Pennsylvania Confirms PPL Time of Use Program a Form of Default Service, Allocates Under-recovered Costs

The Pennsylvania PUC issued a final order regarding PPL's proposed interim modification to its current Time of Use program, and ruled on which customers shall pay for under-recoveries accumulated during the TOU plan.

Due to the originally designed TOU mechanism, rates (which were PJM market-based) were below the actual costs to supply TOU customers, because customers were being supplied under the standard default service portfolio, which had been procured at higher market prices. When PPL adjusted TOU rates to reflect a large under-collection, customers left the TOU program due to the higher rates, leaving such costs under-collected. The residential class undercollection is approximately $1.9 million while the small C&I undercollection is approximately $8,000.

Additionally, to avoid rate shock associated with including the still-remaining undercollection in revised TOU rates under the normal reconciliation process, the PUC previously ordered PPL to continue TOU rates that are, for residential customers, about 12 cents on-peak, and 10 cents off-peak (versus up to 33 cents if the undercollection were included).

In its order issued yesterday, the PUC affirmed that TOU under-collections shall be recovered from all default service customers, by customer class, rather than solely being recovered from TOU participants.

In reaching this conclusion, the PUC reiterated that TOU generation programs offered by the EDCs are a form of default service.

"The statute clearly states that, unless a customer switches to an EGS [electric generation supplier] for its generation supply, the default service provider is required to provide service to that customer, as a default service customer. The nature of default service is not limited by the statute. Further, the statute requires a default service provider, such as PPL, to offer to its non-shopping, or default service customers, a TOU program. Thus, based upon the language in the statute, we agree with PPL's position that the TOU program is a form of default service. Accordingly, we shall grant PPL's request to recover undercollected TOU program costs by spreading these costs over all default service customer billings," the PUC said.

Such under-collections shall first be subject to a Commission audit prior to inclusion in default service rates.

Regarding PPL's petition to modify the TOU program, by setting peak and off-peak rates at a pre-established premium/discount relative to the flat standard default service rates, until a new TOU program is adopted in PPL's new default service plan for the period starting June 1, 2013, the PUC rejected the interim proposal.

Instead, the PUC ordered that PPL's current TOU program and current rates (noted above) shall remain in effect until June 1, 2013.

"This will provide current TOU program customers with some rate and program stability and could serve to lower the current TOU program undercollection," the PUC said.

The PUC rejected the proposed TOU rates based on a fixed premium/discount relative to the flat default service rates because the PUC said that the premiums and discounts did not reflect actual costs.

"An Electric Distribution Company (EDC) may not implement a program that would introduce costs where they are absent and customers should not be required to pay more for generation based on non-cost based considerations. Such a program would be inconsistent with basic ratemaking principles ... With regard to PPL's position that any reasonable TOU plan must be designed around the applicable fixed price default service rate, we are not persuaded by the record in this proceeding that PPL's TOU rates should be a derivation of the DSP rate," the PUC said.

Docket: R-2011-2264771