in the case. Under PPL's proposal, the discount rate for the residential customer class would be 2.23%, and the discount rate for the small commercial and industrial customer class would be 0.23%. These discounts solely reflect uncollectibles, as PPL would set the administrative cost component to 0%.

Direct Energy, in testimony from Ron Cerniglia, Director of National Advocacy, Government & Regulatory Affairs, said that the, "uncollectible discount that PPL is proposing to charge through the POR program is too high and could have a negative effect on the continued development of the competitive market in PPL's service territory, particularly for residential and small commercial and industrial customers, who continue to lag significantly in shopping compared to larger customers."

Cerniglia said that the sought uncollectibles rates, "are likely overstated," because they reflect a system-wide uncollectible accounts expense factor. In other words, PPL has not calculated the actual level of uncollectibles that it has experienced solely from competitive supply customers in the POR program as compared to PPL's default service customers.

As PPL, "does not differentiate between supply and delivery uncollectible accounts expense," Direct Energy said that, "the only prudent course is to revert to [a] recovery mechanism that recovers uncollectible expense in distribution rates."

Specifically, Direct Energy proposed that PPL be required to modify the POR discount factor approach to collect its total projected uncollectibles accounts expense through a nonbypassable charge that applies to all distribution customers. Essentially, this would mirror the treatment of POR uncollectibles at PECO, Met-Ed, Penelec, Penn Power, and West Penn Power.

The PPL POR discount rate would then only reflect administrative costs, which at this time are proposed at 0%.

To the extent the PUC does not adopt this proposal, Direct Energy alternatively proposed that the uncollectible accounts expense percentage proposed by PPL in its discount rate be adjusted in two ways to: 1) reduce the discount rate to reflect the amount of late payment charges that PPL collects and which offset its net uncollectibles accounts expense; and 2) reduce the discount factor by an administrative cost credit to return to retail suppliers the amounts that have been collected through the administrative cost adder.

PPL is projected to collect $1.2 million under the current 0.05% POR administrative cost component by the end of 2012, but based on discovery responses, Direct Energy said, "it appears that the Company never incurred the incremental expenses that it anticipated it would incur to implement and administer the program and, instead, was able to use existing PPL personnel and procedures."

While PPL proposes to set the future administrative cost factor to 0%, Direct Energy (under its alternative proposal) sought the return of the previously collected amounts under the administrative cost component to suppliers.