Shock: Pennsylvania Proposes Hourly Pricing for Medium Commercial Customers -- Even Without Interval Meters!

In a departure from an earlier "discussion draft" issued in September, the end-state default electric service design for medium commercial customers in a Pennsylvania PUC tentative order is hourly pricing, regardless of whether interval metering has yet been deployed to such customers.

Specifically, the PUC proposes that electric distribution companies, "offer hourly LMP [locational marginal pricing] for medium and large commercial and industrial (C&I) accounts. "

"We further propose that those accounts that fall into this group and do not have interval meters be charged hourly LMP by using customer load profiles," the PUC said.

A September discussion draft had proposed that medium C&I customers would be served under quarterly full requirements auctions, "where metering capabilities or load profiling do not support hourly pricing."

Though not explicit, the PUC's order, by referencing the need to use load profiles, suggests that the proposed hourly pricing offered to medium C&I customers will be "real" hourly pricing (i.e. 24 individual rates each day, whether they be the day-ahead hourly price or real-time) as currently in place for large customers in Pennsylvania, and not an average of hourly LMPs to develop a flat daily rate applicable in all hours.

If such "real" hourly pricing is adopted, Matters believes the default of non-interval customers to an hourly rate is unprecedented. In contrast, in New York, which has been one of the most progressive states with respect to expanded hourly pricing (until recent retrenchment) with expansion down to 250 kW in some areas (with 100 kW proposed subject to a further showing of benefits), not only is hourly pricing limited to customers with interval meters, standard practice is to give customers at least 12 months of experience with interval data prior to the start of hourly pricing. In Illinois, another leader in hourly pricing, ComEd and Ameren (which have hourly pricing cutoffs of 100 kW and 150 kW, respectively) also require interval meters for hourly pricing.

Charging customers individual hourly rates based on a load profile, or a generic model not representative of actual customer usage, raises a host of cost causation and equity issues bound to be raised in comments on the tentative order.

"As the smart meter infrastructure is implemented, the necessity for load-profile-based billing will be eliminated," the PUC said.

However, complete deployment of smart meters could take close to a decade at a majority of the state's large distribution utilities. Some utilities have not even been required to file a final smart meter deployment plan yet (such as the FirstEnergy EDCs), as they have been conducting an assessment of smart meters. The FirstEnergy EDCs have previously indicated that full deployment may take until 2022 (though 98% of deployment would be completed "several years" prior to 2022, with the remaining properties consisting of rural hunting cabins and the like).

While, theoretically, medium commercial customers on hourly pricing could be prioritized for smart meter deployment, this would likely be more costly, as installing meters and the communication network by geographic region offers more cost synergies.

This is all to say, under current deployment information, some medium commercial customers could be charged hourly pricing based on a load profile for several years, unless, of course, they elect competitive supply.

The hourly LMP product would be offered on a quarterly basis. An auction would be held one to two months prior to the beginning of delivery for each quarter. These quarterly auctions would solicit the entire load for each upcoming quarter. As with current default service plans for large C&I accounts, wholesale energy suppliers who participate in auctions would bid on an administrative adder.

The PUC noted that there is no uniform delineating point across the EDCs that separates medium and large C&I accounts from small C&I accounts.

"However, as general guidance, for purposes of the default service product, we envision that those accounts with demand of 100 kW or greater should be considered medium and large C&I, and therefore offered hourly LMP either based on interval meter reads or based on load profiling," the PUC said.

"With that understating, the Commission will permit EDCs to designate a delineating point between small C&I and medium and large C&I customers based on the EDCs' existing rate schedules, where it is impractical to create default service subclasses," the PUC said.