PURA PRO: Connecticut Light & Power Not Contemplating Long-Term Contracts in Self-Managed Standard Service Portfolio

Connecticut Light and Power is not contemplating entering into any long-term contracts under its self-managed Standard Service portfolio, the Prosecutorial Unit of the Connecticut Public Utilities Regulatory Authority said in an interrogatory response.

Matters first reported that the state's procurement manager has recommended that CL&P be allowed to self-manage 20% of the Standard Service load (see prior story)

"[W]e understand that CL&P is not contemplating entering into any long term contracts to serve Standard Service load," the Prosecutorial Unit said, answering criticisms of the self-managed portion of the procurement plan due to potential for new stranded costs.

"While the Procurement Plan does not explicitly prohibit CL&P from proposing to include one or more long-term contracts in its portfolio, the Procurement Manager expects that the portfolio management plan will be oriented around forward contracts that cover approximately the same term as the full requirements contracts ... [S]horter-term contracts are more suitable for Standard Service supply. Long-term contract commitments in the Standard Service portfolio could create a disproportionately large deferral account if there is significant migration to competitive retail supply, or if the Procurement Manager decides to decrease the managed portfolio load share over time," the Prosecutorial Unit said

The Prosecutorial Unit also dismissed calls for long-term default supply contracts sought by renewable generators, noting that the filed Procurement Plan, by recommending a reduction in the procurement horizon from up to three years to no more than 18 months for the full requirements contracts, "recognizes that there are much larger inescapable risk premia embedded in longer term products."

"This shortening of the procurement horizon is one means of reducing the expected cost of procuring energy supply," the Prosecutorial Unit said

"The inclusion of long-term fixed price energy purchases in the Standard Service portfolio could lead to improper distortions of the retail rate, relative to market cost," the Prosecutorial Unit said.

To the extent CL&P realizes financial losses in managing its portfolio, the Prosecutorial Unit said that such losses would be treated in the same way that the EDCs currently adjust Standard Service rates in subsequent periods for the unavoidable over- or under-collections that occur in the prior rate period. The inclusion of such true-ups or deferral balance in the pricing of Standard Service is reasonable provided that the Procurement Manager is satisfied that the self-managed portfolio was managed consistent with the approved portfolio management plan and the incurrence of such losses was beyond the reasonable control of the EDC, the Prosecutorial Unit said.