Pennsylvania Recommended Order Opens Door for Divergence Between POR Discount, Merchant Function Charge

A recommended decision in PPL's rate case opens the door for the uncollectibles rate included in the Purchase of Receivables discount and the uncollectibles rate used in the bypassable Merchant Function Charge to diverge.

In the rate case, PPL proposed to raise the residential POR discount rate to 2.23%, from 1.85%, and the non-residential POR discount rate to 0.23%, from 0.15%.

The new discount rates reflect uncollectibles only, and would be the same as the bypassable Merchant Function Charges (MFC).

Direct Energy opposed the increases as unsupported, noting that PPL based the POR discounts on a system-wide uncollectible accounts expense factor, and that PPL did not track the actual level of uncollectibles from competitive supply customers in the POR program.

Direct Energy argued that both default supply and POR uncollectibles should be recovered in base rates, similar to PECO, Met-Ed, Penelec, Penn Power, and West Penn Power.

In a recommended decision, an ALJ would reject Direct Energy's proposal, finding that the, "dual MFC/POR method appropriately unbundles the uncollectibles charge and properly assigns risk of nonpayment."

However, the ALJ would deny PPL's specific POR discount rates as unsupported, since they do not reflect the specific uncollectibles experience for shopping customers.

The ALJ would order PPL to determine, "the correct amount of uncollectible expenses incurred in 2012 and the break-down of expenses between shopping and default service customers."

PPL would be ordered to file data for the uncollectible expenses of shopping and default service customers within 90 days of the final order in the proceeding, with a request to use the "correct" numbers in its Purchase of Receivables program.

Although not explicit, it appears that the future POR uncollectibles rate shall be based on the uncollectibles experience of shopping customers only, while the MFC would be based on the uncollectibles experience of default service customers only. This could result in the rates, a component of the supply price for competitive suppliers and default service, diverging.

To the extent PPL does not comply with the above requirement to separate competitive supply and default service uncollectibles, the discount rates currently in effect in its Purchase of Receivables Program would remain in effect.

The ALJ would deny retail suppliers' request that late payment revenues collected by PPL be used to offset the POR discount.

Docket: R-2012-2290597